The Covid crisis has created huge disruption for individuals and businesses alike. For many who were unable to work from home or in some cases work anywhere, and did not enjoy the benefit of gardens or close proximity to green spaces, it has been a horrendous time. However, for others who have been able to work from home, skip the commute and reduce a considerable amount of expenditure, because it has not been possible to travel, attend leisure activities etc., their work/life balance and net wealth are somewhat healthier.
The business landscape presents a similar chasm between winners and losers. The major opportunities for businesses in the past 18 months has been consolidation. Global activity in the first 6 months of 2021 is at a level never reached before. The upsurge has been particularly prevalent in the UK. A weak pound following Brexit and a relative under-performance of UK shares has fueled a thirst for overseas predators to take advantage. A good case to benchmark this market is Morrisons the supermarket chain. Its share price has drifted around 160p - 175p for the past five or so years despite a massive operational turnaround. Last month a Private Equity group, Clayton, Dubiler and Rice made a proposed bid of £5.5bn for the group, a premium on its share price of 38%. This bid has subsequently been trumped by Fortress, who have offered £6.3bn. And note, same company but with different viewpoints on valuation! This week Tencent of China have made a bid of £1bn for Sumo Group, a computer games manufacturer whose games include Sonic the Hedgehog, Hitman Crackdown and Sackboy. Zoom have agreed this week to buy Five 9, a provider of software to call centres for £14.7bn. Each week we are seeing a similar pattern.
This deal frenzy is not restricted to the 'big boys'. There are many family businesses which have passed from one generation to another but have now found that the next generation are more attracted to new markets such as technology, or perhaps the allure of owning a slice of the cake in a start up. Apart from succession challenges, many family businesses are now no longer as confident about their markets and ability to perform in a changing world than they were pre-covid. They are nervous about the outlook and realise that the current market offers an opportunity to extract good value from their businesses.
Where businesses have been resilient in the Covid environment and can leverage or benefit from technology or automation, premiums are available. The sectors that are attracting the greatest traction are telecoms, media, technology and Business Services.
Another key consideration for acquirers is ESG; environmental, social and corporate governance issues. Where enterprises put a high degree of importance to ESG, they will see heightened demand from investors.
We are indeed in the midst of a consolidation bubble-who knows how long it will last? But now is the time for business owners to review their forward strategy and determine whether this is the right time to pass on the baton.
If you require any assistance with buying or selling a business, do get in touch.