Q&A with Ed Bridges on the 2021 M&A Landscape

Q1. So Ed, you’ve been in the business of transactions for a long time – over 20 years I think?! How did you get to where you are?

Over the past 30 odd years the firm has worked on some of the most exciting transactions and that’s been a function of investing in sector and transaction expertise. M&A can be tough and teams work around the clock to get the job done. That all requires huge personal commitment from the entire team and the kind of expertise and insight that creates complete trust between us and our clients. We have grown with our clients, taking many from small caps into FTSE-100.

Q2. And what’s your general approach to handling a transaction?

Whether a transaction is large or small, each one requires a huge amount of research ahead of time to understand the broader dynamics. What is the straight value proposition? What is the culture of the business and its tone of voice? How does complex, multi-jurisdictional employment law interact with the needs of the business, to communicate in an authentic and compelling way to staff who might number in their hundreds or hundreds of thousands?  And how can direct communication best support the transaction, including through both internal and social media channels?

Probably the greatest complexity is the increased political scrutiny around transactions. Some of this is driven by the media but increasingly merger control legislation is affecting deals – small and large. The US has had CFIUS oversight in place for many years and the UK government is close to passing the National Security & Investment Bill into law which will see the Department of Business, Energy, and Industrial Strategy overseeing many UK M&A transactions.

Q3. What do you think clients look for from an M&A advisor?

Regardless of whether you are representing the buy-side or sell-side, the key to being a successful M&A advisory team is understanding what your client is trying to achieve and the value proposition they are offering to all stakeholders. They need to be able to trust your judgement and advice as well as your ability to advise them across broad stakeholder groups.

Over the past 30 years, the focus has moved in M&A from the purely financial value proposition to much broader considerations including employees, suppliers, customers, politicians and regulators. The UK’s Takeover Code has shown its unique ability to evolve over time by flexing as stakeholder considerations have broadened. Corporate culture and ESG have also become key elements in M&A. Cultural “fit” matters when it comes to ensuring that the expected value of an M&A transaction can be achieved in the broadest sense and then sustained. It’s quite surprising how many deals achieve their stated synergy targets over, say, three years but then fail to maintain that progress in the longer term.

As the messaging frameworks become ever more complex, the need for close collaboration with advisers becomes ever more important. That’s where FTI has always shown its key strengths – empathy, deep resources and sector expertise combined with a multi-jurisdictional presence.

Q4. There’s been a lot of M&A activity in 2021 already. What do you think is driving M&A this year?

The answer to that is really complex. On a macro level, valuations are high, but debt is cheap. The highest quality companies are achieving very strong valuations and the competition between strategics and private equity can be significant.

In the meantime, the $2 trillion of dry powder associated with private equity now faces competition from $500 billion of theoretical deal value capacity from the growing SPAC sector as well as strategics. Some sizeable companies, affected by Covid, are going to be selling assets to shore up balance sheets and hone their strategic focus. Public market valuations have settled after the uncertainties of mid-2020 and boards of target business have a stable base of which to assess approaches. Volumes are picking up and public-to-private activity is high. But if companies want to make strategic moves, now is the time to do it.

Q5. Finally, any advice for companies thinking about a transaction in 2021?

For many advisors, the deal ends on the day of completion. We recognise that the really hard yards and value are earned during the integration and beyond. Academics and consultants all agree on one thing: the ability to drive sustained value from an M&A transaction is about ensuring that the integration goes well.  Sustained value generation comes from ensuring that the combined business is ready for that change and pushing in the same direction. An M&A process that creates fear rather than a feeling of opportunity is likely to fail.

Lastly, increasing economic nationalism is becoming a stronger force in M&A.  Understanding the political environment in which a transaction is landing has never been more important and the UK’s NS&I Bill is just the latest in a series of measures implemented within the European sphere and elsewhere to bring broader government oversight to M&A.