Increased manufacturing & industrial M&A confidence

02 July 2015

Manufacturing and industrial leaders are increasingly optimistic about their financial prospects and show more M&A confidence, with more than half planning to increase their deal activity in the next year, research by Deloitte shows. The research also shows that while the main driver continues to be the achievement of economies of scale, less companies show appetite to use M&A’s to expand into emerging markets.

Professional services firm Deloitte recently released the results of its biannual summary ‘UK Manufacturing and Industrials M&A Predictions’. The predictions, which cover the views of UK and European CEOs, CFOs and M&A Directors in the sector, show that on the back of increased financial optimism, M&A confidence in the sector is on the rise.

Optimism levels about financial prospects

Of the people surveyed, as much as 83% are optimistic about their financial prospects, with 74% feeling optimistic and 9% very optimistic, which is a boost in confidence from the last survey. In autumn 2014, half of respondents felt optimistic, with none feeling very optimistic. 

The research shows that around 80% of companies are looking for acquisitions, with almost 60% planning to increase their deal activity in the next 12 months. This is down from the 73% planning to do so last year, but up from the 56% in late 2014. While the number of companies expecting more M&A activity increased, from 50% in autumn 2014 to 56% now, the number of companies expecting to significantly increase their activity decreased from 6% to 3%.

Expected M&A activity

Main drivers
A shift is seen in the drivers of M&A activity, although the main driver continues to be ‘consolidation to achieve economies of scale’, which first emerged as the main driver in autumn last year. The acquisition of additional market share and cash rich corporate acquirers are also key drivers for M&A in spring 2015. The results show that less M&A’s are now driven by portfolio rationalisation (one of the main drivers of autumn 2014) and expansions into emerging markets (number one reason for M&A in spring 2014).

Main drivers for M&A

The decreased appetite to use M&A to expand into emerging markets is also seen in the source of target businesses. While emerging markets were a number one target last year, together with competitors, this year, companies prefer to target private equity owned businesses. According to Deloitte, distressed companies are an area of focus as their popularity as target business has increased from 6% in spring 2014 and 0% in autumn 2014 to 23% now.  

Source of targets

Sources of finance
To finance the increased M&A appetite, companies prefer to use traditional bank debts, cited by 77% of respondents. This is up from the 69% in the latest survey and the 56% in last year’s survey. The number two preferred way to finance M&A’s is through balance sheet purchases, chosen by 60%, which was the most popular option in 2014 (88%).

Source of deal finance

Commenting on the results, Duncan Johnston, UK Corporate Finance Manufacturing Industry Leader at Deloitte, says: “The responses tell us a great deal about the current economic climate for UK and European manufacturing and industrial companies. We are seeing a continuing improvement in sentiment, both regarding the financial prospects for the sector, and for M&A activity. Looking to the second half of 2015, we expect the manufacturing and industrials sector will see an uptick in M&A volumes in the market. Driven by a strong sector performance, improving confidence and the continued good availability of finance, we expect deal activity to increase and valuations for quality assets to hold up, over the remainder of the year.”


8 tips for successfully buying or selling a distressed business

18 April 2019

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.