By Jim Truscott, Partner of at Beyond Corporate Law, a specialist practice of Beyond Law Group.
Across all sizes of deal and regardless of sector, the M&A market is busy across the region and nationally.
What trends that have emerged in the last year in the way these deals are put together?
The fundamental approach to M&A deals in the UK, regardless of size or sector, hasn’t changed significantly for 20 years. But a closer look does throw out some interesting recent developments. Here are some headlines reflecting our experience in the last 12 months.
Capacity issues and compressed timelines
The M&A market is very busy. Sheer volume of transaction activity, coupled with some after-effects of the pandemic, has led to much-reported bottlenecks in capacity, at a time when accelerated deal timelines have become the norm. We are seeing sizeable deals get agreed and signed in 5 weeks, but with material delays prior to this point in obtaining tax clearance from HMRC, and notably very significant delays where completion of the deal requires approval of the FCA – an increasingly common scenario.
Fee pressure
A busy market is reflected in some very significant wage inflation currently occurring at professional service providers, in a market where recruitment and retention has been and remains challenging. This brings the threat of advisors seeking to pass increased fixed costs onto their clients. All this at a time when the consumer of quality professional service advice at corporate level has never been so diverse – our view is that the business-owner embarking on corporate activity should view themselves as very much in a buyer’s market at present.
Warranties, indemnities, limitations and insurance
The central negotiation on the vast majority of M&A deals revolves around the obtaining of warranties and indemnities from the seller and the limitations applicable to these protections. Recent trends in this area are of note:
- we are seeing more prevalent use of indemnities over warranties – a materially bigger ‘stick’ for the buyer to beat the seller if something goes wrong
- balanced against this, we are seeing a tendency for buyers to agree lower caps on liability than previously – the old norm of liability being capped at 100% of the purchase price is no more
- warranty and indemnity insurance is increasingly prevalent – offering an ability for the parties to insure against claims arising; over 30% of deals now feature some form of W&I insurance (leading, however, to some capacity issues on the part of W&I providers); there is no doubt that the structuring of deals around credible and affordable W&I availability does open up scope for deals to be done more quickly, and with lower risk, that was previously the case
- diligence now features a number of areas which are, as a matter of course, investigated in detail as a result of legislative changes – changes to the IR35 regime would be a good example of this
- earn-outs – an approach whereby part of the price paid by a buyer is determined by performance of the business after completion – are increasingly the norm; we rarely now see a deal without some form of post-completion price-adjustment mechanism, which itself entails a now well-trodden negotiation around conduct of the parties and management of the business during this earn-out period
- we are seeing an increased prevalence of split exchange and completion, notably where regulatory approval is required (and noting again delays in obtaining, in particular, FCA approval – a key challenge at the time of writing)
What’s ahead?
We can’t predict the market with certainty but expect to see some of the following in the coming year:
- continued high volumes of deal activity until at least the 3rd quarter of 2022
- the withdrawal of government-sponsored Covid support to business leading to an uptick in business distress
- uncertainty in relation to anticipated CGT increases continuing – the prevalent view at the moment being that increases will be shelved at least until the Autumn
Explore the ranked best online casinos of 2025. Compare bonuses, game selections, and trustworthiness of top platforms for secure and rewarding gameplaycasino slot machine.