20 mergers & acquisitions


Transaction activity seeing significant uplift


Much has been said about the mergers & acquisitions market over the past couple of years with the credit crunch, recession and public spending cuts all acting as a brake on activity. Kirsty Sandwell, Baker Tilly’s head of corporate finance in the south east, assesses the state of the market


What may be of surprise is the fact that the market in the south east has already picked up with deal flows increasing significantly from 2009 and 2010. We recently led the sale of Sutton-based specialist lighting manufacturer Designplan Lighting to Sweden’s leading lighting manufacturer and distributor, The Fagerhult Group in a cash transaction. In addition we were also lead advisers for the sale of Chemigraphic, the Crawley-based printed circuit board manufacturer, in a complex equity-funded MBO which saw the business pass to its founders’ sons and a new CEO introduced to the business.


So what is driving the transaction recovery in the south east? A lot of


the uncertainties still remain such as depressed economic growth and looming public spending cuts, but the south east is home to thousands of dynamic SMEs as well as large plcs which, coupled with good communications and easy access to London, make the region attractive to investment. The extension of Entrepreneurs’ Relief to the first £10 million of qualifying capital gains has also provided a clear incentive for owner managers to consider an exit in the shorter term.


Many UK companies with cash on their balance sheets are now looking for acquisitions. With little opportunity for organic growth over the past few years, acquisitions have now become an attractive


way to grow. In addition, financing costs are currently at an historic low, with alternative finance options becoming more innovative and readily available.


With sterling being relatively cheap the appetite for acquisitions from overseas buyers is increasing and with good access to both London and continental Europe, the south east is one of the favourite destinations for overseas buyers.


However, although the M&A market is undoubtedly improving, buyers are more discerning than they were a few years ago. Quality companies command a premium but companies with issues that do not hold up to scrutiny need to


Bouncing back? Not just yet


As the economic recovery continues to stutter, a recovery in the M&A market appears to be slowing. But despite global economic woes there are still some reasons to be cheerful, writes Paris Smith partner Michael Moore


At the start of 2011 many commentators were confidentially predicting a resurgence in deal activity. Confidence seemed well founded. Reported deals in the last part of 2010 were well up on corresponding periods in 2008 and 2009. Activity at the start of this year continued this trend. However, while deal levels remain some way ahead of the 2009 nadir, there has been a recent slowing down and a rebound to the perceived normal volumes of 2005 and 2006 remains some way off.


The reasons for the slowing in activity are obvious. Confidence in the UK economic recovery has waned to the point where a double dip recession is a real possibility. Global stock markets have plunged. Default risks in eurozone and US have heightened. Bank funding for leveraging buyouts remains limited.


Despite all this there are some www.businessmag.co.uk


Michael Moore


positive trends and reasons to remain somewhat optimistic. Cross- border deal activity, in particular UK companies making overseas acquisitions, has been fairly buoyant. Deals involving emerging markets participants have risen steadily in recent times, widening the base of potential investors. Many UK companies have reduced their debt levels over the past two or three


years and are well placed to make acquisitions. Substantial private equity funds remain uninvested and private equity firms have shown an increasing willingness to fund deals entirely out of their own resources. Private equity also creates an inevitable deal churn as funds are disinvested. Also, valuations were starting to return to levels that were encouraging more sellers of marketable businesses to seek exits, although recent economic turbulence is bound to result in some downward pressure on valuations.


At a more local level, work levels and deal pipelines at our firm remain relatively strong, and our fellow professionals in the region are reporting similar trends. We are seeing a reasonable number of deals at the lower (sub £5 million) end of the market as well as in the mid £5m to £30m range, where private equity purchasers are particularly


be more realistic about their sale prospects, making it even more important to seek professional advice early.


What does the future hold? Although the world economy still faces many challenges, the opportunities the south east presents for acquisitive companies continue to make the region an attractive destination for investors.


Details: Kirsty Sandwell 01293-591775 kirsty.sandwell@bakertilly.co.uk www.bakertilly.co.uk


active. The sectors that appear to be attracting the most attention are healthcare, leisure, utilities and energy.


Another development which we have seen recently, which will not be apparent from M&A stats as deal values are mostly in the sub £1m range, is an increase in distressed business sales, mainly but not exclusively through insolvency procedures. There are likely to be significant opportunities for buyers who are prepared to acquire distressed businesses for some time to come.


So deals will continue to get done and if a double dip is avoided there should be a good amount more of them than we saw in the barren years of 2008 and 2009. But it may be quite some time before we see a rebound back to 2005 and 2006 normality.


Details: Michael Moore Company commercial department 023-8048-2290 michael.moore@parissmith.co.uk


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – SEPTEMBER 2011


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