• Date

    08 Jan 2021
  • Category

    Corporate Finance

A rush to cash, a dash to exit and a new world order

How deals and deal making are shaping the new economy

A vibrant deal making sector has always been a good barometer of how an economy is adapting to change and preparing for the opportunities of tomorrow. 

Whilst 2020 has been a year many will wish to forget, the UK’s business community has faced up to the challenge and shown a remarkable capacity to do deals, take risks, innovate, and evolve.  There are encouraging signs that we have the entrepreneurs to drive the change needed to create an economy fit for the new world order. There is still much to be optimistic about.

In the early part of 2020 deal making suddenly went into paralysis with vendors, buyers and financiers putting transactions on hold. Cash was king and liquidity and survival were the priority.   

By June, deal-making slowly began to show signs of recovery with disposals restarting and businesses preparing M&A plans in readiness to move when the timing is right. It became clear that some sectors, particularly those that deliver their services digitally – health, education, the workplace, retail and ecommerce – were performing strongly.

By the second half of the year a new language built around cash, liquidity and jobs had become firmly established – CBILs, BBLs, CJRS and the F word* – as the government borrowed almost with abandon to prevent wholesale business closures and mass unemployment. Then as summer faded, we saw a return of private equity houses who were increasingly willing to support and fund acquisitions by their portfolio companies. As the economy and markets settled, a ‘dash to exit’ emerged as many business owners began to put in place plans to sell due to growing fears that the 2021 Spring budget will see soaring capital taxes and the end of business assets disposal relief (formerly entrepreneurs’ relief).

Business owners wanting to sell could find that the next few months are as good a time as any for several years. The pound is low, which is helping drive interest from overseas buyers looking to buy UK-based businesses, there is growing interest in Employee Ownership Trusts as a mechanism for owners to sell businesses to their staff, and funding available to support buyers looking to acquire established, solid businesses.

The last year has seen ‘Old’ or established replaced by ‘New’ or emerging. ‘Old’ retail has given way to new, digitally-led consumer purchasing. ‘Old’ city-based offices have been usurped by new home offices.  And carbon-reduction is now top of many corporate and investor agendas.

2021 will likely see these trends accelerating, helped by government legislation, tax breaks and ongoing uncertainty caused by the pandemic, Brexit and global insecurity.

However, as we know, out of adversity comes opportunity, and Scotland’s entrepreneurs and deal makers will be playing a leading role driving the changes that will shape our lives for many years.

The first quarter of 2021 is set fair for rising volumes of M&A activity in advance of the Spring budget. Tax anxiety is rising and will be a key driver of deals. Some established names are likely to be taken over and new, emerging brands spreading their wings and building market share.

With the budget out of the way, attention may turn to the environment and the deferred UN Climate Change Conference in November in Glasgow.  Corporates, entrepreneurs and investors will increasingly be searching for the new technologies and business models that can unlock global markets in recycling, carbon reduction, renewable energy and other areas of cleantech. Private equity houses may also play a key role by deploying significant capital into the climate change economy, and in so doing drive sector consolidation and stimulate further technological change.  Depending on how the post-Brexit world manifests itself, we could see a renaissance in UK manufacturing, farming and food production, and if we do, it will be our entrepreneurs that drive the revival.

In looking ahead, it helps to briefly look back again at 2020 and be reminded that those businesses that have prospered are lean, have strong cashflows, typically with a robust technology backbone, and can call upon cash reserves for expansion, either organically or by acquisition during 2021.

Describing this change as an accelerated fourth industrial revolution is perhaps too simplistic. We are most definitely living through a period of exceptional change in society, politics and business. 

2021 will see that process continue apace, and the UK’s entrepreneurs and deal makers will be playing a key role in the new world order.

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About the author

Graham Cunning Photo

Graham Cunning

Partner Glasgow
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