It’s that time of year, when Business Link Magazine invites the region’s business leaders to offer up their predictions for the year ahead.
It has become something of a tradition, given that we’ve been doing this now for over 30 years.
Here we speak to Seb Saywood, an investor at the growth capital investor, BGF.
Despite predictions that the UK is facing a protracted recession, indicators are pointing towards a softer landing than previously feared.
The price of gas is already much less than at its peak, with inflation, dare we say it, also probably having already reached its highest point. However, there’s no doubt that it will remain a tough environment for discretionary consumer spending, particularly in the mid-market.
While in the medium term spending is likely to hold up, thanks to savings generated during the COVID-19 pandemic, in certain demographics consumers may choose to trade down, resulting in wins for the likes of fast food versus casual dining.
From an East Midlands perspective, the region has a strong reputation in sectors like healthcare, biosciences and more generally in business services, with a growing digital economy too. These sectors are less exposed and will hopefully remain resilient. The good news is that employment also remains high. That, combined with high historical saving levels, will hopefully result in a more benign environment compared to previous recessions.
Whilst energy costs will be painful, rising interest rates may have less of an impact on home owners than initially feared, as the majority of mortgages are on longer-term fixed deals. A steady recovery in the value of sterling will also be very helpful. As with any difficult economy, strong, well-capitalised businesses in resilient sectors will find opportunities to seize market share, particularly from less nimble, over leveraged rivals. I expect to see increased consolidation which could drive fund raising activity.
In terms of the M&A landscape, a more cautious view on valuations is starting to come through for certain types of buyers in some sectors, particularly where leverage is involved. However, valuations for the best, most scarce assets, are likely to hold up. This valuation pressure, which is driven by several macro factors, will affect the timing of exits and might result in an increase in minority deals in 2023. Owner managers looking to sell may be disappointed with headline valuations compared to historical expectations. This will encourage some to retain more equity to maximise the upside.
