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UK acquisition market forecast for 2019

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As 2019 gets underway, there's little doubt that many UK industries face a very challenging year. There appear to be no easy answers to ongoing Brexit worries, rising insolvencies, a tightening labour market, or rapidly changing consumer trends. But what does this mean for the world of business sales in 2019?

The outlook for UK M&A in 2019 looks decidedly mixed, with UK deal volume likely to be subdued in the first half before bouncing back in the second half of the year. 

Brexit is not the only challenge over the next few months. UK employers will have to digest a 5% rise in the living wage rate, and markets wait to see how several game-changing mergers overcome competition concerns, from the Sainsburys-Asda supermarket amalgamation to the Experian/Clearscore credit scoring tie-up. 

Of course, uncertainty in business is nothing new – indeed all these were known issues last year and had little impact on appetite or valuation. And the UK is still the world's fourth-most active market for acquisitions – behind only USA, China and Germany.

So, for any business owner seeking to clarify their exit plan, the issues here show there's more need than ever to seek specific advice from those in the know.

M&A sector watch 2019

Significant market consolidation is underway across the UK economy, but are notably intensifying in the handful of sectors listed below.  

On the up

Industry software – sector-specific SaaS businesses account for around 40% of all UK tech acquisitions. Uniquely, these are attractive to non-tech buyers from the same industry and software vendors seeking to cross-sell. Valuations and investment levels remain very healthy.

Financial services – accelerating consolidation among insurance brokers, wealth managers, and even corporate finance advisors shows that in the age of technology, acquirers still place high value on customer relationships. More than 300 UK deals are expected in this sector in 2019.

Professional services – legal and accounting mergers are usually about building regional or industry market share. However, multidisciplinary firms are growing through acquisition, adding HR, IT and building management specialisms to become broad-based service providers. 

Advanced manufacturing – the race is on for dominance in robotics, automation and 3D components, and with lengthy R&D timelines and significant capital investment required, larger players around the world will continue to acquire the knowhow from agile SMEs instead.  

Food and drink – food and drink giants will continue to be pressured by activist shareholders to ditch low-margin product lines and acquire healthier brands. Beyond manufacturing, wholesale deals are likely to be affected by further margin pressure, subduing activity for much of the year.   

On the backburner

Conversely, the dip in acquisition activity in the three industries below is expected to continue for the rest of the year due to the perceived risks. 
Construction contracting – UK construction is forecast to contract by 2% this year, with particularly weak demand for new office space as more people work remotely. However, the infrastructure sector is expected to grow 7% from large scale government projects.  

Restaurants – despite a decade-long increase in people eating out, the restaurant industry is facing major challenges. Last year saw some rationalisation as a few chains went bust or slimmed down dramatically. This year will see that play out until a supply vs demand equilibrium is reached.

Bricks and mortar retail – high streets and shopping malls got caught in a perfect storm of expensive shop rents, a surge in online shopping, and the worst Christmas trading in a decade. There will be deals, but more likely distress sales, and dwindling appetite for shopfitters and other parts of the supply chain. Saying that, the convenience store segment remains healthy, and more activity is expected on the back of the recent Tesco move for leading food wholesaler Booker. 

Key takeaways

BCMS has the benefit of speaking to more acquirers than anyone else in the market on an annual basis. Overseas appetite for UK firms remained at 25% of all deals in 2018, and we expect that to accelerate in 2019 – especially if sterling falls against the US dollar and euro. 

  • 2019 will be a year of two halves as uncertainty gives way to opportunity 
  • Expect a rise in non-core acquisitions as larger players hedge against falling margins
  • New overseas buyers targeting industries where UK is world class, particularly engineering and technology. 

What is certain is that regardless of wider economic confidence, a good business is still a good business. Those companies with specialist skills, or a clearly defined niche are still attractive acquisition targets.

If you are thinking of selling and would like an assessment of current market appetite and criteria for acquisitions in your sector, we offer a free consultation. Please give us a few details here to arrange this. 

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Steve Murphy's picture
Posted Jan 2019
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