Harry Linklater: focus on value (pic: Terry Murden)
A cautious M&A market is more focused on value and the outlook for earnings, finds TERRY MURDEN
The collapse of Silicon Valley Bank will serve as a reminder that risk has its limits and that strong fundamentals matter when assessing a company’s credentials. Harry Linklater, of corporate finance boutique HNH, says it’s not just in California that the technology sector has been going through a change. He says the UK market is also seeing some significant shifts across all sectors.
“There have been signs that sentiment in the UK M&A market has become more cautious as access to debt has become tighter,” he says. “There’s also a stronger focus on value and growth strategy with earnings outlook and cash generation a priority as we move towards greater economic headwinds.”
Linklater, Neal Allen and Bruce Walker lead a growing team of advisers at HNH’s offices in Edinburgh’s Charlotte Square who can draw on a wide range of specialists in the firm’s sister office in Belfast. Across the two offices they have about 45 to 50 projects on the go at any one time and will complete about half of that number each year.
Together with Belfast-based head of deal advisory, Wayne Horwood, they are working projects that are now taking a little longer, primarily resulting in any acquirer or investor applying significantly more rigour to the transaction process. That means preparation and planning are key to successful execution and getting the timing to transact correct.
Last year the firm advised on 23 deal completions in 12 sectors with a total value of more than £200m for the second consecutive year. One, involving Northern Ireland firm Xperience who received significant investment from Bowmark Capital, was seven years in the making and won Northern Ireland Deal of the Year in its category at the recent Insider Media Dealmarker Awards.
Horwood says there are four main areas of activity for the firm. The first is international trade sales where the market has been active as UK assets are deemed value to weak sterling. Second is UK plc which is generally well-capitalised and have a long term approach to value creation which means inorganic growth strategies will continue in 2023 as long term strategic M&A will continue.
UK private equity is a third area which has become more diligent with economic headwinds the cost of capital and strong valuations in 2023 meaning a reassessment in H1 2023 – that said PE always invest through a cycle often where some of the most value can be created. Privately-owned businesses make up the fourth category and they are investing with cash or debt finance and can be more cautious.
Despite the greater caution among various parties, Horwood says the M&A market remains very active and deals are just taking more time to structure and conclude, with HNH actively seeking to recruit to cement their growth plans.
Whatever the conditions he says there are always deals to be done and company owners see the virtue in bringing in new investors or passing on their business to new owners.
“Many are relieved to be passing on the responsibility of management to someone else, or they’re just at that stage of life where they are looking to step back.
“Few people regret selling,” he says. “But many of them regret not selling.”
Further information: HNH Group