Don’t look back in anger
Partner Jim Truscott, of the Group’s specialist corporate practice Beyond Corporate, takes a look back at the last 12 months, the team’s experiences during lockdown, and expectations for the next financial year.
It has become a painful cliché to talk in terms of living in “unprecedented times”, but like all clichés, this is borne out of the reality of the situation. Our own business, and that of all of our clients, was taken by surprise by the spring 2020 lockdown. For a number of our corporate clients, it has been a difficult year. In many cases, revenues took a drop as a result of the enforced shutdown in the spring of last year, and although a bounce-back has in many cases been strong, recovery from the initial jolt of the spring and early summer crisis has taken a while to pass. For the most part, however, the experiences of our clients and, anecdotally, that of the wider business community in the North West and the professional community supporting it. The year has been one of high levels of transactional activity, growth and opportunity. We’ve seen our own team complete an IPO as well as a series of acquisitions, disposals and joint ventures, and in general the mood of our corporate network has been one of cautious optimism – people have been busy – and not just fighting fires, but doing good, strategic transactional activity. This has resulted in an odd disparity between the experience of remote working whilst operating at a high level of activity at least comparable (and in some cases in excess of) activity levels pre-Covid.
Looking at some of the drivers behind transactional activity during this period, there are some obvious triggers. Early in 2019, it was trialled that the Chancellor would make adjustments to the CGT regime in his spring Budget, and in advance of this, businesses sought to offload businesses and assets earlier than may otherwise have been the case. Sure enough, entrepreneur’s relief was altered in that budget, and whilst the rebadged “Business Asset Disposal Relief” maintained a 10% CGT rate for qualifying individuals, the lifetime allowance associated with this tax break was reduced from £10m to £1m – a significant narrowing of the benefit.
Fast-forwarding to the Budget of spring 2020, we saw significant upturn in transactional activity, particularly fuelled by a wish to close disposals of businesses prior to any increase in CGT rates, widely expected to be implemented with effect from the budget. The same experience was reported to us by many corporate advisors: a significant uptick in deal activity fuelled by these concerns.
In practice, Mr Sunak’s Budget in spring of this year did not implement the CGT increases that were widely anticipated. The expectation is now that this may manifest itself in the 2021 Autumn Statement, again fuelling speculation that sellers will wish to accelerate or close any disposals of their businesses in advance of that time.
In between these two Budgets, the pandemic took hold. Quarter Two transactional activity, nationally and internationally, declined sharply. Our team’s experience was that big corporate enterprises, in particular, put a formal hold on M&A activity, pending a review of the position later in the year. In some cases, this pause of large-scale corporate activity continues to hamper progress in implementing large transactions. Mid-market activity, however, responded quickly, and our team experienced high volumes of activity through the third and fourth quarters of last year. A similar experience was felt across the business community that we work with, and in particular as regards the entrepreneurial community of investors and business owners, extending into the private equity market.
Private equity houses, in particular, have pushed hard to deploy funds since the middle of last year, particularly focusing on businesses outside of the areas experiencing Covid-related distress (leisure, travel, retail) and into industries perceived to be safer and more resilient sectors – examples being software, training, engineering and healthcare. Our Corporate team saw a number of relatively high-value transactions undertaken in these sectors during the second half of 2020, and in such a way that the pandemic seemed to have little or no impact on deal process – save that all party negotiations took place on Teams calls – punctuated by the interruption of various family members and pets, and that completion processes have leaned more heavily on the advent of electronic signing processes rather than the traditional hard copy completion meeting signing process. In many respects, these were refreshing changes for clients and advisors alike, facilitating a more collaborative and efficient transaction process (or at least, as collaborative and efficient as is possible where lawyers are involved!).
Looking back on our last financial year, and exchanging notes with clients on their experiences during the same period, one thing is clear – business remains resilient in the region and nationally, there is as much appetite as ever for conducting good, positive transactional activity, and the prospect for this to increase, as lockdown lifts and consumer confidence grows, can only be a good thing. Challenges remain, many of them significant, for individuals and businesses exposed to particularly vulnerable sectors. There is also widespread expectation that as lockdown lifts and a number of government-sponsored financial support schemes are withdrawn, a number of businesses may find themselves in some degree of distress as these relief packages are phased out – increases in insolvency processes and accelerated M&A process are expected. But for the most part the outlook remains highly optimistic in the business community.
What have we taken from the last 12 months?
Expect the unexpected, plan ahead so far as possible, watch cashflow, work together and support those in a more difficult situation that your own. Good businesses have for the most part continued to thrive, and of course the outlook of many entrepreneurs is that some degree of crisis always presents opportunity.
Our Corporate team remains very positive about the prospects for our business community over the next 12 months, and is looking forward to working with our clients as they navigate the year ahead.