Private equity transactions are likely to play a significant role in the recovery of the North West deals market over the next 12 months, according to DSG Chartered Accountants and YFM Equity Partners (YFM).Both firms suggest that historical downturns, such as those experienced in 2008, could provide an indication of the potential outcomes of the next couple of years as businesses navigate through the impacts of Covid-19.
Data gathered from Experian MarketiQ showed that North West private equity dealmaking saw a 58 per cent drop from 2008 to 2009, with deal volumes not returning to pre-recession levels until 2014.
In contrast, the current economic crisis arguably offers a unique opportunity for private equity buyers. This is due to a surplus of dry powder among investors, with trade buyers also more likely to be focusing on survival and consolidation than making acquisitions.
Both firms also believe that the post-Covid environment represents an opportunity for companies that are already backed by private equity to pursue a buy and build strategy. With smaller companies struggling to achieve organic growth, strategic acquisitions can deliver immediate value improvements and provide a more secure footing for the future of the business.
Iain White, partner at DSG Chartered Accountants, says: “While the 2008 crisis was sector agnostic, with few businesses emerging unscathed, the 2020 situation is very different – there will be clear winners and losers. With trade buyers likely to be focussing on restoring their own houses to order, in the short to medium term, businesses in the North West could consider private equity as a viable option, either to supercharge growth or achieve a full or partial exit.
“While we expect that private equity transactions will take centre stage in the North West deals market, it could also be a trend seen nationally over the coming months.”
The North West could also see a rise in flexible deal structures, with options like structured earn out arrangements and partial exits likely to rise as vendors look to take some cash off the table but retain some value in the business, generating value for all parties.
“Being open to agile deal structures and applying the best management information will give businesses options that simply would not have been available during the 2008 financial crisis,” White adds.
Andy Thomas, partner at independently owned YFM, which specialises early-stage and late-stage investments, said: “Striking the right deal with the right private equity firm could provide business owners with both an opportunity to take cash off the table now and an investment partner that could help unlock future value.
“Having said that, it is important that owners get advice at the earliest possible stage, to help them understand the challenges they are facing and their prospects for future growth, either organically or through acquisition. An adviser will be crucial to finding that ideal partner to maximise the value of the business.”