From video meetings, to digital communication and e-signatures, the advisory M&A market has undoubtedly been impacted by the outbreak of coronavirus.
Some deals had to be paused, others revalued, and terms re-agreed in line with the current conditions.
But Gordon Kerr, mergers and acquisitions director at Ascot Lloyd, said the effects have not been as widespread as initially expected.
“The sale process has changed, but probably not as much as one might think. The level of interaction with venders and staff and the depth of due diligence is broadly similar to pre-lockdown,” he said.
Prices have steadily increased from 2018 through to June 2020, with average deals – for both asset and share acquisitions – rising by 30% to £2.09m ($2.6m, €2.3m) from £1.6m, according to financial advisory broker firm Gunner & Co, which hosted an M&A webinar on Thursday.
“Asset purchase is favoured for smaller businesses, due to the high fixed costs of completing a share purchase,” the firm added.
“Large scale buyers have thresholds in place as to when they will consider a share purchase – generally considered a more tax-efficient way of selling a limited company.”
DB red flags
But one area that is making businesses approach M&A deal more cautiously is where defined benefit transfers (DBTs) are involved.
“DBTs are an area of judgement and need to be considered in the round relative to the size of the transaction,” Ascot Lloyd’s Kerr told International Adviser. “In particular, we will look at the volume, timing, review process, quality of advice and the potential exposure.
“DBTs are an important part of our early assessment of a potential firm, and during the due diligence process, when we dive into the support for the advice given.
“What we’re looking for, from potential firms, is that they are able to stand by the advice given and that the client files support that. The level of assessment performed will vary depending on whether the acquisition is an asset or sale purchase.”
And with the Financial Conduct Authority (FCA) clamping down on problematic transfers, and the firms or advisers that perform them, players in the M&A space need to look out for red flags.
“The FCA has published comments in its guidance for consumers, which highlight what it sees as potential causes for concern,” David Inglesfield, chief executive at IWP, which took part in the webinar, told IA.
“This includes, for example, whether the DB scheme could have achieved the client’s retirement objectives; and whether or not the client had other assets.
“It also highlights a focus on ‘flexibility’ as a specific potential concern.”