The M&A Market

A look at the current state of the M&A market
for small to mid-sized businesses

Up until this summer, the small to mid-sized business M&A market has not been severely affected by the problems in the financial markets.  However, as the general lack of confidence continues and lending remains very scarce it is now no longer immune.  The almost complete lack of IPO's on both the main market and AIM, has meant a reduced number of businesses raising cash for acquisitions .  Consequently, this has significantly reduced the total number of transactions being done.  

On current deal values, Marc Fecher from Devonshire Corporate Finance comments: ?there has been pressure on prices, mainly due to the EBIT multiples that banks are prepared to lend on coming down.  Before the credit crunch last summer, it was common for banks to lend up to five times EBIT.  This figure is now more like two to two and a half times.?   However, the landscape is constantly changing and this is reflected, and could be argued is caused by, the large fluctuations in the stock markets.  In addition, the reactive and unprecedented course of government and monetary policy has had a major part to play.  The result is that it has become virtually impossible to forecast what is going to happen in any real time frame.
For nervous buyers or sellers nearing the completion of a transaction, advisors are finding it difficult to say with certainty whether their clients are sitting on a good deal.  Instead they are trying to ensure that their clients remain fully informed and are aware they are taking on perhaps more risk than would have been the case twelve months ago.

However, there are still many reasons why entrepreneurs should still maintain their acquisition focus: people will always want to retire; owners will always have health issues; companies will need to find ways of solving problems and being bought is one of them.

So who is out there buying?