The last few months have seen the completion of several major deals: Capita Group acquired BSI, World Events was sold to United Drugs and Expotel bought Venues Event Management.
Do all these deals mean we will see a major consolidation in the industry over the next 12 months, or was this a case of the industry’s heavyweights snapping-upstruggling competitors? More importantly will the trend continue?
In my view the answer is “it depends”, by which I mean it depends on which sector of the market you’re involved in. As the UK economy recovers from recession there is little doubt there will be a growth in mergers and acquisitions (M&A) across all markets as confidence returns. However, the one factor that remains unknown is the effect of the Government’s austerity programme. Will the cuts severely dent confidence or has the business community already taken this into account?
The World Events deal, on which I advised, was the second recent sizeable deal in thepharmaceuticals sector. At least in the short-term, it is likely that the established players in the pharma sector will maintain their dominance because potential new entrants to the market will be discouraged by the high level of regulation that controls the sector and the fact that margins will remain tight.
In the broader market I predict that conditions are likely to remain similar over the next year or so. The pressure to reduce, or at least limit marketing spend,will continue and it is the marketing budgets of major corporations on which this industry is heavily dependent. This will continue to limit the growth of many businesses in the sector and margins will be squeezed. In these conditions there will need to be some consolidation, whether that is done by organic growth or acquisition.
Already we have seen the merger of two major events in the waste management and sustainability sector, Emap’s Recycling & Waste Management Show and Futuresource, owned by the Chartered Institution of Wastes Management.
I believe these conditions will also create opportunities for businesses that are bold and prepared to invest in the future. Business owners should be looking to spend their money on improving staff training, technology and marketing so that they are able to capitalise on the recovery when it arrives.
Conference and event organisers will also have to demonstrate the long-term value of what they deliver and ’return on investment’ will increasingly be the measure against which events are assessed. Online marketing and direct mail, with their ability to clearly demonstrate the number of responses delivered through a specific marketing spend, will continue to be attractive to cash-strapped marketing executives.
In these conditions there will clearly be some businesses that cope with the pressure better than others. Those who are prepared to be bold will look for deals that will generate long-term value in 2012 and beyond and this is precisely what the recent deals we have seen are all about.
For this reason I think there will be a small but significant increase in M&A activity during the next 12 months. This will increase in 2012 as other businesses encouraged by the economic recovery will seek deals, however by then the best opportunities will have been snapped-up.
So if you’re serious about growing your business, the next six months are critical if you are going to get your company in poll position to make the most of the recovery when it comes.
Neil Ackroyd is a Chartered Accountant and worked as a deal leader with KPMG, prior to founding PCF. He has extensive experience of transactions for both ownermanagers and multinational plc’s, in disposals, MBO’s, acquisition and transaction due diligence. He can be contacted via: www.precisioncorporategroup.com