2022 annual review
Foreword A year of two halves
2022 was a year of two halves for M&A activity. At the start of the year, and despite continuing geopolitical and financial headwinds, we saw high levels of business confidence and good availability of capital. Collectively, this helped to maintain robust market sentiment and keep dealmakers busy. But, with the dawn of the second half, came a very different outlook. Heightened political uncertainty, rising inflation, ongoing supply chain issues, skittish capital markets and the escalating cost-of-living crisis all combined to bring instability to lending markets and with it, a much more cautious attitude towards M&A. And as the banks tightened their lending criteria, with many pulling back financing from some sectors completely and reducing lending multiples, this has undoubtedly tempered the confidence of businesses to continue investing for growth through debt funding. Equally, despite the value of the pound falling, cross- border M&A – another good barometer of confidence – also slowed in the second half, with overseas buyers taking a much more cautious view of UK- based opportunities due to the political and economic uncertainty but this was short lived as interest is now recovering with the result of the recent General Election. Sponsor-led M&A, typically driven by private equity investments, responded with more cautious deal structures (less leverage or more deferred consideration) but there are still large sums of unspent capital to invest, alongside a tireless appetite to complete deals.
Private equity has continued to underpin a lot of activity this year and around 75 per cent of transactions completed by our Debt Advisory team in 2022 involved this asset class – an uplift of 10 per cent on 2021. The team, which also expanded in terms of both headcount and geographic coverage this year, successfully raised more than £1.3 billion in total debt facilities across a range of financial structures. This is further proof that debt funding remains an increasingly popular source of capital for transactions with increased structural flexibility, undrawn funding support for capex and buy-and-build strategies, or higher day one leverage representing key requirements. Furthermore, FRP Corporate Finance has enjoyed considerable success in 2022, bringing additional sector knowledge and senior appointments to our service offering. We have been steadfast in continuing to support businesses and private equity investors to navigate the complexities of the unpredictable market conditions, and while deal volumes fell back slightly from 104 to 84 transactions, we have seen a significant increase in the average value of deals completed by our team. Following the opening of our new office in Cambridge, led by Partner Dan Bowtell, the combined strength of our Corporate Finance and Debt Advisory team now stands at 64 fee earners, including 18 partners in 10 offices. And while recessionary clouds look set to intensify as we move into the new year, the outlook for M&A is far from all doom and gloom. Instinctively, it may not feel like the strongest environment to complete deals, but structurally there’s still a lot of capital available. It’s likely that investors will turn their attention towards more inherently resilient industries such as software and tech-enabled services, which typically boast stable levels of recurring revenue, while sectors where people are concerned about exposure to the cost-of-living crisis and diminishing consumer confidence, will incite more caution. We can also expect there to be a return of private equity- backed leveraged buyouts, as investors seek to capitalise on value opportunities in the market. But, ultimately, for well-performing businesses, pricing and interest will hold up because there’s always competition for good assets.
2022: M&A Market backdrop Scan or click QR code to watch video
Clive Hatchard Corporate Finance
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