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11th Aug

As we review the first half of 2020’s dealmaking activity we are delighted to report that EMC Corporate Finance came in at number 2 on Experian’s M&A League table for the Region. This means that we are the most prolific dealmaking team based here in the South East.

The first half of the year is a tale of two parts. We started off the decade full of optimism, a strong pipeline with few headwinds apart from the anticipated (and actioned) change to Entrepreneurs Relief. We completed 12 transactions before Chancellor Rishi Sunak stood up to present his budget on 11th March. Highlights included the Management Buyout of Ashtons Hospital Pharmacy Services backed by LDC and the sale of Posturite to US-Headquartered Fellowes. Both longstanding clients, these successful outcomes demonstrate EMC’s strength of supporting businesses as they grow and then helping owners realise the fruits of their labour through a sale where we acted as Lead Advisers.

And then came Covid-19.

We all know the impact of the crisis will last for years, and possibly decades, to come. However, we have already seen deals being done. We have completed three during this time and in the last week clients have agreed Heads of Terms on a further four which we hope to complete in the current quarter. Private Equity is increasingly taking a forward step as they seek to invest the vast sums of undeployed capital that they have. Trade buyers, who had been addressing balance sheet concerns, are now looking to replace lost business and grow through acquisitions.

Looking forward we are seeing an amazing resilience to valuations as both Private Equity and Trade buyers compete for acquisitions. At the same time we have seen an acceptance by sellers to consider alternative payments of the consideration with earn out and deferred consideration being more readily acceptable.

There is a compelling driver for entrepreneurs to act now – the review of capital gains tax which could drastically change the tax landscape for sellers. At the extreme, the alignment of capital gains and income taxes would mean an erosion in post-tax receipts on sale of as much as 30%. Or looking at it another way, this would be the equivalent of needing to increase the value of the business by 50% – just to get the same amount in your bank as today.

In summary, our message to business owners considering the future is that good businesses remain sought after, valuations remain resilient, even if it will take you a little while longer to receive all of the cash, but if the Government does move to raise taxes targeting Capital Gains Tax you could find yourself working for another five years just to pay the tax bill! Hopefully there is still have time to avoid this disaster if you act now.

As always we are available for initial meetings without cost or commitment. If you would like to have a discussion email or call 01273 945984.

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