Mike Lukin: Given your operating in that sub $100 million enterprise value on a day-to-day basis, talking to businesses, talking to advisors in the space, I'm up here in the clouds. What are you seeing actually on the ground in terms of sectors and assets and what's happening in M&A?
Anna Ellis: And it's interesting because I think we've got to take it back. I'm not talking about global, definitely domestic and probably as you talked about at the start, that sort of lower mid-market space. So that's what I'm reflecting on. And when you think back on the last few years, there's no doubt 2023, we had those multiple interest rate rises and in the lower mid-market, we're talking about real people. They've got cool businesses, you find them in the strangest places. They might be boring B2B businesses or exciting consumer discretionary businesses, but they really feel that. And so that uncertainty meant; why would they do something then? So, I think 2023 was really uncertain.
I think last year when we spoke about this and when I spoke to Frewen, I talked about this concept of less uncertainty because we didn't have any interest rate rises. Everyone was wanting to be a little bit more positive. And really, we're seeing what do people see in their businesses? They see the inflation in costs and that hurts and say if consumers are hurting, that's impacting most businesses trading on a day-to-day basis. But, for one reason or another, I think that less uncertainty meant that we did see transactions happening in the lower mid-market. Whereas valuations were very high in 21 - 22, I think by then, the other thing is that a lot of founders, they've become comfortable that they weren't going to get those high valuations. So that friction had come around, come off around the valuation discussion.
And then when I think about now into 2025, I think the conversation is that interest rates are more likely to go down. So, I think now, although we talk about all of the geopolitical uncertainty, elections and so on, again, there's businesses and sectors where there's no doubt that the election will impact what they decide to do. But I think a number of transactions are just going to press ahead. And we've heard, you know already a lot of activity in the market and in the market around that.
Michael Lukin: Yeah, and I'm presuming your part of the market as well. It's not necessarily corporate owned or private equity owned businesses that may be a little less sensitive to, what I call death, disability and divorce, right? The personal issues around the founder, either because they need to buy out a partner or they need capital to grow or they looking to retire.
Anna Ellis: That's right.
Michael Lukin: And those personal aspects they don't wait for economic cycles, right? So, if you need to do a deal, you you've got to do it when it’s there.
Anna Ellis: And what we are seeing with those types of, perhaps you'd say, less sophisticated financially, perhaps during 21 and 22, they just sort of come to market, find an advisor. I think now they're a little bit more deliberate about it. So, we're seeing a lot more prepared founders. And so, transactions, there's no doubt they're still taking longer because investors are cautious. So, they're doing their due diligence well, but they're becoming to market prepared.
And what that means is more vendor due diligence and more sort of, let's have a look at this business which investors matches this business. And I think therefore what we're seeing is transactions happening a lot more smoothly, valuation being a less of an issue. So, terms valuation agreed and then held throughout to a final transaction. And I think overall that's good for transaction activity. And I think it's just better for a partnership deal as well because you're not having that friction around valuation and renegotiation and that kind of thing.
Michael Lukin: Yeah, exactly right.
