What’s in store for the deals market in 2022?

January 5, 2022

Abu Ali and Phil Williams, the dealmakers behind WilliamsAli Corporate Finance, look back on a buoyant year of mergers and acquisitions activity, and share their outlook for 2022.

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With its fresh approach to the deals sector, WilliamsAli is well known for providing its own trusted brand of tailored financial advice to business owners and entrepreneurs throughout the region, from their prestigious offices at The Pearl, in Newcastle. From a standing start, and despite the challenges of the pandemic, the corporate finance firm has expanded rapidly, reinforcing its status as the fastest-growing independent, specialist M&A boutique based in the North East.

2021 – a year unlike any other “2021 was a year none of us will forget,” says Abu. “Starting the year with a lockdown four days in, it would have been easy for businesses to immediately feel defeated. “However, the North East resilience shone through, and we immediately noticed a difference compared to the disruption in 2020.”

Abu continues: “The region’s entrepreneurs rolled up their sleeves and worked out how they could get on through the challenges. “There was very much a strong determination to move forward and not let the pandemic get in the way of delivering strategy. “The priority remained about acting responsibly for the greater good, but they weren’t willing to put plans on hold any longer and were keen to take advantage of market opportunities. “In the M&A market, deal volumes have generally been at record levels, with a combination of COVID-19, Brexit, strong liquidity, supply chain realignments and tax planning increasing transaction volumes across a diverse range of sectors.”

Successful year for WilliamsAli

During the course of 2021, the WilliamsAli team tripled in size and now boasts the depth and breadth of resources to handle deals of all shapes and sizes. Since the business was founded in 2019, the team has successfully delivered a host of high-profile deals, which include Smart Utility Management (sale to Bionic); Everflow (investment by FW Capital); Todd & Cue (refinance by Thincats); Quintessentially Estates (MBO); Clever Clogs Group (acquisition of Little Ladybirds); Pureclean (sale to LPW Group); and the recently announced sale of Tyne Tees Vehicle Repair Group to Steer Automotive (backed by Chiltern Capital).

Phil says: “Our outlook for 2022 is very positive, and we have a strong pipeline of activity secured as the North East deals market continues its momentum. “Owing to that activity, and as part of our plans to cement our long-term market position, we are also building our team further and look forward to a new senior appointment joining us in April, who will bring significant additional corporate finance and financial leadership experience into the team.”

Cautious optimism for 2022

Given the events of the last 18 months, and the lingering uncertainty faced by us all, some may have thought it difficult to be optimistic. Yet, ironically, after an initial period of caution in 2020, WilliamsAli is now seeing a real appetite from business owners ready to extract value in a buoyant deals market. It is also witnessing management teams looking to step up and explore buy-outs, companies raising funds to execute the next phase in their plans, and private equity firms keen to invest cash to fund those ambitions. Abu says: “There is plenty of private equity funding waiting to be deployed. “One of the quirks of COVID-19 is that the private equity houses are now playing catch up following the termination of deal flow during spring 2020, when the pandemic first hit world markets. “During the uncertainty, the safest thing for them to do was double down on existing portfolio investments. “We’re now seeing private equity driving a significant portion of deal flow – with both direct investment into new targets and support for the buy-and-build strategies of existing investees. “Because of that, we believe there will be an even bigger push in 2022 towards buy-and-build activity.”

Sector focus

From a sector perspective, WilliamsAli advises clients across all industries but is witnessing understandably strong deal activity in technology, health and pharma. Tech-enabled service businesses and e-commerce also continue to be heavily supported, in some cases driven by new hybrid working models and organisations having been converted to the benefits of using technology to drive efficiency.

Tax changes (whether real or rumoured) are also initiating action and driving vendors towards realising capital gains, which may have previously remained a few years away. However, as Phil explains: “It’s important to think about tax but not make it the sole basis for a decision.” He adds: “We’ve seen many times business owners driven to a decision to pursue a deal, often at a lower valuation, because they’re worried about potential tax changes.

“Sometimes that might be the right decision but understanding the market and buyer sentiment when judging the right timing for a transaction can add as much value, if not more, as trying to second guess the intentions of the Chancellor! “Our clients trust us to provide the market insights to help them make those key judgements.”

Challenging times ahead

And while WilliamsAli remains cautiously positive about the year ahead, Abu and Phil believe there are still a number of red flags to look out for, which include the need for companies to keep an eye on working capital.

With many businesses now starting to repay BBLS, CBILS loans and deferred HMRC liabilities, cash flow pressures are on the rise for some. Well documented issues around higher inflation, staff shortages, increasing energy prices and supply chain challenges are also causing financial strain, in particular for those businesses that weren’t in robust financial health before the pandemic.

Phil adds: “As we have seen before, one big corporate failure in an industry can have a catastrophic impact on smaller firms in the supply chain, so it’s really important to have visibility over the financial health of your key customers and suppliers, build in contingency plans, and work with credit control on a daily basis to identify any problems early. “2022 will have its challenges, and economic sentiment may change across the year – but the short-term deals market at least appears buoyant and significant opportunity lies in wait for businesses in the North East with robust plans in place. “Quality businesses run by quality business leaders will always have the best prospects and options, and that will never change.”

And with a growing team and strong pipeline of deals activity already building for 2022, it looks like another busy and successful year is also ahead for the WilliamsAli team.

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Driving ahead towards fresh success