If David Davis and his team of Brexit negotiators needed any reminding of the importance of securing a good EU exit deal they would have found a highly vocal lobby at last month's Evolution Capital 'Valuations in a Post-Truth World' symposium.
As media sponsor, Comms Dealer joined over 60 ICT channel business owners and entrepreneurs at the thought leadership event staged by the M&A advisor at NatWest's HQ in central London, to get a clearer understanding of the current climate for acquisition and growth in a business world continually being hit by fake news and economic uncertainty.
Ian Spence, CEO of TMT analyst Megabuyte, summarised the message: "There is a lot of talk about uncertainty yet valuations and deal flows are off the chart, but it doesn't feel like a situation that can last indefinitely. So, if you are planning an exit in the next year or two, crack on. However, there is great long-term potential in the industry and opportunities to get investment and add value to your business."
But with a note of caution Spence warned about the perils of leaping into the cloud and its opex- based revenue models too quickly. "A lot of people are going through the capex versus opex revenue model changes," he said. "However, we have got examples of businesses that have wasted a lot of shareholders' money by rapidly going into the cloud. A flexible finance structure is needed to provide the right capital at the right time."
Looking at the macro economic climate, NatWest Senior Market Economist Neil Parker, echoing chancellor Phillip Hammond's budget statement the previous day, painted a gloomy picture for UK plc in the months ahead although, bizarrely, investment remains at an all-time high. "In the UK, we were hoping productivity growth would be about two per cent since the 2008 financial market crisis, but it's less than three quarters of one per cent so the productivity miracle hasn't happened despite record levels of investment," said Parker.
"We have slowing growth and higher inflation driven by imports, an increase in the cost of labour and a growing skills shortage. Whether you are the UK Government or a private company, funding costs have increased because of the threat of a further rise in interest rates."
Parker also said the UK had relied on consumer spending power for too long and export growth has fizzled out. "We were sold that after Brexit, with a sizeable reduction in Sterling's value, export growth would be the saviour of the UK economy," he added. "But it hasn't because while export volumes have been increasing so have import values, therefore we have not seen a closing of the net trade balance."
Serial acquirer Ian Fishwick, CEO of Adept Telecom, has masterminded 38 acquisitions during his career. "If you are thinking of selling, be careful, but it's not all bad news," he commented. "The uncertainty on interest rates? Give me a break guys! This is still the cheapest money environment ever."
Concluding the advisory session was Ian Williams, who leads the growth investment team at PE business Lyceum Capital. He stressed there was no let-up in the flow of available funds for comms and IT providers looking to transform their businesses and grow. "There is still plenty of capital out there," observed Williams. "Generally speaking, the environment is holding up. If Labour get into power that could be a driver for change but people are still bullish and we haven't seen the rush to the exit yet."
Across the course of the evening's presentations three things became clear - the UK economy is set for a rocky period yet the climate has never been better to sell a well-engineered, profitable business and achieve the best possible EBITDA multiple. And any companies prepared to ride the potentially stormy waters ahead will have to address the shift towards the millennial influenced technology space and make substantial cultural changes, most probably with the help of an investment community bursting at the seams with cash to splash.
About Evolution
Evolution offers extensive industry experience and provides meticulous research in the areas of strategic business reviews, M&A and company sales and for its 'Valuations in a Post-Truth World' symposium brought together a panel of knowledgeable speakers from the comms, finance, investment and TMT analyst sectors to give their take on the current economic climate and future prospects.
For further information or to register for future Evolution Capital events contactclare@evolutioncapital.com.
Delegate takeaways...
Chris Papa, Qubic: "I am not worried about the uncertainty. If there's a recession people need to replace equipment to be more efficient. That has always generated business which is good for us."
Russell Horton, Elite: "We are confident on M&A going forward. If we do have a slight dip we believe that offering value and savings to customers is where we can grow. If the UK does not get a Brexit deal it will continue to be a buyer's market."
Jonathan Marsden, The Technology Group: "It was great to see that multiples have increased, but that probably won't be sustainable. But once you take the uncertainty away I think our industry will flourish."
Colin Blumenthall, Complete IT: "With or without a Brexit deal it's down to us to make our clients more efficient and more profitable through better use of technology."