22 mergers & acquisitions
M&A and ABL – a good team
M&A has been a significant driver in the development of asset-based lending (ABL) over the past 10 years and ABL, in turn, has played an important role in the growth of the MBO market in particular, writes Jon Hughes, GE Capital’s business development director, south
For businesses that are asset rich or where a multiple of earnings would not generate sufficient funding, ABL offers a genuine alternative to private equity and senior debt structures.
It has become apparent in the M&A market since 2008 that, while meeting vendor price expectation has been difficult, lack of management team confidence is also a major issue. Many businesses are finding it tough to meet performance expectations and management teams see more of a risk than an opportunity in these transactions.
2011 has seen some recovery though and in our experience a higher proportion of MBOs are vendor initiated. The deal timeline has been greatly extended (six months being common) where a cautious approach has become the norm.
Our observation is that, in terms of M&A, London is leading the recovery, with Reading also improving. Further from the centre, including the south coast, things remain slow. The corporate finance advisory market seems to be working sell-side for the most part, anecdotally pointing to trade sales and sales to private equity.
Subsequently, private equity houses seem increasingly likely to write a cheque for debt and equity, refinancing the former with ABL and other structures after close. This gives them increased visibility on completion and reflects the cash they have available to deploy. Across the country there has been an increase in sales to foreign investors (both trade and private equity). It seems likely that this is driven by perceived value in a depressed UK market as well as the weakness of sterling.
In a challenging market, the winners seem to be those firms and individuals with
www.businessmag.co.uk
Volumes fall, but value rises
Experian, the global information services company, has revealed that the number of mergers and acquisitions during the first six months of 2011 (HY11) fell by 15% compared with the same period last year
Experian’s latest mergers and acquisitions (M&A) and equity capital market (ECM – flotation, rights issue and placements) data has also revealed that the value of deals during HY11 increased – up 7% compared with HY10.
UK highlights Jon Hughes
deep domain expertise and those who are prepared to make things happen. In terms of ABL, the flow of deals has slowed, but it is those specialist individuals and firms, that have most often used the product, who have remained active throughout.
In the recovery sector, the inertia of HMRC and banks has resulted in fewer opportunities for transactions. As the banks and HMRC become more disciplined with their high-risk clients, debt advisers will find ABL can be the ideal solution when restructuring non-performing facilities.
ABL is perfectly placed to support a resurgence in the M&A market supporting MBO, private equity and trade buyers with both acquisition and growth capital.
Details: Jon Hughes 07703-107516
JonM.Hughes@
ge.com www.gecapital.co.uk/ commercialfinance
The UK saw a 15% decrease in UK M&A and ECM transactions announced during HY11 compared to HY10 (from 2,316 deals in HY10 to 1,978 deals in HY11).
• A total of £101.8 billion worth of transactions were announced in the UK in HY11, up 7% from the £95.6b announced in HY10.
• Rothschild was the best performing financial adviser by volume with 46 deals, while Citigroup was the highest by value with deals worth a total of £23.3b.
• DLA Piper advised on the highest number of transactions (53) in HY11, while the leading legal adviser by value was Linklaters with deals worth a total of £21.3b.
Europe and the rest of the world
• Europe saw a 28% decrease in European M&A and ECM transactions announced during HY11 with 4,377 deals compared to 6,040 transactions in HY10.
• The values of European transactions rose by over 18% compared to HY10 with £371.1b recorded in HY11, up from £314.3b worth of transactions announced in Europe in HY10.
• There was a UK element in 45% of all European
transactions, up from 38% in HY10. In terms of value the UK consistently contributes around 30% of the European total each HY.
• The majority of the UK’s deals during HY11 were with the USA, followed by Germany.
• In the USA volumes were down in HY11 by 37% while values were up by 20% compared to HY10.
• Asia Pacific witnessed declines in both volume and value during HY11 by 17% and 12% respectively.
Wendy Smith, business development manager at Experian Corpfin, said: “The first half of 2011 shows that there is still a degree of tentativeness in the market. This is further impacted by the fact that there are fewer business insolvencies to create opportunities and liquidity in the market and, to some extent, the fact that vendors still have high expectations on price. The north west and Wales are the only areas that appear to be bucking the trend at the moment, with both seeing slight increases in the volume of deals.
“Looking across Europe and the rest of the world, around a third of the companies involved in deals are based outside the UK, so it is very much a global market place. It is not surprising that the low activity can be seen across the board.
“Nonetheless, we are in a more optimistic place than we were in a year ago and, as increasing numbers of businesses begin to focus once again on strategic growth rather than cost-cutting, we would anticipate a small rise in deal volumes in the coming year.“
THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – SEPTEMBER 2011
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