Review of M&A activity in the first half of 2014 – City Comment
10 July 2014
As the summer holiday season approaches, it seems an appropriate time to review M&A activity in the first half of 2014 and look ahead to the rest of the year.
Thu, 10 Jul 2014 | By Philip Ellis, Optima Corporate FinanceAs the summer holiday season approaches, it seems an appropriate time to review M&A activity in the first half of 2014 and look ahead to the rest of the year.
Despite signs that there may have been a plethora of deals completing, the volume of announced deals has been fairly modest. There has certainly been an increase over recent periods, but not perhaps to the extent anticipated. It is reasonable to assume that a number of small private deals are always done ‘under the radar’ which the market never hears about, so this level of activity remains unquantifiable.
Staffline has continued on its acquisition trail with the purchase of Avanta – the welfare-to-work and training business – the stand-out deal with net consideration of £45m. This transaction balanced its portfolio more evenly between the industrial recruitment and welfare-to-work activities and was well received by brokers.
The education sector has been active. Impellam acquired Career Teachers for £22.3m and I am aware of other deals in progress, which should complete after the summer. The market view seems to be that education remains a strong sector and owners considering selling their education recruitment businesses should consider riding the current wave of appetite among acquirers. There are bound to be some disappointed potential acquirers at the conclusion of current transactions with an appetite for a deal.
There has been much talk of overseas acquirers looking at targets in the UK, but to date this has not translated into high levels of activity. Staffing360, a US-based business, has created a presence through buying Initio, the UK business of Poolia, while en-Japan also completed a deal. We are aware of other US, Japanese and European acquirers seeking UK acquisitions, but how quickly this becomes a meaningful part of the UK M&A market remains to be seen.
In my opinion (and recognising that this is a rather sweeping generalisation to which there are bound to be exceptions) US or Japanese acquirers will only be attracted to a well-established business with scale, whereas European buyers may be more willing to consider a less substantial business, largely due to proximity.
Despite talk of IPOs and reports that the Alternative Investment Market (AIM) is seeing increased levels of activity and fundraising, the wait goes on for a recruitment company to join the market. With a current softening in the markets I remain uncertain that 2014 will herald a new listing.
The early months of 2014 saw a record number of new recruitment companies being formed. A large portion of these will have been set up by individuals who have gained experience of working in the recruitment environment and feel ready to establish their own business. This is by no means a new phenomenon and there are an increasing number of support businesses designed precisely to assist and support these ambitious recruiters. The increased activity in this area is a strong indicator that recruiters feel confident in the market at present and anticipate this continuing in the short to medium term. As ever, recruitment businesses should take steps to ensure their staff are happy and well looked after, particularly if the owners are considering an exit in the foreseeable future. Losing key employees can have a significant impact on the value of a business.
Based on our current activity levels at Optima Corporate Finance and discussions with other professional advisors in the sector, it would appear that the second half of 2014 will see an increasing number of deals complete. Many owners are talking about an exit in two to three years but our view remains that a surplus of businesses being marketed for sale in this period could suppress multiples if acquirers have a choice of targets, so structuring an exit ahead of the pack, possibly including an earnout to recognise anticipated profit growth, remains worthy of serious consideration.
Despite signs that there may have been a plethora of deals completing, the volume of announced deals has been fairly modest. There has certainly been an increase over recent periods, but not perhaps to the extent anticipated. It is reasonable to assume that a number of small private deals are always done ‘under the radar’ which the market never hears about, so this level of activity remains unquantifiable.
Staffline has continued on its acquisition trail with the purchase of Avanta – the welfare-to-work and training business – the stand-out deal with net consideration of £45m. This transaction balanced its portfolio more evenly between the industrial recruitment and welfare-to-work activities and was well received by brokers.
The education sector has been active. Impellam acquired Career Teachers for £22.3m and I am aware of other deals in progress, which should complete after the summer. The market view seems to be that education remains a strong sector and owners considering selling their education recruitment businesses should consider riding the current wave of appetite among acquirers. There are bound to be some disappointed potential acquirers at the conclusion of current transactions with an appetite for a deal.
There has been much talk of overseas acquirers looking at targets in the UK, but to date this has not translated into high levels of activity. Staffing360, a US-based business, has created a presence through buying Initio, the UK business of Poolia, while en-Japan also completed a deal. We are aware of other US, Japanese and European acquirers seeking UK acquisitions, but how quickly this becomes a meaningful part of the UK M&A market remains to be seen.
In my opinion (and recognising that this is a rather sweeping generalisation to which there are bound to be exceptions) US or Japanese acquirers will only be attracted to a well-established business with scale, whereas European buyers may be more willing to consider a less substantial business, largely due to proximity.
Despite talk of IPOs and reports that the Alternative Investment Market (AIM) is seeing increased levels of activity and fundraising, the wait goes on for a recruitment company to join the market. With a current softening in the markets I remain uncertain that 2014 will herald a new listing.
The early months of 2014 saw a record number of new recruitment companies being formed. A large portion of these will have been set up by individuals who have gained experience of working in the recruitment environment and feel ready to establish their own business. This is by no means a new phenomenon and there are an increasing number of support businesses designed precisely to assist and support these ambitious recruiters. The increased activity in this area is a strong indicator that recruiters feel confident in the market at present and anticipate this continuing in the short to medium term. As ever, recruitment businesses should take steps to ensure their staff are happy and well looked after, particularly if the owners are considering an exit in the foreseeable future. Losing key employees can have a significant impact on the value of a business.
Based on our current activity levels at Optima Corporate Finance and discussions with other professional advisors in the sector, it would appear that the second half of 2014 will see an increasing number of deals complete. Many owners are talking about an exit in two to three years but our view remains that a surplus of businesses being marketed for sale in this period could suppress multiples if acquirers have a choice of targets, so structuring an exit ahead of the pack, possibly including an earnout to recognise anticipated profit growth, remains worthy of serious consideration.
