Economic Review of 2016 and the Outlook for 2017
Doris Day famously sang ‘What a difference a day makes’ and 2016 saw at least two days during the course of the year which look like making a very profound difference to the UK economy and the experience of businesses from here onwards.
But before we get into this what else have we seen in the last 12 months? Well, that depends a little upon where your vantage point is. True, GDP has continued to grow comfortably (all things considered). Unemployment continued to fall and finished the year at some 4.8% (interestingly, many regard this as a low figure. In the late 1970s an unemployment rate of 2.5% was seen as unjustifiably excessive) and by the end of the year there had been strong growth in both average house prices and the FTSE100. Good if you hold these assets – perhaps less good if you want to acquire them.
But what underpins this? Well, a clue lies in the breakdown of the GDP performance; it is still largely dependent upon consumer spending. That in itself is not necessarily a fundamental worry – but where such spending is fuelled by escalating personal debt then things are not so simple or benign.
We have continued to enjoy good levels of transactional activity from across our client base (and what we have previously termed ‘pre-cursor’ work to this i.e. valuations, acquisition research and grooming businesses for sale). Depending upon its use, funding availability remains a challenge for many businesses. But both buyers and sellers (and their respective advisers) are aware of this and in our experience there is recognition on both sides of a transaction that funding availability is, in a sense, a joint ‘problem’ and so there needs to be creativity in deal structures to allow transactions to happen.
In many respects we have seen a return to ‘first principles’ as regards deal structuring with fewer deals being structured as completely cash on completion – deferred consideration, earn-outs, minority interests and ongoing consultancy roles are all making a return to certain types of transactional structure.
Overall, from our perspective the year has been at least half full. Looking forward the ramifications of a Brexit decision and a Trump presidency (both of which may be ‘hard’ or ‘soft’…) are somewhat more difficult to forecast.