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Accelerating shareholder value through acquisitions

There is little doubt that for many businesses the Covid-19 crisis will have had a negative impact on shareholder value. Whether this has been through disruption to trading and damage to balance sheets or in the form of weaker business valuations, it’s clear that rebuilding equity value will be brought sharply into focus in the months and years to come.

Adaptability is a feature of successful managers, and the businesses we are talking to are already turning their thoughts to the lessons the current crisis can offer. It’s likely that few businesses will come out of this period looking the same as they went in. For the most part this will be a conscious decision as owners take the opportunity to reflect and reassess the ‘what’, ‘how’ and ‘why’ of existing strategies and operations.

Against this backdrop we are seeing businesses increasingly looking to acquisitions as an option to accelerate growth. The right strategic acquisitions can offer a fast track option to recover some of the value gains that have been lost or delayed as a result of the Covid-19 disruption.

At this point in the cycle we believe that the argument for targeted business combinations is compelling.

Larger, more diverse, and better capitalised businesses will be better placed to rebound and take advantage of growth opportunities through the recovery. They will also be more resilient and better able to weather future shocks, whether they are pandemic related or the more familiar challenges of the post-Brexit transition, global trade wars or the continued march of technology.

We would expect that in the short to medium term the quality and availability of targets will be high, with price expectations moderated compared to sometimes frothy levels seen in 2019. Companies with strong business models, but weak balance sheets, may struggle to find the working capital to support their recoveries. This could see them increasingly receptive to an offer that secures the long-term future of the business.

Respect and sensitivity will be important attributes in the acquirers’ toolbox. Whilst acquisitions may be opportunistic, acquirers who are perceived as White Knights are likely to have better access to deals, strike better terms and create longer term value than those seen as Corporate Raiders.

Evidence suggests that investors and funders will be keen to support these acquisition strategies. Equity and debt funding capacity is plentiful and deployment (CBILS aside) is likely to be behind plan. A degree of post-Covid conservatism will encourage a renewed focus on supporting the growth aspirations of management teams and businesses already known to the finance provider, whilst appetite for new lending and investment is more selective.

The Sentio team have partnered with many of their clients to support their acquisition strategies. From identifying targets and leading negotiations, to valuations, modelling business combinations and delivering due diligence, our range of services can provide support throughout the process.

If you would like to discuss the support we can provide please get in touch at will.arnold@sentiopartners.co.uk