Private enterprise deals market poised for pick-up

We also continue to see strong capitalisation amongst mid-market businesses. When asked how they were likely to finance growth plans, the clear leader was own balance sheets (57%) while private equity (45%) was the standout second option. Traditional bank borrowing came quite a long way behind (26%). Again, this repeats the pattern of previous iterations of our research, demonstrating that businesses have built up strong levels of capital through their caution over the last 4-5 years, while private equity also has record levels of dry powder to deploy. Certainly, there is no shortage of liquidity in the market. We see a reflection of this in the fact that when asked about top short-term risks, only 18% flagged cost of borrowing and access to capital, well behind the most widely cited risk of inflation and cost pressures (47%).

All this being the case, why wasn’t there more activity in H1 and why do I expect a pick-up in H2? Quite simply, geopolitics intervened. At the beginning of the year, there were real hopes that the market would fully unlock and deals would flow. However, the Iran conflict that began in March was a knock to confidence. At one point, there were genuine fears that it could escalate into a much more widespread war. The spike to fuel and energy costs, the rise in inflation, and the disruption to supply chains all undermined the outlook.

Now, however, the conflict has eased, even if a final peace agreement remains uncertain. There is at least a pathway to something like normality. If the conflict does settle, oil and energy prices should move on a downward trend and inflation should stabilise and then begin to fall. I am hopeful that, in those circumstances, we will see more enterprise leaders activating their value creation ambitions as the year progresses.

There is another ‘wildcard’ element, however, and that is the change in Prime Minister. This does create a risk of uncertainty and therefore of sitting on hands until the direction of policy is clear. There could be a lull, for example, ahead of the Autumn Budget. Alternatively, if changes are mooted there – as they have been in past Budgets in relation to inheritance tax or capital gains – that could prompt a burst of activity to get in ahead of them taking effect.

Equally, a change of leadership could spark the sense of a refresh and instil new optimism in the business community. Much depends on the communication and clarity to business from the new administration.