WHAT’S ‘HOT’ AS M&A PACE PICKS UP

Global deal activity is heating up as economic and interest rates pressures ease, allowing investors to feel more confident about deploying the billions of dollars of capital they have accumulated as “dry powder”.

The sectors attracting interest most consistently have been IT and healthcare, according to the authoritative Moore Compass report which monitors cross-border M&A activity in the mid-market.

Here, partners in the Moore Global Corporate Finance (GCF) analyse the sectors attracting most attention from investors:

Philippe Craninx, chairman Moore GCF and managing partner, corporate finance, with Moore Belgium:

Healthcare and IT are very active areas in Belgium, partly because of government support in creating clusters of expertise in these industries.

There is also a lot of interest in food and beverage. Belgians like good food which means that we have a lot of companies in this sector, a large proportion of which are mid-sized.

We are seeing a lot of private equity firms concentrating on buy and build strategies in industries that are fragmented and where they can create economies of scale. This is happening across the board, even in areas you might not expect, like funeral directors.

Retail is a very hard sector to be in just now but there is still a lot of M&A activity, mainly with companies restructuring to ensure survival.

This all adds up to a very active corporate finance market, with lots of activity in both the hot sectors and industries ripe for consolidation.

JOHN COWIE, corporate finance partner, Moore Kingston Smith in London

The UK’s growth capital market is now enjoying an upsurge in activity. Businesses across the UK raised more than £1.2 billion in the second quarter of the year and there was a 17% increase in the number of deals in the period compared to Q1.

Seed-funding rounds and early-stage venture capital deals, which dropped away when economic conditions were toughest, are enjoying a welcome revival. However, later-stage VC transactions accounted for almost 50% of total finds invested.

Technology is the top choice for investors, who are particularly interested in companies specialising in climate tech and artificial intelligence (AI). The UK has the biggest AI sector in Europe, which is worth around $90 billion and encompasses around 1,800 companies.

Healthcare is at the forefront of the political and economic debate in the UK and we are already seeing M&A movement in this sector. We recently advised Compass CHC on private equity investment to finance growth. Compass assists individuals in securing continuing healthcare funding when they have a primary health need and the full cost of their care should be paid by the under-pressure National Health Service.

Giancarlo Attolini, founding partner, Attolini Spaggiari Zuliani & Associati in Italy

We are working with a number of large funds looking for investments in medical technology, or medtech, and have been speaking to several companies about potential acquisitions and exits.

Financial technology, or fintech, is also attracting a lot of interest – anything that is applying digital technology and artificial intelligence to improving the quality of investment decisions and automating investment processes is very popular.

One of the main reasons the M&A market is moving now is the increase in multiples, which is the largest we have seen since immediately after the pandemic. Investment funds have huge amounts of capital they need to deploy and we are finding a lot more entrepreneurs are willing to sell or raise money to help them grow.

The other issue that is hot right now is ESG (environmental, social and governance), with investors looking for companies that focus on sustainability. For example, an engineering business that would not normally attract a very high multiple can see its value boosted significantly by building a consultancy service that is focused on sustainability certification and carbon footprint assessment.

Campbell Cummings, corporate finance partner, Johnston Carmichael in the UK

Changes in regulatory controls, technology and changing demographics have brought the UK’s wealth managers and independent financial advisers into the M&A spotlight.

The wealth management and IFA industry in the UK generates annual revenue of around £7.3bn, with industry forecasters predicting compound annual growth to 2029 of about 5%.

The sector is seen as attractive to consolidators due to the ageing profile of the population, an overall increase in household disposable income and the fragmented and regionally-focused nature of the market. The continued growth in the stock market is also a factor.

Historically, the focus has been on multiples of revenue or recurring revenue but we are increasingly seeing a shift to EBITDA multiples. Double-digit figures for opportunities of scale are common.  There is a growing focus from acquirers on the introduction of automated technology solutions for clients, especially those with lower levels of funds under management, as a means to drive synergies and higher margins from acquisitions.

VÁCLAV ŠKAPA, partner, Moore Czech Republic

There has been increased M&A activity in energy and industrials in the Czech Republic in recent months.

With energy, it is a market reaction to the ongoing Ukraine conflict which has disrupted gas supplies and the wider debate it has prompted about energy security.

In the case of industrials, activity is driven by increased demand for heavy engineering production capacity, partly supported by orders from the defence sector.

Transaction activity is picking up after a decline in 2021, mainly due to falling interest rates and better availability of financing. However, the volume of deals in sectors such as leisure is still well below levels seen before Covid.

In the second half of the year, we expect to see further growth in deals. Energy will remain an area of high activity but there is further potential in logistics and technology, while defence will continue to be important.