3. Chamberlink May 51-72.qxp_Chamberlink 29/04/2021 09:45 Page 56
Sector Focus
Finance
Support for IPOs at a high despite Covid-19 Roger Buckley: Sense of optimism
M&A market rises despite pandemic The Midlands mergers and acquisitions (M&A) market is as ‘buoyant’ as ever, after deal volumes rebounded in the first quarter of 2021. Despite the pandemic, the advisory division of BDO LLP has seen a rise in transactions in the first three months of the year, advising on 50 deals in the Midlands. This compares to 41 deals advised on in Q4 2020, with a notable proportion of transactions in the region attracting private equity investment. The firm said that this demonstrated a ‘continued appetite from private equity houses to invest significant amounts of capital’ in the regional market. BDO said the strength of corporate transactions in the first quarter of 2021 had been driven by corporates continuing to consolidate in key markets and dumping non-core businesses. The market was also boosted by the sale of a number of businesses hoping to beat anticipated increases in Capital Gains Tax in the Spring Budget. Roger Buckley, M&A partner at BDO, said: “Amid high levels of uncertainty, we saw many reasons for optimism in the region in 2020 – so much so that it created a strong expectation that M&A activity levels would rebound towards the end of the year and into 2021. “That sense of optimism is being reflected in the pattern of M&A deals our Midlands team is seeing in the market, with the Industrials and services sectors, showing particular robustness as the market stands up to the challenges being faced.” In Q1 2021, the Midlands team acted as lead advisers on deals including the sale of Mar Risk Services Limited (MarRS) to Costero Holdings, the sale of Allegion plc subsidiary QMI Door Solutions in the UAE to HLD Group in the UK and the sale of HVAC company Mikrofill 2000 Limited to Stuart Turner Limited. 56 CHAMBERLINK May 2021
Despite the coronavirus crisis, private companies seeking to go public have found plenty of support so far in 2021. According to ‘big four’ accountant EY, UK listings experienced a very strong start to the year with more funds raised in the opening quarter of 2021 than in any other opening quarter since 2007, and the most raised in a single quarter since 2014. Both the main market and Alternative Investment Market (AIM) have built on the resurgence of activity seen in the second half of 2020, with 12 IPOs (initial public offering) raising £5.2bn on the main market and eight IPOs raising £441m on AIM. In the first quarter fund raising achieved a total of £5.6bn, more than half of the £9.4bn raised in the whole of 2020. Total funds raised in 2021’s first quarter were the largest of any opening quarter since the £5.8bn of new money raised in 2007, and the most raised in any quarter since the £6.9bn raised in the second quarter of 2014. The performance during the first three months of 2021 is in stark contrast to the same period in 2020, when there were just three IPOs on the main market and two
Scott McCubbin: Positive performance
on AIM, which raised a combined total of £615m – a value nine times lower than this year’s opening quarter. Scott McCubbin, EY Partner and UK IPO leader, said: “The UK has had the strongest opening quarter for IPOs for 14 years, with the markets successfully weathering the effects of Brexit and bouncing back from the stall in activity caused by the onset of the pandemic a year ago. “With an effective vaccine rollout underway, momentum and
confidence in the UK IPO market should continue to build, but future growth may vary depending on the sector.” Confidence in the UK’s IPO markets as an exit route has been reinforced by the significant private equity (PE) activity in the quarter. Three PE-backed IPOs (the same number as in the whole of 2020) were responsible for 41 per cent of funds raised in Q1 2021, with the biggest, Dr Martens, raising £1.5bn. The UK’s status as a tech market has also attracted growing interest from funders. In the first week of the second quarter, the UK saw its biggest tech listing on record. Mr McCubbin: “Given the tech sector is of increasing importance for both the IPO market and wider economic growth, the UK’s ability to attract tech IPOs is likely to be under scrutiny. “The reputation of the UK as a tech IPO market will in part depend on the performance analysis of listings that fall within this broad sector, which includes both traditional tech companies and those that heavily rely on technology. Such a positive performance in the first quarter shows confidence in the strong fundamentals of the UK IPO market.”
SMEs have eyes on investment More than a quarter of SMEs (27 per cent) plan to invest more in their businesses in the year ahead compared to a typical pre-pandemic year, according to a survey by Virgin Money. These findings were reported in the Virgin Money ‘Business Pulse’, which provides a comprehensive insight into the performance of the UK’s SMEs and the environment in which they operate. The Business Pulse surveyed 1,002 SME decision makers through Censuswide during the first two months of this year. Overall, the report marked an optimistic future for businesses’ in the upcoming year and revealed a large focus on growth. The business creation indicator was at a record high in the last three months of 2020 as the annual growth rate in the number of registered companies surged to 8.3 per cent. This underlined by data from Companies House that shows the pandemic has seen more than 90,000 more businesses created in 2020 than in 2019, highlighting a growing confidence among entrepreneurs. It was also found that more than a third (35 per cent) of SMEs plan to invest between £10,000 and £10m this year, a rise on 32 per cent from 2020.
While the relaxation of lockdown measures saw the economy bounce back with quarterly GDP up 16.1 per cent, business performance and outlook fell again to 42.9 in Q4 when restrictions returned. As a result of lower business performance, more than half (57 per cent) of SMEs reported currently having staff on furlough, with just one in five expected to be able to retain all furloughed employees after the Coronavirus Job Retention Scheme comes to an end. In more positive news, however, 18 per cent expect to take on more employees in 2021 and around a quarter say improvements in the economy will make them confident enough to expand their workforce and cater to pent up consumer demand. Group business director at Virgin Money, Gavin Opperman, said: “It has been an incredibly challenging environment over the last 12 months, but our latest ‘Business Pulse’ shows that many firms have adapted with incredible pace to the new environment, demonstrating extreme resilience and innovation to navigate through the difficult landscape. “While there are undoubtedly significant challenges ahead, many businesses remain optimistic and intend to invest for the future as the economy recovers.”
