A Grant Thornton Corporate Finance survey has identified business services, healthcare, financial services, retail and leisure as the sectors where M&A activity is likely to increase in coming months. But only sub-sectors and niche operators within these areas are of interest to the majority of mid-market brokers and venture capital investors that were surveyed. The report predicts that a widespread resurgence in deal activity is still at least six months away.
Mat Bhagrath, a partner at Grant Thornton, said: “More deals are certainly being done now than at the beginning of the year, leading many to jump the gun and call for the end to a difficult period for corporate finance activity. Whilst improving, deal activity is still patchy and largely confined to niche businesses. We don’t expect the nature of these transactions to change much this side of Christmas but to hopefully start gathering some momentum into 2004, when, if aided by a growing economy, corporate finance activity levels could be set to regain some lost ground.”
Business process outsourcing and facilities management are seen as investment hotspots in the business services sector but logistics and human capital management are not. In healthcare, medical device manufacturers, care homes and private hospitals were seen as more appealing than dental practices, opticians and the pharmaceutical industry. In financial services, respondents favoured fund management and the IFA market. In retail, the non-food sector proved almost twice as popular as food retailers. Investors in the leisure sector prefer bar and restaurant businesses, with fitness centres and the travel and tourism industry lagging behind.
Bhagrath said he was surprised that there was not more interest in the food & beverages and media sectors among those surveyed given the changes those sectors face. In the UK, July’s Communications Act has removed cross-ownership rules, which, combined with improved stock market performance in the media sector, should encourage transactions. In the food sector, pricing pressure and large retailers’ desire to control the supply chain, coupled with the cost of implementing legislative changes should drive consolidation among smaller producers. Deal activity is also likely to develop around growing niches in the sector, such as convenience food and organic producers and distributors.