Investment Outlook - Fix or Grow?
While the US has, this summer, set a record for the longest economic expansion (with over 10 years of uninterrupted growth), lately the view from the UK has been one of growing caution (and even a shrinking economy) courtesy of the escalating Brexit uncertainty.
Mounting geopolitical uncertainties were prominent in the past year and created many headlines both home and abroad, yet the ebb and flow of Brexit negotiations and the apparent lack of clarity over the UK’s future relationship with the EU is probably the one element that weighs most on sentiment and investment in the UK financial community. Notwithstanding this, the deal market has been relatively robust in the past year and the expectation is that market activity will pick-up, as investors learn to include Brexit into the wider backdrop of technology, trade and legislation disruptions they face. Moreover, despite the current hesitant mood, times of uncertainty and complexity, may create opportunities for UK and international investors to spot undervalued assets and thus, take advantage of a good deal.
In this article, Luminii Consulting shares its recent experience of the deal market, as reflected in its latest Investment Outlook Survey undertaken with the Real Deals subscriber base.
Luminii surveyed a mix of financial investors (58%), professional advisers (25%) and corporates (17%) with the sample geared towards the small to mid-market financial investor segments (60% make typical investments of up to £20m, while for 11% of them the usual investment ticket is over £100m). The investors surveyed describe themselves in the middle ground between risk averse and risk taking. Having said this, risk appetite decreases with the investment size made, those making typical investments over £100m, rated themselves as risk averse, whilst those making investments <£5m consider themselves as risk takers.
From our survey, 62% of investors expect the volume of deals in the next year to decline or at best remain stable compared to 2018 levels, reflecting the on-going Brexit uncertainty and wider global economic and geopolitical worries. Nevertheless, 38% of our respondents appear to be optimistic and believe the deal volume will exceed 2018 levels.
INVESTMENT EXPECTATIONS VOLUME
Furthermore, overall investors surveyed expect to focus slightly more on portfolio companies than on making new investments.
EXPECTATIONS OF TIME SPENT ON PORTFOLIO DEVELOPMENT VS. NEW INVESTMENTS
TMT, healthcare & education and B2B & support services are expected to be the most attractive sectors in terms of M&A deals with PE/VC involvement. Respondents also expect manufacturing and industrial products to account for many M&A transactions in the next year. In contrast, a fairly low number of transactions is expected in the construction & property industries. This view is consistent with that of the professional advisers surveyed, 62% of them expect TMT to be to be the most active in M&A over the next year, followed by healthcare & education and B2B & support services (57% of professional advisers). A further observation from the respondents by deal size indicates, B2B & Support services to be the main focus for the >£100m investment size, whilst TMT to be the leading focus area for <£20m and healthcare & education to be the key focus sector for £20-100m investments.
M&A SECTOR FOCUS BY INVESTOR'S TYPICAL INVESTMENT SIZE
In terms of portfolio development strategies, the priority for 78% of investors surveyed was performance acceleration, reflecting the significant investments in digitalization and geographic expansion that PEs make to drive value creation in their portfolio. Similarly, 69% of the corporate respondents said their key strategy for the next year is revenue growth, with entering new geographies and diversifying product portfolio as the main avenues to achieve this. More than half of investors (61%) also plan to focus on exit preparation, signaling a return to (some form of) M&A normality. More than half of investors (61%) also plan to focus on exit preparation, signaling a return to (some form of) M&A normality.
PRIVATE EQUITY: PORTFOLIO DEVELOPMENT STRATEGIES
CORPORATE: REVENUE GROWTH STRATEGIES
Experience from the last downturn suggests that investors and businesses are accustomed to operating in shifting, adverse environments. Although, not many past developments may have been as seismic as Brexit is likely to be, one merit of the current situation is to focus the mind and crystallise the significance of strategy development and due diligence. Whether they decide to up their investments or concentrate on sharpening their current operating business model and drive revenue growth, the winners will, no doubt, be those that make informed decisions and put every strategic initiative under scrutiny through careful research, rigorous analysis and due diligence.
Luminii Consulting is a consulting firm specialising in Commercial Due Diligence, Growth Strategy and Value Enhancement.
We provide corporates, private equity and their portfolio companies strategic advice and pragmatic solutions to grow their business, make well-informed investment decisions and manage risk.
At Luminii we offer the knowledge, insight and guidance our clients need to progress with confidence. Our consultants provide first-class and rigorous analysis, deep knowledge of their industries and pragmatic solutions to produce strategic advice which assist both senior management and investors to make well-informed decisions. We are experts in interviewing customers, competitors, suppliers, industry leaders, conducting online surveys, desk research and performing rigorous analysis underpinned by our deep knowledge in a wide range of sectors and geographies. Luminii has extensive experience across several sectors including technology, media, telecoms, retail/e-commerce, B2B products & services and healthcare sectors.
We love the work we do and are passionate about helping our clients achieve their business and investment goals. Our strength lies in the trust we can easily build with our clients. Every client is important to us, as such all our projects have senior engagement, so we can offer distinct opinion and advice.
Click here for more information on Luminii Consulting and to find out how our team provides insights and guidance to investors and corporates. For further information, please contact Lushani Kodituwakku at This email address is being protected from spambots. You need JavaScript enabled to view it. or +44 (0)7917 553 411.
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