Category: Uncategorized

At HMT, we work with mid-market businesses, their shareholders and management teams, to deliver deals. The firm (and its partners!) have been working in the UK Mid-Market for over 30 years and it serves us well to reflect each January on what we and our clients experienced in the previous 12 months – in the hope it might help us predict the next 12 !

We might have hoped to see the back of the uncertainty and volatility of 2020-2022 during 2023. Instead the war in Ukraine and the conflict between Israel and Gaza and the knock on effects on inflation, interest rates and an underlying sense of global instability quickly subdued a short-lived bounce-back in business valuations and 2023 continued, on the whole, to see lower deal pricing than pre-pandemic.

Some of this is easily attributable to the steady and significant increase in the cost of debt following the brief Truss premiership. While mid-market leverage has never returned to the vertigo inducing levels which predated the financial crash of 2008/9, with the launch of a plethora of new debt funds private equity had started to take more advantage of cheap and readily available debt. But with the prospect of some expensive refinancings down the road and different assumptions impacting new investment decisions, a harder view of deal pricing was inevitable in 2023. It is to be hoped that in 2024 a return to more normal debt pricing will increase PE confidence and underpin higher returns modelling but with continued political volatility and new global threats to supply chains, it remains to be seen.

As always there were sector winners and losers in 2023. This reflects those global trends and the perception of acquirers and investors of where the offering of a business plays to them. There is little reason to expect anything different going into 2024. With continued concerns about cost of living pressures and sustained and significant pressures on the public sector there is a clear preference amongst most mid-market private equity investors and their buy and build platforms for B2B rather than B2C propositions (nothing new there!). There is also a clear tendency for private equity to see safety in group-think (with apologies to our many private equity friends!) and so a concentration of appetite around business to business software, managed service providers (particularly with cyber security offerings and/or a compelling story around AI) and ESG has typically maintained value for those businesses, particularly if they are a credible platform investment for buy and build activity.

Other areas of activity have been a little more surprising. A series of private equity backed “roll ups” of small professional services (particularly accounting services) providers has created competition for quality assets in that market and a welcome exit for a  collective of small firm partners. Similarly there has been a wave of activity in the auto repair sector, driven by increasing complexity and professionalism in the market, insurer demands and a shortage of capacity. Some of the multiples achieved in both of these sectors are significantly higher than might be expected based on received wisdom and traditional experience.

The underpinning logic in mid-market M&A is value creation. It has always been true that market consolidation comes in waves and both professional services (at the lower end) and auto repair offers real opportunity for investors and acquirers to drive efficiency and scale through M&A. Doubtless investors and acquirers will continue to identify sub sectors where this opportunity exists as well as to double down on their existing platforms. Being early into a consolidation play creates the best opportunity to create value but also presents the greatest risk !

Over the last few years the lines between trade buyers and private equity have blurred as platform investments across a whole host of industries have driven mid-market M&A as they leverage PE investment and debt to grow by acquisition. Where once this was all about scale, the art of buying and building has become more about strategic capabilities (as well as scale) in order to drive higher multiples at ultimate exit. This was a very clear trend in 2023 with both trade and private equity buyers very focused on meeting pre-defined criteria and rejecting opportunistic acquisitions that didn’t meet them. We wouldn’t expect this to change in 2024.

Another thing we don’t expect to change in 2024 is the depth, breadth and length of due diligence processes. Investors and acquirers are demonstrating extreme caution and no investment manager or M&A director wants to be responsible for overpaying or buying a pup. This is translating into an abundance of very detailed analysis and questioning to the point of driving clients to near insanity. Be prepared with the information you will need, but also brace for a process which is longer than they dare admit to at the outset.

A further trend that was very apparent in 2023 was the reduced appetite for and confidence in early stage technology and software businesses. After a reasonably positive period post pandemic at this end of the market, an oversupply of businesses looking for highly priced series A and B rounds seems to have come home to roost. Finding fundraising difficult, some of these companies turned to the idea of an exit but in many cases found much the same response from would be buyers.  For early stage businesses, new money is potentially going to continue to be difficult to find, particularly for pre-revenue companies or those with high cash burn and slower than predicted ARR growth

All in all the “wall of cash” or “dry powder” which we all read is sitting on large corporate balance sheets and in private equity funds waiting to be deployed, will continue to drive activity in the mid-market. But the experience of companies looking for a share of that cash will vary depending on their scale, growth profile and sector. Some businesses, however fundamentally sound, will continue to struggle to secure any attention. Others will hit an investment or acquisition sweet spot and do better than they (perhaps) should.

Our advice to shareholders and management teams looking to do a deal in 2024 would be to do your homework, understand appetite and multiples in your sector and what is driving value. Ensure your business is properly deal ready and make sure your expectations are in the realistic range. Brace for a longish process and some bruising testing of your financials and strategy.

We hope that the easing of inflation and interest rates will continue into 2024 and that the cautious confidence of investors and buyers plus the imperative to deploy cash, will continue to drive activity in the mid-market.

At HMT, we work with mid-market businesses, their shareholders and management teams, to deliver deals. The firm (and its partners!) have been working in the UK Mid-Market for over 30 years and it serves us well to reflect each January on what we and our clients experienced in the previous 12 months – in the hope it might help us predict the next 12 !

We might have hoped to see the back of the uncertainty and volatility of 2020-2022 during 2023. Instead the war in Ukraine and the conflict between Israel and Gaza and the knock on effects on inflation, interest rates and an underlying sense of global instability quickly subdued a short-lived bounce-back in business valuations and 2023 continued, on the whole, to see lower deal pricing than pre-pandemic.

Some of this is easily attributable to the steady and significant increase in the cost of debt following the brief Truss premiership. While mid-market leverage has never returned to the vertigo inducing levels which predated the financial crash of 2008/9, with the launch of a plethora of new debt funds private equity had started to take more advantage of cheap and readily available debt. But with the prospect of some expensive refinancings down the road and different assumptions impacting new investment decisions, a harder view of deal pricing was inevitable in 2023. It is to be hoped that in 2024 a return to more normal debt pricing will increase PE confidence and underpin higher returns modelling but with continued political volatility and new global threats to supply chains, it remains to be seen.

As always there were sector winners and losers in 2023. This reflects those global trends and the perception of acquirers and investors of where the offering of a business plays to them. There is little reason to expect anything different going into 2024. With continued concerns about cost of living pressures and sustained and significant pressures on the public sector there is a clear preference amongst most mid-market private equity investors and their buy and build platforms for B2B rather than B2C propositions (nothing new there!). There is also a clear tendency for private equity to see safety in group-think (with apologies to our many private equity friends!) and so a concentration of appetite around business to business software, managed service providers (particularly with cyber security offerings and/or a compelling story around AI) and ESG has typically maintained value for those businesses, particularly if they are a credible platform investment for buy and build activity.

Other areas of activity have been a little more surprising. A series of private equity backed “roll ups” of small professional services (particularly accounting services) providers has created competition for quality assets in that market and a welcome exit for a  collective of small firm partners. Similarly there has been a wave of activity in the auto repair sector, driven by increasing complexity and professionalism in the market, insurer demands and a shortage of capacity. Some of the multiples achieved in both of these sectors are significantly higher than might be expected based on received wisdom and traditional experience.

The underpinning logic in mid-market M&A is value creation. It has always been true that market consolidation comes in waves and both professional services (at the lower end) and auto repair offers real opportunity for investors and acquirers to drive efficiency and scale through M&A. Doubtless investors and acquirers will continue to identify sub sectors where this opportunity exists as well as to double down on their existing platforms. Being early into a consolidation play creates the best opportunity to create value but also presents the greatest risk !

Over the last few years the lines between trade buyers and private equity have blurred as platform investments across a whole host of industries have driven mid-market M&A as they leverage PE investment and debt to grow by acquisition. Where once this was all about scale, the art of buying and building has become more about strategic capabilities (as well as scale) in order to drive higher multiples at ultimate exit. This was a very clear trend in 2023 with both trade and private equity buyers very focused on meeting pre-defined criteria and rejecting opportunistic acquisitions that didn’t meet them. We wouldn’t expect this to change in 2024.

Another thing we don’t expect to change in 2024 is the depth, breadth and length of due diligence processes. Investors and acquirers are demonstrating extreme caution and no investment manager or M&A director wants to be responsible for overpaying or buying a pup. This is translating into an abundance of very detailed analysis and questioning to the point of driving clients to near insanity. Be prepared with the information you will need, but also brace for a process which is longer than they dare admit to at the outset.

A further trend that was very apparent in 2023 was the reduced appetite for and confidence in early stage technology and software businesses. After a reasonably positive period post pandemic at this end of the market, an oversupply of businesses looking for highly priced series A and B rounds seems to have come home to roost. Finding fundraising difficult, some of these companies turned to the idea of an exit but in many cases found much the same response from would be buyers.  For early stage businesses, new money is potentially going to continue to be difficult to find, particularly for pre-revenue companies or those with high cash burn and slower than predicted ARR growth

All in all the “wall of cash” or “dry powder” which we all read is sitting on large corporate balance sheets and in private equity funds waiting to be deployed, will continue to drive activity in the mid-market. But the experience of companies looking for a share of that cash will vary depending on their scale, growth profile and sector. Some businesses, however fundamentally sound, will continue to struggle to secure any attention. Others will hit an investment or acquisition sweet spot and do better than they (perhaps) should.

Our advice to shareholders and management teams looking to do a deal in 2024 would be to do your homework, understand appetite and multiples in your sector and what is driving value. Ensure your business is properly deal ready and make sure your expectations are in the realistic range. Brace for a longish process and some bruising testing of your financials and strategy.

We hope that the easing of inflation and interest rates will continue into 2024 and that the cautious confidence of investors and buyers plus the imperative to deploy cash, will continue to drive activity in the mid-market.

We find ourselves at that time of year where people are in more of a reflective mood than usual – myself included.

Beyond this season’s whirlwind of awards ceremonies, industry events and office parties, people are busy trying to clear their desks and make a clean break for the holidays. Goodness knows this is probably the only time of year where people can properly decompress and where email traffic slows if only or a day or two.

I often take this time to reflect on my performance and try and establish personal and professional goals for the coming year and in so doing am trying to learn from the lessons from another year in the fundraising and M&A trenches.

Last week, I was lucky enough to attend a Christmas Carol Concert where the choir were drawn from military wives and their spirit, cohesion and teamwork all working towards a common goal gave me an idea about how to frame some of the most important learnings from 2023, and if you will grant me some artistic licence, I thought I would tell you a story that is pertinent to both the state of the venture capital market and the season………(Disclaimer: any similarities to other known works is purely coincidental)

Scene: A City Office in the Middle of a Bitingly Cold Fundraising Climate

Once upon a time in a bustling technology accelerator unit in a City that may or may not bear a passing resemblance to London, there lived a young tech entrepreneur named Evan Geezer Stooge (hereinafter “Stooge” (sorry professional habit)).

Stooge was an ambitious and driven CEO, determined to grow his startup into a successful business. However, he was also notorious for prioritizing the tech and profits at the expense of his employees and the community, showing little regard for sustainability or social impact (let alone any SaaS metrics!). His leadership team lacked diversity and the least said about his management style the better – for he managed everything alone, and he alone made all the decisions – right down to the antiquated and undersized fossil fuel-based heating system.

One chilly venture-funding winter’s night, as Stooge drifted into slumber after a long day of pitching to investors, he was visited by three ghostly figures. The Ghosts of Venture Capital Past, Present, and Future appeared to him, each with a valuable lesson to impart.

The Ghost of Venture Capital Past showed Stooge scenes from last three or four years of venture capital. He witnessed the importance of resilience and adaptability among entrepreneurs facing economic downturns, market volatility and global pandemics. The ghost stressed the need for Stooge to be flexible in his approach to fundraising, to adapt to changing circumstances and market conditions, to plan well in advance and to focus on core metrics and KPIs as well as optimising customer satisfaction and retention rates in order to succeed.

Next, the Ghost of Venture Capital Present guided Stooge through the current landscape of fundraising. Emphasizing the growing significance of sustainable and impact-driven investment opportunities, the ghost highlighted the heightened importance bestowed by investors upon startups committed to environmental, social, and governance (ESG) principles. Stooge recognized the value of aligning his business model with sustainability goals and embracing a wider purpose and KPI measurement set beyond mere profits.

Lastly, the Ghost of Venture Capital Future led Stooge through a realm where a diverse and inclusive leadership were paramount. The ghost highlighted the transformative power of developing and incentivising diverse teams, revealing how this approach could unlock doors to venture investment otherwise closed to him. Stooge began to understand the strategic advantage of assembling a team with a broad range of perspectives and experiences.

He vowed to make changes in his leadership style, bring in a more experienced management team while overhauling business practices to reflect a new set of values and create a more sustainable and equitable future for all with an appropriate, tax-efficient equity incentivisation structure for key staff (subject to normal vesting provisions).

Stooge awoke with newfound clarity and determination. The lessons from the ghostly apparitions held profound implications for his venture capital fundraising efforts and he was determined to embrace the lessons shown to him and he vowed to change.

Newly enlightened, Stooge set out on a new path. He engaged with potential investors and articulated a clear commitment to sustainability and social impact. He actively sought diverse voices for his leadership team, acknowledging the strength and creativity such collaborations would bring.

Stooge became more adaptable in his approach to fundraising, seeking the wise counsel of others (such as Henley-based award-winning corporate finance advisers) and readjusted his valuation expectations in line with market. He forged strong relationships and networks, prioritizing transparency and clear communication with investors, openly discussing expectations and potential risks even where follow-on funding may be at a down round.

He was good to his word and because of his newfound understanding, Stooge’s startup flourished. He secured venture capital funding on favourable terms from investors who saw the value in his visionary approach. His commitment to sustainability, diversity, and transparency set him apart in the competitive fundraising landscape of 2024, and his journey served as an example to other entrepreneurs seeking to navigate the changing world of venture capital fundraising.

From that day forward, Stooge led his business with purpose and compassion, understanding that the lessons he had learned were as invaluable as any fortune. And in his success, he also found fulfilment, knowing that his efforts were making a positive impact on his team and wider society and soon his start-up became a scale-up which in turn became the envy of many a potential acquirer.

“And it was always said of Stooge, that he knew how to fundraise well, if any man alive possessed the knowledge. May that be truly said of us, and all of us!”

Happy Christmas and Best wishes for 2024.

We find ourselves at that time of year where people are in more of a reflective mood than usual – myself included.

Beyond this season’s whirlwind of awards ceremonies, industry events and office parties, people are busy trying to clear their desks and make a clean break for the holidays. Goodness knows this is probably the only time of year where people can properly decompress and where email traffic slows if only or a day or two.

I often take this time to reflect on my performance and try and establish personal and professional goals for the coming year and in so doing am trying to learn from the lessons from another year in the fundraising and M&A trenches.

Last week, I was lucky enough to attend a Christmas Carol Concert where the choir were drawn from military wives and their spirit, cohesion and teamwork all working towards a common goal gave me an idea about how to frame some of the most important learnings from 2023, and if you will grant me some artistic licence, I thought I would tell you a story that is pertinent to both the state of the venture capital market and the season………(Disclaimer: any similarities to other known works is purely coincidental)

Scene: A City Office in the Middle of a Bitingly Cold Fundraising Climate

Once upon a time in a bustling technology accelerator unit in a City that may or may not bear a passing resemblance to London, there lived a young tech entrepreneur named Evan Geezer Stooge (hereinafter “Stooge” (sorry professional habit)).

Stooge was an ambitious and driven CEO, determined to grow his startup into a successful business. However, he was also notorious for prioritizing the tech and profits at the expense of his employees and the community, showing little regard for sustainability or social impact (let alone any SaaS metrics!). His leadership team lacked diversity and the least said about his management style the better – for he managed everything alone, and he alone made all the decisions – right down to the antiquated and undersized fossil fuel-based heating system.

One chilly venture-funding winter’s night, as Stooge drifted into slumber after a long day of pitching to investors, he was visited by three ghostly figures. The Ghosts of Venture Capital Past, Present, and Future appeared to him, each with a valuable lesson to impart.

The Ghost of Venture Capital Past showed Stooge scenes from last three or four years of venture capital. He witnessed the importance of resilience and adaptability among entrepreneurs facing economic downturns, market volatility and global pandemics. The ghost stressed the need for Stooge to be flexible in his approach to fundraising, to adapt to changing circumstances and market conditions, to plan well in advance and to focus on core metrics and KPIs as well as optimising customer satisfaction and retention rates in order to succeed.

Next, the Ghost of Venture Capital Present guided Stooge through the current landscape of fundraising. Emphasizing the growing significance of sustainable and impact-driven investment opportunities, the ghost highlighted the heightened importance bestowed by investors upon startups committed to environmental, social, and governance (ESG) principles. Stooge recognized the value of aligning his business model with sustainability goals and embracing a wider purpose and KPI measurement set beyond mere profits.

Lastly, the Ghost of Venture Capital Future led Stooge through a realm where a diverse and inclusive leadership were paramount. The ghost highlighted the transformative power of developing and incentivising diverse teams, revealing how this approach could unlock doors to venture investment otherwise closed to him. Stooge began to understand the strategic advantage of assembling a team with a broad range of perspectives and experiences.

He vowed to make changes in his leadership style, bring in a more experienced management team while overhauling business practices to reflect a new set of values and create a more sustainable and equitable future for all with an appropriate, tax-efficient equity incentivisation structure for key staff (subject to normal vesting provisions).

Stooge awoke with newfound clarity and determination. The lessons from the ghostly apparitions held profound implications for his venture capital fundraising efforts and he was determined to embrace the lessons shown to him and he vowed to change.

Newly enlightened, Stooge set out on a new path. He engaged with potential investors and articulated a clear commitment to sustainability and social impact. He actively sought diverse voices for his leadership team, acknowledging the strength and creativity such collaborations would bring.

Stooge became more adaptable in his approach to fundraising, seeking the wise counsel of others (such as Henley-based award-winning corporate finance advisers) and readjusted his valuation expectations in line with market. He forged strong relationships and networks, prioritizing transparency and clear communication with investors, openly discussing expectations and potential risks even where follow-on funding may be at a down round.

He was good to his word and because of his newfound understanding, Stooge’s startup flourished. He secured venture capital funding on favourable terms from investors who saw the value in his visionary approach. His commitment to sustainability, diversity, and transparency set him apart in the competitive fundraising landscape of 2024, and his journey served as an example to other entrepreneurs seeking to navigate the changing world of venture capital fundraising.

From that day forward, Stooge led his business with purpose and compassion, understanding that the lessons he had learned were as invaluable as any fortune. And in his success, he also found fulfilment, knowing that his efforts were making a positive impact on his team and wider society and soon his start-up became a scale-up which in turn became the envy of many a potential acquirer.

“And it was always said of Stooge, that he knew how to fundraise well, if any man alive possessed the knowledge. May that be truly said of us, and all of us!”

Happy Christmas and Best wishes for 2024.