Forward East Anglia Market Monitor – 2017 in Review
In politics…
2017 began in a bit of a lull. The reality that yes, we had voted for Brexit, was finally sinking in, and with a reasonable conservative majority, it felt like it was a case of just getting on with it. In March Theresa May delivered the letter which triggered Article 50… the countdown began. But in case we thought we’d get a few months away from politics, in April the Prime Minister called a general election for June 8th. What could possibly go wrong she thought? The Conservatives were miles ahead, Jeremy Corbyn languishing in obscurity, and a “strong and stable” blue majority beckoned to lead us calmly out of the EU. But as the Tories seemed to lose the plot (whatever the “dementia tax” actually was is anyone’s guess), and Labour dished out cash to anyone that would take it, the polls turned with the inevitable result… “ strong and stable” had turned to “weak and wobbly”. With the support of the DUP we have somehow averted a lurch to the left for now. And it seems we have passed the first Brexit hurdle, with a massive fudge at the last minute to leave the Irish border question… well just that…. A question. So, as we head into 2018, we seem no further forward on Brexit, although the softer flavour seems to be more likely, with a strong possibility that we virtually remain in the EU, but just don’t get invited to the Christmas party. And Mr. Corbyn sits in the wings waiting for any sign of a wobble and his opportunity to strike. Time to fasten your seatbelts… 2018 is unlikely to be smooth!
On the economy…
But what about from a business perspective? For many SMEs 2016 had been all about dealing with currency risk, which depending on whether you imported or exported was either a big problem, or a potential opportunity. In 2017 these settled down, albeit with a weaker sterling being the new norm.
On the economy front, just as the Bank of England started to raise rates from rock bottom levels, there were signs that the economy was slowing. Not that we have been roaring along for the last few years, but it seems that everything these days is measured in small margins. The good news is that the rest of world seems to be ticking along, with growth in the eurozone picking up over the last quarter. If that continues it will at least provide additional export opportunities if our home market is sluggish. But it seems that key to our growth is that much talked about productivity problem. With unemployment at historically low levels, we don’t seem to be able to produce more from the same workforce. The dilemma for SMEs is how to invest in new technology to drive productivity, against a backdrop of Brexit and uncertainty. Those businesses that can look beyond the current uncertainty and invest for the future are likely to be rewarded once the dust settles.
So what for M&A in East Anglia…
While the macro picture cannot be ignored it’s time to look at how businesses in East Anglia fared in 2017. Please click here for the data
Across the region we recorded 215 deals in 2017. Cambridgeshire was responsible for the lion’s share, with 33%, followed by Essex (20%) and Hertfordshire (14%).
Over 50% of the transactions reported were business sales, followed by 57 acquisitions by East Anglian based business and 35 fundraisings. The transactions were spread across a number of sectors with business services leading the way, followed by manufacturing & construction, healthcare and technology.
Cambridge continued to operate differently to the rest of the region, with over 60% of the fundraisings being for Cambridge based business, largely in the high tech or healthcare sector. By contrast business sales were spread more evenly across the region.
And Essex based businesses led the way in making acquisitions.
In general, activity across the region seems strong for all types of transactions. And while there is no doubt Cambridge grabs the headlines there are successful businesses spread across the region who have been snapped up this year by UK or overseas buyers, or by private equity firms funding the next generation of management to take over. Equally it is great to see local businesses on the acquisition trail, with some making multiple acquisitions during the year. No matter what the backdrop, East Anglia is not standing still, and let’s hope we see this continue.
2018 Outlook
There is no doubt that we head into 2018 with continued uncertainty. Brexit won’t be resolved any time soon, the Government is anything but strong and stable, and the economy seems to be wavering. On the plus side, global markets seem to be moving along well, with the Eurozone finally picking up, and interest rates are likely to continue to remain low, offering affordable borrowing. There is also more money than ever available to SMEs to fund growth, acquisitions or support management buyouts.
On the debt side, there is an increasing array of options with a range of asset based lenders prepared to look creatively at your balance sheet, through traditional banks, peer to peer lending, to mezzanine type deals for higher risk lending. And while borrowing against cashflow can still be tricky for SMEs, there are more options out there, so it pays to look around.
On the equity side, there has never been more money available for SMEs. From early stage venture capital, to VCT funds, through to private equity at all levels of the market. If you are a business with a good profitable history and robust growth plans, there are plenty of options out there if you are looking to sell, invest in or grow your business.
A recent forecast by Irwin Mitchell and CEBR listed three East Anglian cities in the top 10 for growth in 2018, with Cambridge joined by Ipswich and Norwich. So plenty of room for optimism…. Well at least until the next crisis!
Happy new year and best wishes to all SMEs for a successful 2018 from Forward Corporate Finance.
Sarah & Rob