The recent financial and political climate has been volatile, to say the least. The result of which is impacting the workloads of many of our clients working in M&A, financial restructuring and insolvency, as emerging patterns strongly indicate an upswing for both industries.
In this blog, we detail some of the biggest financial and political factors that have affected both industries and what we see as the insolvency and restructuring, and mergers and acquisition trends for the future. While the macro-economic and geopolitical climate remains uncertain, this year looks to see some big changes for businesses.
This year promises to be the biggest year for elections in history, with more elections taking place across the world than ever before. Both the US and UK elections, along with elections in 50 other countries across the globe, indicate a major impact on both the political and economic environment. But what does this mean for the financial markets and for our clients.
It’s well known that investors and businesses dislike uncertainty, instead favoring stable economic conditions when looking at making new deals. These upcoming elections will mean that many businesses will be looking to play it safe and see what the outcomes are in terms of financial policy before they begin dipping their toes into any M&A activity, whether that be as investors seeking to acquire or businesses assessing their options and sale options. This means that high risk or expensive deals could be put on the backburner until after the elections take place and the finance climate becomes clearer.
One of our clients, Resolve, conducted a survey targeted mostly UK SMEs which revealed political uncertainty as the biggest issue facing businesses entering Q2 of 2024. The lack of political certainty and in turn, confidence in policy setting is stifling the ability for business owners to plan and commit to investment and growth.
Inflation
When it comes to merger and acquisition trends, rising global inflation has had a significant impact on deals over recent months. To curb rising inflation, banks have kept their interest rates high, which has increased the cost of borrowing for those looking to finance M&A deals on the buy side. This, of course, has had a knock-on effect on deal volume, as many businesses have been put off acquiring other businesses due to the high cost.
However, there is an expectation this year, for a reduction in the UK base rate as inflation has been brought down from its peak in 2022 and financial markets have improved. With this in mind, it will mean that borrowing will be cheaper and many M&A businesses will be hungry to secure deals. According to PwC, 60% of CEOs plan to make at least one acquisition in the next three years.
This is welcome news for deal makers across the M&A industry, with certain sectors likely to be busier than others. Tech, for instance, with AI advancement and innovation likely to boost deal activity as corporates look to utilise smarter tech for improved efficiencies.
M&A activity is hard to forecast but there will be pockets of growth and our clients will need strong corporate financiers to run these deals. If you review the first three months of 2024, the overall value of global M&A climbed 30 per cent to $690bn from last year, although the number of total deals announced fell by 31 per cent. Less deals but larger big-cap transactions taking place.
If you want to find out more about how to progress your M&A career, then read our blog where we give our expert insights.
So, what about insolvency and restructuring?
Rising living costs
The high cost of living has affected consumer spending, and many businesses are feeling the pinch to their profits and has meant that businesses have struggled.
According to figures from the Insolvency Service, the number of corporate insolvencies hit a 30-year high in 2023. This is as a result of a number of factors, from higher costs and interest rates to a decrease in consumer spending. This increase has affected all industries, with hospitality, retail, and construction being the worst hit.
Following the pandemic, insolvencies took a dip due to business being buoyed up by government support. This came as a surprise to many who expected the insolvency and restructuring market to boom during this period. But government schemes allowed many businesses to pull through.
But now, we are starting to see an increase in businesses going bust. With still so much financial uncertainty and high costs for businesses, it is unlikely that the number of insolvencies has hit its peak.
Larger companies are at risk too
While SMEs have been most affected, larger companies are still at risk, especially if they have to refinance at higher rates. This could see many large companies looking to restructure in order to save themselves from bankruptcy.
For those working in insolvency and restructuring, this means an increase in the number of formal appointments and advisory matters to lenders and corporates when it comes to assessing options and pulling together contingency plans.
Our role will be to ensure we are providing our clients with prospective candidates looking to secure their next role in an insolvency and restructuring profession short on talent across all levels.
Here at Gambit Search, we are an expert recruitment agency in the fields of both corporate finance and insolvency & restructuring. We have access to world-leading companies and are here to help you take the next step in your career. So if you are looking to secure your next role, then get in touch here or contact our team on 0203 633 2500.
