Research suggests confidence is returning for M&A

A combination of economic uncertainty, interest rates and higher taxation has resulted in a fall in deal volumes.  The first quarter of the year recorded the lowest number of deals for 3 years.

However, following research conducted with over 30 buyers from across the MSP, Communications and Cloud services sector, it seems that confidence remains strong with M&A remaining high on the agenda.

The findings show that of the buyers surveyed:

• 77% had completed at least one deal in the last year.
• 93% were looking to complete an acquisition over the next 12 months, with 70% looking to close multiple deals.
• 83% had debt facilities and/or sufficient cash to fund their deals.
• 86% are actively searching for the right acquisition. The remainder showed intent to acquire but on a more opportunistic basis.

Commenting on these results, Paul Billingham, a founder and director at Knight said

Whilst the climate has been challenging over the last 12 months, we have still seen good activity within the market and Knight has had a good year completing 17 deals in the last 12 months.  Across the market, we have seen a downturn in deal activity, but our view is that the quality threshold for completed deals has been higher, as opposed to acquirers pulling out of the market

The survey also considered the acquisition criteria for buyers:  Building scale remained key, with 24% of Buyers ranking increasing EBITDA as the most important factor.  However, it is clear that acquiring for growth is proving more important than cost savings with 62% of buyers citing organic growth, a position in a vertical market or expertise in a new technology as their main driver for a deal.

Buy and Build is often associated with acquiring a company and slashing costs to increase profit, but our survey says that this simply is not the case.  As the lines across the different reseller channels blur, it is important for buyers to remain competitive and acquiring new skills has been key in ensuring they can remain relevant to their customers.

Organic growth is the ultimate key value driver and ensuring their team has the right customer proposition is key to achieving this.  It was interesting and positive to note that 21% of buyers told us that the quality of people was a key driver for making an acquisition.

Billingham concludes

We are talking to buyers, funders and private equity investors on a daily basis and know that there is a strong appetite for M&A.  I am not surprised that considering the economic uncertainty in the UK and around the world there has been a downturn this year, but there is a consensus and desire to continue to invest in dynamic channel businesses and the incredible array of skills that they have developed