With the advent of Covid stopping much in its tracks across the world, it is of little surprise that M&A activity suffered a significant blow at the peak of the pandemic. While businesses have had to adapt and innovate in order to survive, the investor landscape so too has changed. After a year and a half, there is now a cautious optimism that we have been through the worst of the challenges, with businesses in a position to look ahead once again.
Now is the time for businesses to reset and reframe their offering. Whether they are looking for growth capital or at an eventual sale, it is important to get ahead of the game and work out where their value lies to potential investors. With this in mind, Moore Global colleagues recently joined together for a panel discussion at CogX 2021 – ‘Around the World in 1800 seconds’ – to discuss what is hot in the investment market and where the smart money is going.
Chaired by Moore Kingston Smith partner Esther Carder, our international panel of M&A experts in the media sector consisted of:
One aspect that was clear from the outset of the discussion is that the relative recess in M&A has created a huge pent-up demand for investments. Internationally it seems it has been a game of two halves. Activity more or less hit a brick wall around March/April 2020 but we have seen unprecedented levels of activity in 2021. In the UK deal volumes are three times that of 2000 and, as an example, the London Stock Exchange saw the highest volume of deal announcements in its first quarter since 2006.
Growth capital in the UK also followed this trend. In the first quarter of 2021 fundraising hit a 10 year high. This level of activity is not just confined to small fundraising – growth capital in the £10-15 million bracket has doubled.
This soaring level of demand has also meant that transactions have been working on unprecedented multiples. For example, in South Africa, WeBuyCars traded at a 9x multiple – a multiple that the market had not seen before. Likewise, the US are seeing multiples of 8-10 x EBITDA and there is USD 1 trillion dry powder that has been raised for deals with the expectation that there will be USD 330 billion added on top of this by the end of 2021.
With so much investment available and with the competition so high for good businesses, how can companies take advantage of this unprecedented level of opportunity? As one of our panellists was keen to point out, whilst there is a lot of money available, the money is still smart – if a business is to be invested in it still needs to demonstrate its value. What’s more, PE attentions in particular have shifted; they are considering businesses that they may have not looked at before. Below we have listed 10 key points that might help guide you if you’re considering raising capital or selling.
What are PE house looking for and what are the practical tips for a business in preparation?
1. Long term cashflow is important. We have seen a high level of interest in subscription and recurring revenue businesses;
2. Demonstrate resilience. For obvious reasons, investors are most interested in those companies that have proven Covid resilient – companies that are innovative and have been able to pivot and reconstruct when exposed to challenges;
3. Get your elevator pitch fine tuned well in advance of approaching the market. What are you trying to communicate to investors? Have a clear proposition and a path to growth;
4. Show your investors exactly where their money will be deployed and how it will enhance the business, extend customer base and increase return on investment;
5. Demonstrate to the investor what’s in it for them. How can their investment and your strategy come together to create something meaningful?
6. Demonstrate quality of earnings to facilitate revenue prediction;
7. Focus on your people and how they can be retained. We have seen an increased focus in PE houses to retain staff after acquisition;
8. Be brave! Match your ambitions with the ask. Don’t be afraid of asking for the amount of money you think you really need;
9. ‘Be good’. This is a prerequisite. You need to show that you are mindful of issues like ESG (Environmental, Social, Governance), diversity and giving back to the community. Appropriately positioned, your ESG policy and actions will attract a premium valuation;
10. If an investor wants to change every aspect of your business plan, they are not the investor for you! It is worth holding out for the right partner.
If a sale is your ultimate objective, the Moore Kingston Smith advisory team can help you position your business and identify key opportunities that will not only improve your performance but also your enterprise value for when the time comes to sell. For businesses that are looking to either sell or fundraise sooner, our corporate finance team can help find the right investor and support you throughout the process.
Watch the full panel discussion below: