M&A: Corporates to compete with PE firms as cash holdings surge

CFOs are prioritising inorganic growth opportunities, with M&A activity set to surge post-pandemic as UK corporate cash holdings jump 500 percent since March 2020, giving businesses the chance to compete with private equity firms, says Will Senbanjo, partner at ACP Altenburg Advisory.

“Historically, corporates have been more focused on paid operations and growing organically,” he says. “These cash balances offer companies the opportunity to grow through mergers and acquisitions and the potential to compete with private equity.”

Corporate net cash holdings rose from £20bn to £109bn since March last year, according to data by ACP Altenburg Advisory.

Many businesses made use of government support schemes to grow cash reserves during the pandemic. Lower levels of spending and investment mean UK corporates now have the resources to accelerate business growth through M&A, says Senbanjo.

Post-pandemic recovery

According to Deloitte’s UK CFO Survey (Q2 2021), 30 percent of finance leaders said expanding through acquisitions is a strong priority for the next 12 months

The impact of the pandemic and Brexit means the outlook for expansion strategies is positive, says Senbanjo. “There are opportunities to acquire businesses at much lower prices than you would have had to pay [before].”

Moreover, the increase in flexible working has reduced office costs and helped businesses grow their talent pool so profits are higher and corporates have greater resource to invest, says Senbanjo.

In fact, 83 percent of CFOs surveyed by Deloitte predict gains in business performance and productivity.

Confidence among CFOs is also strong, with 41 percent of respondents reporting that demand for their businesses has already returned to pre-pandemic levels, up from 27 percent in Q1 2021.

However, Francesca Herratt, CFO at Delta Capita admitted that client satisfaction will be key in maintaining sustainable growth as businesses rebound from the pandemic.

“We have seen that the industry has been impacted by Covid-19 with clients’ appetite to engage with external providers,” she said in an email. “If you can demonstrate value from the start of the relationship with your client and build trust, it can help the business improve its pipeline by securing future loyalty and client referrals.”

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