What was happening in the market in May?

May has been an interesting month

May was an interesting month, with a unique combination of opportunities and challenges for businesses and investors.

Inflation and the great supply chain squeeze
Inflation in the UK as measured by the CPI (Consumer Price Index) reached 9% in April, the highest rate in 40 years. It is a similar story around the world with US consumer prices increasing 8.3% in April. Given the ongoing conflict in Ukraine and widespread supply chain shortages, most economists expect inflation to accelerate further in the coming months. A number of our clients have told us they are facing increasing challenges in restocking goods, filling job vacancies and managing supply chain inflation in their organisations.

Clean Energy
An interesting consequence of the current energy price shock is an acceleration in the development and roll out of clean energy. The European Commission recently set out plans for half of the EU’s energy needs to come from renewable sources by 2030, in order to reduce the reliance on Russian oil and gas. One potential proposal involves the obligation for all new buildings to be fitted with solar panels. The UK is recognised as one of the leading countries in the field of clean energy; investment in UK clean technology reached £134bn last year and the green revolution is leading to increased M&A in this sector.

Stock market sell off approaches bear market territory
There have been sharp falls in Global equity markets in recent weeks. The S&P 500 index has fallen 20% since the high reached in early January, typically the definition of a bear market. Concerns about inflation, a rise in treasury yields and fading economic growth have translated into fears of a recession. One benefit of this sell off is that tech valuations, which had been looking overstretched, may have become more appealing to potential investors. The tech heavy Nasdaq index has declined around 30% since the high last November and a large number of tech stocks have declined by over 50%. Public markets tend to overshoot and are likely to remain volatile, but it is notable that tech valuations have fallen to levels just above traditional defensive sectors such as consumer staples and pharmaceuticals, despite offering higher earnings growth. According to the Financial Times, the private equity industry is sitting on an estimated $2.5 trillion of unallocated funds and is under pressure from investors to deploy aged capital.

M&A activity 
Although investor uncertainty has led to some deals being postponed, the M&A market has continued to be buoyant. According to data from Refinitiv, $390bn of M&A deals have been announced in Europe in the first four months of this year, compared to $365bn in the same period last year. We are currently advising on a number of business sales and acquisitions.

Deal financing 
One notable trend is that rising interest rates have meant that deal financing has become more of an issue. Global corporate debt yields have risen 200 basis points on average this year. Syndicate banks and other funders are still generally providing the necessary financing, but are having to sweeten terms to find lenders to take on the debt.

Our team of business advisors, tax specialists and accountants are working with entrepreneurs active in a wide range of sectors, helping them to maximise their investment in their business.

Please do contact us if you would like a confidential chat about your future business plans.

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