Quick fixes

Against a backdrop of tariff uncertainty and elevated interest rates, accelerated M&A (AMA) is helping companies and investors to respond decisively to constantly shifting market conditions. Volume and value figures for AMA processes – deals that have to transact within truncated timelines, typically ranging from three to six months – are difficult to pin down as the accelerated M&A obviously encompasses a mix of deal types and situations. 

“We are seeing a lot of businesses struggling,” says Mark Smith, a Cork Gully partner who specialises in AMA processes. “There’s a lot of increased pressure on working capital and their day-to-day operations, so where those businesses cannot go out and raise funding, be it equity or debt including ordinary lending, then it drives them towards an AMA process.”

Smith adds that among his recent transactions there have been some involving listed entities: “There’s been a real struggle with certain types of listed businesses, where they can’t raise capital because of limited liquidity on public markets, which then drives them towards looking at what options are available. Those instances are leading to take-privates or a different process to improve performance. The current climate has left a lot of businesses struggling, with working capital pressures, and that naturally drives an accelerated M&A process. They won’t have a 12-18 month runway to prepare the business for sale and find a buyer. It is contracted.”

Broad church

AMAs are often associated with stressed and distressed situations, and while distressed deal flow does contribute to AMA deal flow, an AMA process can cover a far wider range of scenarios.

Philippa Robinson, a Director at Quantuma, says: “There is an assumption that as soon as you say something is an accelerated transaction it must be distressed, which isn’t the case. A business can be in perfectly good health, but simply has to do a transaction for reasons unrelated to its performance.”

Amar Patel, partner and head of the special situations M&A practice at BDO, adds: “When we talk about accelerated M&A, we are referring to a truncated sales process – usually around three months or less. That doesn’t only happen when there is financial pressure. It can happen because of regulatory necessity, shareholder dispute, management team change or retirement, family business succession, or life events like divorce. Accelerated M&A is a broad church.” 

Challenges – new and old

The combination of tariff uncertainty, the fall-out from the pandemic lockdowns and high interest rates has seen AMA move into the frame for more businesses and investors. UK insolvencies have spiked during the past 24 months, climbing to 25,158 insolvencies in 2023 – the highest number since 1993 – and only moderating slightly in 2024, to a still elevated 23,872. 

Certain sectors have been particularly exposed to financial headwinds, leading to an uptick in AMA in these segments.

“If we look at the level of AMA at the more stressed end of the spectrum, there are particular sectors where there is more activity,” says Philip Stephenson, a partner at Grant Thornton. “You just have to open a newspaper to see the pressure the retail and hospitality sectors are under. Recruitment has also been challenging due to the uncertainty and pockets of the construction industry have also had a tough run.”

Businesses across all sectors are also facing myriad succession and senior management retirement issues, leading to scenarios where expedited M&A deals are necessary to maintain business and senior leadership continuity.

A survey of 1,000 executives by HR software company HiBob found that following the pandemic almost one in two (46%) senior managers and directors had decided to leave their companies, outpacing the rate of resignations by lower-ranking employees. With longer hold periods for private equity-backed portfolio companies (which are sitting at the highest average for more than two decades, according to Preqin) and lucrative financial incentives on exit pushed back and seemingly out of reach in the foreseeable future, more portfolio company management teams are stepping down.

In addition to these more recent secular trends, the steady flow of AMA scenarios driven by non-cyclical life events has also continued as normal, supporting ongoing opportunities for AMA dealmakers. A meaningful proportion of these deals have not been stressed or distressed.

“AMA is often associated with a distressed sale, and this is not always the case,” Stephenson says. “We have seen instances of profitable companies with a good EBITDA being sold through AMA processes because of a distinct lifetime event that required a solution within a short period of time.”

Navigation process

Participating in an AMA process requires specific skillsets, risk appetite and experience as potential buyers have to be able to make fast decisions, often with limited time for due diligence.

The question is, can all buyers actually execute an AMA process? Cork Gully’s Smith says: “A lot depends on the buyer in these circumstances. How familiar are they with an accelerated timeframe, as opposed to what they might ordinarily be used to? Are they prepared to acknowledge that the suite of information they usually expect will not be available to them and they may need to compromise on the usual warranties? They might not have all the information because actually you might be working with a company that’s going to run out of cash.

“The buyer takes some risk because they might not have a data room complete with the information for a full due diligence. But on the flip side, because it is in an AMA process, there is likely a good opportunity to pick up a business at a price point that actually represents a really good transaction for them.”

Know-how required

“There’s a learning curve for people that aren’t used to distressed acquisitions and stressed processes,” adds Smith. “They won’t fully understand that it is a short window and there is no scope to extend that. When we are looking at buyers it does drive us towards people that have experience in AMA. But not exclusively so. 

“If they don’t have experience, they need to know they are going to have to get comfortable with not conducting full due diligence and perhaps they won’t even get the reps and warranties that ordinarily they would expect.”

Michael Loizou, a partner and co-founder of special situations investment firm Ridgeway Capital, says there is a range of approaches: “Due diligence in an accelerated M&A scenario varies from processes with data rooms and information geared to this type of transaction to more truncated processes where the lack of information could preclude a transaction taking place. 

“Often, the time to execute would be dependent on the cash runway and stability of the business.”

In scenarios where information and time is limited, assessing a deal opportunity is very different to the steps that mainstream dealmakers will follow in vanilla M&A processes.

“With time-restricted processes, your key focus in forming a commercial view on the future and quantifying the past is simply to help understand what you need to deliver the plan and what you must avoid inheriting. Any warranties will often be worthless or non-existent and the diligence accounts for this,” says Loizou. 

“The skillset is distinctive: in short order you need to quantify the funding requirement to achieve the value creation plan and targeted returns while appreciating the fallback plans to mitigate risk, together with forming a view on the people you are backing, the gaps that need filling and your ability to put in place the operational plan to deliver the desired outcomes,” he continues. “This is our approach on any new investment, as well as when we are assisting an existing stakeholder with portfolio challenges.”

Early focus

For advisers, the specific demands of AMA make bidder selection a crucial element of setting up a successful process. When time is of the essence and deliverability is crucial, advisers will focus intensely on lining up buyers they know will have the capability to operate within the constraints of an AMA process.

Given this focus for advisers, most AMA deal opportunities in the UK will be shown to a well-established cohort of special situations private equity firms with proven track records in the segment.

“The UK has a well-established group of special situations investors who are used to transacting on short timetables with limited due diligence and, most importantly, who have the remit to invest and deploy funds into the space, as well as a long history of doing it successfully,” BDO’s Patel says.

Trade buyers, however, have also become more active players in AMA, even in distressed situations. “Interestingly, we have noted an increase in trade players buying businesses through actual, formal insolvency processes.” Patel adds. 

“Our sense is that trade buyers have become more familiar with the workings of accelerated M&A and insolvency proceedings, and are sourcing the right advice to support them in these types of transactions. There is clearly significant upside if you can pick up a good business that is facing an isolated problem for good value. There is definitely more trade playing in this market, both from within the UK and cross-border.”

Quantuma’s Robinson, who has worked on a large number of accelerated M&A deals in the consumer and financial services industries, says strategic buyers and private equity firms with platform businesses in specific sectors will always look at accelerated M&A deals in their sector areas.

“Trade buyers and private equity platform companies will have experienced M&A teams that are used to working to tight timelines. They will have clarity in the risk they are prepared to take and will also bring vast internal knowledge to the table,” she says. “They will often know the target very well already and have a very clear reason for wanting to buy it, whether that be locations or brand relationships. Trade buyers are very effective in these sorts of transactions. They can transact at pace because they have the sector knowledge and clear deal rationales in place already.”

Smith says that on an AMA transaction you want all parties, including advisers and lawyers, to be responsive in the first instance. “They need to be an inherent part of the process and it is important that they get everything pulled together in the time frame that all parties are working to. Second, you want them to understand the commercials of the transaction, that their client might not get exactly what they want in terms of reps and warranties, but actually the transaction that’s presented to them still represents a good deal for their client – there’s got to be a bit of give and take to get the transaction over the line.”

He adds that artificial intelligence (AI) and tech advances have helped expedite deals in the quicker timeframe required for an AMA process. And while there really does need to be human experience in selecting buyers’ lists, with parties that are capable of executing the deal, AI can reveal potential acquirers that would otherwise not have been considered.

With tariff uncertainty and slow economic growth expected to linger, these trade buyers and their special situations private equity peers could have plenty of accelerated M&A deal flow coming their way in the months ahead.