18 corporate finance M&A pipelines are filling up


These are not boom times for corporate finance deals but the market has been steadily improving for some months, writes Richard Willsher of The Business Magazine


In the first three months of this year the global volume of mergers and acquisitions (M&A) exceeded last year’s first quarter total by 28% according to research from Dealogic. As we go to press the initial public offering of commodity trader Glencore is expected to raise around $60 billion (£36.5b) and a range of big-hitting investors and international bankers have rushed to support the issue.


Together these may indicate a significant up tick in corporate finance activity on the macro scale. Regionally, when you talk to some of the leading advisors and lenders covering the Thames Valley and the south east, the picture seems to support this view.


“2011 started relatively slowly,” says David Rolfe corporate finance director for the region, for PriceWaterhouseCoopers based in Reading. “There was a step change around March. Since then there has been a lot more M&A activity. This has been driven by private equity backed businesses that were slated for sale during the last two years but were put on hold. There has been a releasing of assets and we’ve been mandated on some of those.”


Rolfe, who was awarded Dealmaker of the Year in the over £25 million category at this year’s Thames Valley and Solent Deals Awards, adds that there is more buying activity by corporates. “We are assisting larger corporates with acquisitions. They are usually looking to buy private businesses. We have also seen a bit more activity in public- to-private where businesses are delisting from the AIM market for example.”


These views are echoed by Paul Russell, Southampton-based corporate finance partner at BDO. “It feels like there are more buyers in the market now. UK corporate buyers are back, especially in the £20 to £40m mid-market deals area. They have restructured their businesses, they have plenty of cash and strong balance sheets to do deals.” He goes on to say that private equity providers are keen to do deals as well, as many of them have raised funds from investors some time ago and must now deploy them if they are to produce decent returns. But what about the banks?


Here the picture is rather mixed depending on whom you talk to. The Bank of England’s Trends in Lending published in April reported, “Official data covering lending by all UK-resident banks and building societies indicated that the stock of lending to businesses contracted by around £5 billion in the three months to February... Data from the five major UK banks indicated that their net lending to businesses was -£2b in 2011 Q1.” It also noted that lending to small and medium-sized businesses was down.


John Hughes who heads GE Capital’s London and southern England sales team says that his firm is seeing more growth in asset-based lending business than last year. “In many cases businesses are seeing their relationships with traditional funding partners weaken and we are seeing a good deal of dissatisfaction with some funders in the


marketplace. Businesses are therefore seeking alternative, independent providers of finance and in particular ABL providers like ourselves. Our £18m refinancing deal with Armour Group Plc is an example of this.”


Andrew Killick of Baker Tilly says that his firm has advised on a number of M&A deals over the last year and is achieving a good rate of completions on transactions in their pipeline. Yet he sees “significant variability” among the support available from banks for good businesses. Indeed he says that changing a banking relationship is often the way to achieve a better funding deal.


At Banbury and High Wycombe- based law firm Whitely Stimpson, corporate finance partner Tim Wallbank says: “I’m finding banks are still pretty tight on their credit criteria. They say they’re open for business but you have to have an absolutely blue chip, belt, braces and string deal to get it approved. We look more to the asset-based lenders and for the vendor to leave money in [the business] on a deferred basis. That’s how deals are done these days.”


The banks themselves tell a different story. For example Santander’s first quarter trading statement trumpeted, “[Our] lending to SMEs grew by 29% [last year], maintaining our support for this important sector of the UK economy as reflected in being named ‘Business Bank of the Year’ at the annual Business Moneyfacts Awards in March.”


At RBS, Simon Greenhill a director in the structured finance


team based in Reading, says that they have closed six deals in first four months of the year with another two likely to conclude before the end of June. He confirms that credit procedures are “rigorous and robust” but explains that this is a factor of being at “the sharp end of lending which is here to stay” especially in view of more demanding capital adequacy requirements placed on banks since the financial crisis.


At Lloyds Banking Group, Ian Sale, managing director, Lloyds Bank Corporate Markets Acquisition Finance, says: “There is no shortage of sensibly structured debt in the South and banks have the appetite and ability to lend, be it individually or as part of a club structure. This can provide finance for mid-market deals and additional firepower for bolt-on acquisitions following a transaction.


“Competition between sponsors for the strongest regional assets means that management teams with exceptional growth stories can pick from the best investors, both from a price perspective and in terms of the strategic, operational and commercial expertise they can provide.


“We anticipate funding more deals in the region towards the second half of the year, as businesses which have enjoyed strong growth since the recession make their cases for investment.”


So sourcing the available funding for deals presents a mixed picture, depending on the borrowers’ needs and the deals they are looking to finance. But on the last point that Lloyds’ Ian Sale makes, all lenders and advisors agree. The outlook for the second half of the year is pretty positive. All market players speak of a strong pipeline of transactions that they expect to gradually complete as the year progresses. Moreover, many will tell you that they expect the same story to continue through 2012, which adds up to a marked improvement over the last couple of years in the corporate finance market.


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