A leading M&A advisor has compared the deals market to a ‘Mexican stand-off’, with neither side willing to blink first.
Charlotte Ashton is a veteran of the M&A advisory and private equity world and the founder of Implicit, which helps CEOs, owners and founders prepare for sale.
She’s one of the confirmed speakers for the Tech Barometer event on May 24th, which is organised by tech specialist Fairmont Recruitment and BusinessCloud and discusses the changing trends in tech, recruitment and investment.
Ashton, who previously worked at Palatine Private Equity, said macro-economic uncertainty had caused a drop in deal and funding volumes.
She said: “There is caution amongst PE and VCs as they are under pressure to perform. For investors they are measured on rate of deployment (making investments) and returns.
“There are two issues affecting this: Caution from business owners, macro-economic uncertainty, inflation, supply chain disruptions and the risk of change in government affecting tax, are all impacting on profits and decisions around when to raise or sell.
“The second relates to PE and VC-backed exits. If a sale assets won’t deliver a high enough return on sale the fund underperforms but if they hold on to the asset for too long this impacts IRR return too. Poor fund performance on exit risks their own ability as investors to raise future funds and continue to operate.
“So it’s a Mexican standoff. Investors are doubling down on DD (due diligence) and drawing out timescales to invest and exit well in a process at both ends of the market as they come under increased scrutiny to invest and exit well.
“The other major issue is businesses are not ready for these increasingly detailed DD processes, so they either get burnt out and accept a lower lose value or pull out all together.
“Fundraising is equally tough. Institutions are seeking tighter, more proven metrics, we are also and seeing more private investors in the market who don’t want to pay the big fees to invest in VCTs and PE. This can be a great way to help build those metrics but these investors get less involved so companies miss out on the operational rigour institutions bring.”
Ashton will be joined on the panel at the Tech Barometer event by Ben Davies, founder of technology platform Vypr and Jack Donohue, CEO and founder of Fairmont Recruitment.
Through her business Implicit, Ashton supports founders to proactively plan for fundraise and sale through a combination of training and coaching via a 6-step framework called ‘Conscious Capital Creator™️’.
She said: “The 6-step framework approach is proven to increase profits and business value by 40 per cent as well as reducing risk of a failed process. Over half of attempts to sell are unsuccessful, much lower success rate when fundraising.”
The M&A veteran has supported over 40 businesses in taking control of their exit plans and grow profits and said planning for sale doesn’t mean business owners don’t have to commit too selling.
She said: “Lots of businesses go out to market without fully understanding their options. That’s what I focus on with clients as a starting point. Is what you think you want to do based on limited knowledge, what you actually want and need?
“The current economic challenges are definitely having an impact on people’s exit plans. There’s lots of caution about investing, paring back workforces, scaling down costs and expecting the worst.
“The best time to plan for sale is when you have no desire or intention to sell!
“For the best results you need a 12-month to two-year runway to develop a fundraise strategy or plan for sale.”
Ashton advised on deals worked through the 2008 recession, Brexit and Covid-19 and said the deals market was cyclical.
“As with all downturns and world events, there are winners and losers,” she said. “The money moves to where the growth is and there is still a lot of capital to deploy which is where it is slightly different to previous downturns.
“The thing to keep an eye on is whether the funds out in the market have invested well. If some of the capital deployed at the peak don’t get the returns they need there may be some structural changes and investors struggling to raise future funds which may lead to some rationalisation creating uncertainty for investee portfolio companies.”
She advised founders wanting to add value to their business to ‘get their house in order’.
“Build and invest in the team, and if you want to sell, start working on making yourself redundant,” she said. “I don’t transact deal flow. I help clients find the right corporate finance advisor so I can remain objective by only focusing on planning so there is always an option to do nothing and continue to build the business.”
The next Tech Barometer event takes place on May 24th at Fairmont Recruitment’s offices in Mosley Street, Manchester, and will be hosted by Chris Maguire, executive editor of BusinessCloud.
The morning event is free to attend but spaces are limited so booking is essential.
Register here.