Company valuations remain a significant constraint to deal completion

ThinCats, the leading alternative finance provider to mid-sized SMEs, has today published results from its latest UK wide corporate finance adviser survey, which shows a marked improvement in sentiment compared to six months ago.

The survey, which canvasses opinion from experts from over 70 leading UK debt advisory firms shows a majority of respondents (59%) are seeing more activity from SMEs than they were six months ago and growing appetite for funding from owner managed businesses.

When it comes to meeting the increased demand, the positive trend for non-bank lenders continued from previous surveys, with 37% of participants reporting higher levels of credit appetite. Interestingly, one-third (33%) of advisers pointed to more funding availability from the high street banks than there was six months ago.

Valuation challenges topped the list of constraints to deal activity, but a significant proportion (41%) of advisers believe valuation multiples have come down in the last 6 months. Macroeconomic challenges did not feature as strongly as they did 6 months ago but interest rate levels are still an issue for many businesses when looking to secure external debt.

Considering the potential impact of the upcoming general election, the majority of advisers think that the result of the election won’t have too much bearing on deal activity. Political stability is the most important thing that advisers are expecting from the election, with 39 per cent believing that activity levels will increase after the next general election.

The key findings include:

• Comparing their current business pipelines to six months ago, 59% of advisers stated there was more demand, only 7% stated there was less demand.
• More than half (56%) believe there is growing demand specifically from owner-managed businesses compared to six months ago, but there is lingering cautiousness due to interest rate levels and cost of funds.
• Whilst sentiment is broadly positive, valuation expectations are cited as the biggest constraint to deal activity with interest rate levels and deal quality the next most significant challenges. This has shifted slightly in the last six months, where macro-economic issues were seen as the greatest detractor to deal volumes.
• The general view on business valuations is that they either haven’t changed (52%) or that they have decreased (41%) in the last six months, this could be an important driver of deal activity in the months to come as expectation gaps continue to close.

Ravi Anand, Managing Director, ThinCats said, “With interest rates peaking and inflation beginning to fall, it is encouraging to see the increasing confidence returning to the market.  A more stable political landscape will give business owners better certainty and we anticipate even greater activity towards the end of 2024.

“Our pipeline is strong and we are seeing more and more business owners looking to capitalise on new opportunities. To meet this growing demand we continue to invest and expand our proposition, launching our Agile Capital product in April and announcing a new £300m commitment to supporting growth for owner managed businesses across the UK last month.”