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Our Top Six Predictions for M&A in 2020

Happy New Year! I hope your final weeks & months of 2019 were as exciting as ours. A sincere thank you to every client, past, present or future, who has placed (or is even considering placing) their trust in Symmetry's team.

Now, with Christmas fast becoming a distant memory, acquirers and sellers alike are gearing up to make 2020 a year of growth & success. So what to expect from the UK M&A market in the next 12 months?

First, let's hear from some commercial institutions...

EY are making positive noises. Their Global Capital Confidence Barometer states that 52% of all those surveyed are planning to actively pursue M&A in the next 12 months. Plus 68% of the C-Suites of those same surveyed firms expect the M&A market to improve in the next 12 months.

Baker MacKenzie are more bearish in expecting a decrease in international deal making.

PWC are hedging their bets. Their relationship status with 2020's outlook could be best be summed up as "It's Complicated".

Hmm. We're taking heart from EY's report. Because optimism breeds confidence, which breeds proactivity, which breeds commercial results. Which sums up Symmetry's philosophy nicely.

In terms of specifics in the UK landscape we predict the following:

1. December's UK election result will embolden acquirers to act. With the tax regime stable(-ish. No-one should take the continuation of Entrepreneurs Tax Relief for granted much longer) and the timing of Brexit Phase 1 settled, Corporate Development teams and Investment Committees will breathe a sigh of relief and get some transactions sourced & closed ASAP. The impending US election and general unpredictability around multiple aspects of the US administration will inspire them to act fast, before who knows what happens later in the year that might scupper today's opportunity.

2. The Tech sector will continue to dominate.Businesses with a Software-as-a-Service subscription model will continue to command premiums - the economics remain superb and there's still plenty of growth to be had. Artificial Intelligence innovators will do well indeed. Witness the growth of Splunk, US AI firms such as Moogsoft entering the UK market and Thoughtonomy's acquisition by Blue Prism. And Fintech, Healthtech & Insuretech businesses will attract strong interest.

3. Capital costs will remain low, which will continue to mean... not very much. Not as much as they might for valuations, anyway. Enterprise Values of Private businesses will be determined by the sector, growth rates, condition and competitive interest in the individual target far more than the discount rates plugged in to buyer models.

4. Buyers will be as keen to acquire talent as they are client bases and product/service lines. Look after and retain your top professionals and management. Listen to them. Reward them. Because if they go, not only will the cost to replace and the adverse impact on your business hurt operationally, but you will miss out on the best possible offers from the market.

5. Industrials & Professional Services firms with sound marketing strategies will grow. And their consequent valuations will too. There are some things that new tech just won't replace. You can't sit on a virtual sofa and people aren't ready to let a robot lawyer take on their case just yet.

6. IFRS 16 will make itself felt, taking the unprepared by surprise. For those with significant operating leases in their businesses, expect fresh liabilities to creep onto your balance sheet, that buyers will expect deducted from equity value in a transaction. Make sure your advisors capture the consequent upside for EBITDA and Enterprise Value from the outset.

Do you agree or think I'm wide of the mark? Let me know!

Whatever your goals in life, commerce and M&A for 2020, I wish you every success and prosperity for the year.

Jonathan Tate

January 2020

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