22/07/2024
Uk distressed m&a market insights
#image_title

Gaining Market Insights for Distressed M&A in the UK

The global deal scene has changed, affecting the UK’s distressed M&A chances. Even amidst a worldwide pandemic, the UK’s M&A market has shown strength. For example, deal values worldwide were halved from over US$5tn in 2021 to US$2.5tn in 2023. Yet, the UK remains a hopeful place for those interested in distressed M&A options. As government help lessens, more distressed M&A deals are likely to happen.

Buyers are being careful, focusing on making companies better or selling parts off. Still, those with a lot of money to spend are ready to jump on good deals. Sectors like retail, manufacturing, and transport stand out for finding distressed M&A deals. The financial sector is also buzzing, with more deals expected to need finance help.

This changing market means knowing when to act is key, maybe more so than before. While the number of very big deals is going down, some areas are doing very well. For example, EU&R (energy, utilities, and resources) had almost three times the big deals in 2023 than in the year before. Big moves, like Cisco wanting to buy Splunk for US$28bn, show there are still chances out there.

With the UK market becoming more unstable after the global pandemic, understanding these changes is vital. Quickly adapting to these new strategies is important for anyone looking to make a good deal in this shifting market.

Understanding Distressed M&A in the UK

Distressed M&A deals in the UK happen when companies are in deep financial trouble. These can lead to fast sales or big changes in how a company runs. Important people in these deals are those who want to make their business bigger and those looking for good investment chances.

The COVID-19 pandemic since 2020 has not created many distressed M&A chances in the UK. This is mainly seen in the retail, hospitality, and energy sectors. They are still struggling with problems like not enough workers, issues with getting products, and prices going up. This situation has made more companies think about distressed M&A deals.

It’s very important for companies almost out of money to understand these deals. This is because of the big risks involved, such as trading when you shouldn’t, and doing things that are against the law. In these tough times, being quick and sure about a sale are key for those selling. They need to make sure they handle their debts and upcoming bills well.

Selling your company quickly can be tricky for both the buyer and the seller. The buyer has less time to check if the deal is good. They also must make sure they have money ready to pay. Sellers usually want a sure payment without any ifs or buts. This makes selling just parts of the company, like its assets, a good option. It helps them get more value and deal with their debts smoothly.

Competition is very important in these fast-deal situations. It helps the seller get a better deal. As government help for businesses ends, we might see more of these deals. Investors with a lot of money will likely join in. They will focus on industries already seeing a lot of distressed business sales, such as retail, energy, and technology.

Current Market Climate for Distressed M&A in the UK

In the UK, the market is getting ready for more deals in the distressed M&A arena. This is mainly due to the government slowly stopping its financial aid. Many companies, including those in retail, manufacturing, and transport, face big economic hurdles. These include not just the usual money issues but also trouble in getting goods, not enough workers, higher interest rates, and money losing its value. All of this helps the distressed M&A market grow.

Places where people shop or eat, and energy businesses, are at high risk now. But, finance, health, and tech companies see a lot of ongoing deals. With the market changing, company heads must make sure debts are settled before they run out of money. They need to be careful not to act illegally or dishonestly, as they can get into serious trouble. It’s smart to get advice from people who know about saving failing companies.

To make the most money in these tough sales, being ready and managing risks well are key for sellers. They should aim to close deals quickly and surely to avoid going broke. This means buyers might not look into every detail before buying. But, they still have to be sure the sale is safe and the money to buy is secure. How sellers are willing to agree on the sale conditions, and how they get paid, is also very important for buyers.

Big international deals are already fewer and worth less since 2021. The number of deals dropped 17%. Very large deals have dropped a lot too. However, there are still chances to make good deals, especially in finance, health, and tech. Companies looking to change things up or sell parts of their business, and those with a lot of cash might be very active in the distressed M&A world. The future in the UK suggests there will still be many deals going on, despite the hard times.

Key Legal and Regulatory Framework

The UK’s laws on distressed mergers and acquisitions (M&A) are very detailed. They make sure these processes are carried out correctly. The Enterprise Act 2002 is key. The Competition and Markets Authority (CMA) uses it to check mergers. They see if a deal can go ahead, needs changes, or should stop.

The National Security and Investment Act 2021 became law on January 4, 2022. This act looks into deals that might harm the UK’s national security. It looks at investments from inside and outside the UK. This act can also review deals from the past to protect the country.

The Insolvency Act 1986 and the Corporate Insolvency and Governance Act 2020 are also important. They outline how to deal with companies in financial trouble. Adding the Companies Act 2006, they guide handling during tough times like mergers and restructurings.

The Pensions Regulator and the Financial Conduct Authority (FCA) play important roles too. The Pensions Regulator protects company pension funds. The FCA checks that companies follow financial rules properly. This extra oversight helps keep finances in check during difficult times.

Under the National Security and Investment Act 2021, breaking the rules can have serious consequences. This includes up to five years in jail, fines up to 5% of money made worldwide or £10 million, and banning someone from being a director. It shows how serious the UK is about keeping its M&A deals fair and safe.

Main Risks in Distressed M&A Transactions

Distressed M&A deals in the UK look to increase. This rise is due to higher energy costs and inflation. In this situation, buyers face most of the risks. Due diligence limitations make it hard to check everything before buying. This causes more transactional liabilities. Buyers might not have much protection if problems show up later.

Sellers aim to make sure deals go through. They avoid including escape clauses due to bad changes or late payments. They also worry about pension liabilities. Firms in trouble often owe a lot in pensions, which can hurt their image. Plus, the Pensions Regulator could step in. This makes the situation even more complex.

The UK’s rules for distressed M&A make things harder too. The CMA and the National Security and Investment Act 2021 set strict rules. This might lead to having to sell parts of the business or other challenging moves. Directors worry about legal issues like wrongful trading. They need to put the needs of the company’s debt holders first. When firms are close to failing, the risks are many and big.

Strategic Opportunities in Distressed M&A

Distressed M&A deals offer chances for smart investors to find value in tough times. These deals let buyers get important assets at lower prices, benefiting from business changes and new models. Global M&A hit a high of $2.6 trillion in 2021’s first half, way above 2020’s $926 billion.

Strategic opportunities

In the first half of 2021, North America led the way with deals worth $1.4 trillion. These numbers were almost double those seen before the pandemic. This shows there are big chances for buying in fields like retail, manufacturing, and transportation.

The European market hit $412 billion in the same half, beating averages from 2015 – 2019. This jump means there are lots of chances for investors in the European M&A scene.

Sectors like energy, tech, and pharma are picking up in M&A. This offers a diverse field for new investments and company changes. Investors need to be careful, looking at risks and how they can transform businesses.

After big events like Brexit and the pandemic, a lot of money is still ready to invest. This means more opportunities in distressed M&A, pushing investors to look for chances to buy and change companies.

Director and Officer Duties in Distressed M&A

Directors and officers play key roles in distressed M&A. They have specific duties and face liabilities. Their main job is to look out for both shareholders and creditors.

In a solvent company, directors work for the shareholders’ best interests. But, as a company nears insolvency, they must start protecting the creditors.

Various strategies are used in distressed M&A, and directors need to watch over them carefully. They must follow all laws to avoid trading improperly. This is critical because making the wrong moves can have big consequences.

Also, the costs of energy and inflation add challenges to their jobs.

There is more competition among lenders, with high levels of borrowing. Directors must be very careful. They should think about both short-term and long-term effects. This is especially true when working with big capital investors in distressed M&A situations.

Directors are responsible for stopping fraud and reducing what creditors might lose. They have to check all deals very carefully. This is to make sure the deals follow the law and help the company stay strong. They also have to look out for possible costs related to pension funds. These costs could really hurt the company’s finances.

Directors and officers must work very hard and make tough decisions in distressed M&A. They have to balance the needs of shareholders and creditors well. These key people are crucial for lowering risks and guiding the company through hard times. They must ensure everyone acts with honesty and follows the rules.

UK Distresssed M&A Market Insights in 2024

In 2024, the UK’s distressed M&A market looks set to bounce back. After global deal values fell by half to US$2.5tn in 2023, from their 2021 high, there’s hope. Despite a lower number of deals, the scene for distressed M&A appears to be getting more active.

January 2024 saw several big transactions. This includes Hewlett Packard Enterprise’s bid to buy Juniper Networks for US$14bn. Blackrock acquired Global Infrastructure Partners for US$12.5bn. Additionally, there’s a planned merger between Chesapeake Energy and Southwestern for US$7.4bn. These big moves highlight the increasing importance of distressed M&A.

2024 market insights

Experts predict a strategic move towards the distressed M&A market. They’re getting ready for ongoing economic and geopolitical hurdles. Despite these challenges, stabilising interest rates and a growing acquisition thirst make the distressed M&A outlook positive.

Midsized deals took a hit in 2023, dropping in volume by 30% and value by 35%. But, small deals are weathering the storm better, showing 14% less decrease. Yet, full sector recovery, especially in finance and healthcare, might be slow due to economic doubts.

The UK is putting a premium on sustainability and tech change. Private equity firms are increasingly focused on specific opportunities. Plus, SME owners are eyeing acquisitions. This marks a prime time for smart and bold investments.

Practical Differences Between Distressed and Non-Distressed M&A

Knowing the differences between distressed and non-distressed M&A helps buyers and sellers. The key point is transaction timelines. In distressed deals, time is short and quick action is vital due to insolvency time limits.

This rush means less time for checking things carefully, unlike the detailed look in normal deals.

Distressed M&A often sells assets fast through a full auction. But in non-distressed deals, decisions take longer with more thought. In distress, sellers may not give as many promises. Their financial troubles might stop them. In contrast, sellers are more likely to offer strong protections in non-distressed cases.

Negotiations can be tricky in distressed deals for buyers. They may not know all the details and face more risks. This is because they don’t have as many promises to rely on. So, buyers need to be very careful.

After a deal, the work can differ a lot, too. Distressed deals might need quick changes or handling tough rules. Buyers sometimes work closely with the old company’s managers to keep things going. This is less common in non-distressed deals.

Therefore, really understanding these differences is key. It helps in planning the right moves and dealing with the unique challenges of each type of deal.

Conclusion

The distressed M&A scene in the UK is right at a turning point. It’s being changed by many economic factors and how the market shifts. In 2020, the COVID-19 outbreak showed the world a lot of new challenges and some chances.

Industries that face customers directly, like shops and places to eat, are really feeling the strain. If a company is in financial trouble, its leaders must make extra sure they’re doing right by those they owe. This is to avoid getting into trouble themselves. Also, when someone is selling a business in a tough spot, they should try to make the deal go fast and smooth to keep their money.

Even with all these tough times, deals are still happening a lot. This shows how strong and ever-changing the market is. Now that government help is slowing down, we might see more deals in trouble. Sectors like shops, makers of goods, transport, finance, health, and tech look especially interesting to buyers with lots of money. But, there are new laws to follow closely, making sure everything is above board.

To make the most of the UK’s troubled business buying and selling scene in 2024, it takes a deep understanding. Knowing the market and the rules really well, plus smart planning, are key. As the market evolves, there’s still plenty of chances for smart moves. Everyone involved needs to be smart and well-informed to do well in this active area of business.

Written by
Scott Dylan
Join the discussion

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Scott Dylan

Scott Dylan

Scott Dylan

Scott Dylan is the Co-founder of Inc & Co, a seasoned entrepreneur, investor, and business strategist renowned for his adeptness in turning around struggling companies and driving sustainable growth.

As the Co-Founder of Inc & Co, Scott has been instrumental in the acquisition and revitalization of various businesses across multiple industries, from digital marketing to logistics and retail. With a robust background that includes a mix of creative pursuits and legal studies, Scott brings a unique blend of creativity and strategic rigor to his ventures. Beyond his professional endeavors, he is deeply committed to philanthropy, with a special focus on mental health initiatives and community welfare.

Scott's insights and experiences inform his writings, which aim to inspire and guide other entrepreneurs and business leaders. His blog serves as a platform for sharing his expert strategies, lessons learned, and the latest trends affecting the business world.

Newsletter

Make sure to subscribe to my newsletter and be the first to know about my news and tips.