UK management buyout (MBO) activity jumped sharply last year, as worries about potential tax rises meant business owners are increasingly looking to crystallise the value they have built up in their companies via an exit, according to analysis by Moore Stephens
The firm points to a 20% hike in MBO deals in 2017, up from 76 in 2016 to 91 last year. The total value of MBO deals rose 4% to £2.7bn, from £2.6bn in 2016.
Moore Stephens says whereas political uncertainty has been known to dampen M&A activity in the past, in the current climate the reverse appears to be true. It says the closer than expected general election in 2017 also triggered activity with owners looking to de-risk in case a future change in government results in the loss of favourable tax incentives such as entrepreneurs’ relief.
MBOs of technology companies accounted for the biggest proportion of the total – 20% of last year’s total (18 out of 91). Industrials made up 11% (10) and manufacturing 9% (8).
Ish Alg, associate director at Moore Stephens, said: ‘Many businesses owners are viewing now as the right time to exit, with MBOs remaining an attractive option for owners whilst also incentivising management.
‘In previous years owners have delayed making decisions around exits, mainly due to valuation concerns caused by on-going uncertainty in the broader economic and political environment. Whilst uncertainty does remain, encouraging UK growth stats and a clear deadline for Brexit has helped to calm fears and has undoubtedly contributed to increased valuations.’
Moore Stephens highlights the growing availability of funding for MBOs as private equity firms are under pressure to deploy their excess capital. Globally, uninvested capital hit a record high of $1.7 trillion (£1.2 trillion) in December 2017, according to Bain & Co.
Alg said: ‘The availability of both debt and equity finance, coupled with strong private equity appetite for deals, means that transactions are completing at attractive valuations. With PE firms sitting on record amounts of “dry powder”, conditions for deal-making are ripe allowing them to invest and back management teams capable of delivering growth.’
Examples of MBOs in the last year include Smoothwall Ltd, a UK-based provider of web filtering technology for the education and public sectors, backed by Tenzing Private Equity last October. Optilan UK Ltd, a designer and engineer of telecommunications and security systems integration projects completed a buy-out backed by NVM Private Equity Ltd last April.
Clearly Drinks Group, a manufacturer of bottled soft drinks, also did a deal last April, backed by NorthEdge Capital, as did Cotswold Collections Ltd, a women’s clothing retailer, backed by Rockpool Investments in June.
Report by Pat Sweet
