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Why will investors be more active in 2017?

Research undertaken by KBS Corporate in 2016 found that an overwhelming 94% of Private Equity and Venture Capital Houses were confident about the long-term future of the M&A market and the wider economy in general.

This came shortly after the outcome of the EU Membership Referendum was revealed, and the findings also showed that 97% of the survey respondents would continue to deploy their funds at the same rate for the rest of this year and going into 2017.

Simon Daniels, Director at KBS Corporate, explained why the number of acquisitions will continue to pick up next year. He commented:

“Our research also found that respondents were of the opinion that a fundamentally profitable business is an attractive acquisition no matter the circumstances, indicating that 2017 may well be in line with record levels experienced in 2015.

“Acquisitions of ‘UK centric’ businesses, whose operations are unaffected by the European Union, are also likely to continue at the current pace going into 2017.

“Meanwhile, UK exporting businesses are becoming increasingly more attractive following the recent depreciation of the value of the pound against other major currencies. The effect of this is cheaper UK imports for foreign businesses and consumers, which has accelerated demand.”

Are there any specific industry sectors to look out for?

According to recent reports, it’s clear that business owners in certain sectors can expect a flurry of M&A activity in 2017.

industryThree that stand out in particular are:

  • Financial Services
  • Manufacturing
  • Information & Communications Technology (ICT)

Simon Daniels explained: “Following an initial shock as a result of the EU referendum, activity levels within the financial services sectors are recovering, with an uptick in inbound investor appetite set to be driven by a weaker Sterling and continued interest in the UK buoyed by solid growth prospects.

“An increasing reliance on, and more widespread use of technology has given consumers much wider access to financial services such as insurance and banking. The disruptive influence that technology has played in the UK financial services market has also had a positive effect on M&A within the ICT sector, which saw an increase of more than 17% in total deal volumes during the first nine months of 2016 compared to the same period of 2015 [according to Experian].

“Findings in the same report have also shown that the construction industry has experienced an increase of almost 25% in the total number of deals compared to 2015, with the past few months seeing a number of the sector’s ‘bigger players’ reporting robust performance results accompanied by a generally positive outlook for the foreseeable future.”

Why will the New Year be such a good time to sell a business?

As discussed, investors are set to become more active in 2017, which obviously means that anybody hoping to sell a business will have a larger pool of potential suitors to negotiate with.

With more competition, it stands to reason that you’re more likely to get the price you’re looking for when selling up.

Simon Daniels explained why 2017 will be the perfect time to sell a company.

Tax efficiencies

“Now is the most tax-efficient time in recent history to sell a business as Entrepreneurs’ tax relief, which grants business owners a preferential capital gains tax rate of just 10% on business gains of up to £10 million, has been extended to include long-term investors, whilst capital gains tax has been slashed by 8% for all business owners.”

The perks of “Investors’ Relief”

Previously, individuals would have also been required to be employed within the firm and hold a stake of 5% or greater in order to claim a £10 million lifetime allowance at the reduced rate. However, under the new changes which are being referred to as ‘Investors’ Relief’, the provision has been extended to all long-term investors with shares in privately-owned companies.

“This could potentially pave the way for a new type of mainstream investment, with investors now provided with a greater incentive to invest in SMEs and subsequently benefit from the rewards of a reduced tax liability.”

M&A is still at the top of the agenda for businesses

“Companies are prioritising their capital for M&A amidst a supportive environment for companies looking to acquire. In a low organic growth environment with a historically low cost of borrowing and high availability of funds for M&A, acquisitions are seen as very much a growth strategy for corporate brands.”