Richard Brennan, CEO of Birmingham Forward – the business and professional services membership and lobbying organisation sets the scene for a review of M&A activity in 2010.
“Traditionally,” he says, “this is the time of year that the Birmingham Post and Birmingham Forward –join forces to award the accolade of ‘Deal of the Year’.
“However, the transaction community has been hard hit over the last 18 months and it just did not feel right to single out one deal from an uneven, and very small, playing field.
“We couldn’t let the time pass, though, without at least celebrating some of the successes of 2009 and heralding the changes coming throughout 2010.
“This supplement is testament to the achievements of the Birmingham deal-making community over the past year.”
Sue Lewis, chair of Birmingham Forward and senior partner at the Birmingham office of Eversheds, has been at the coalface of mergers and acquisitions for the last 25 years. She comments:
“It is a commonly held view in the Birmingham transaction community that 2009 was a bit of a bloodbath. All deals were a challenge and the small number of transactions which did complete required huge patience, perseverance and, in some cases, good luck to get the deals done.
“The mood during the early months of 2010 has been a little more upbeat. Transactions are being talked about, some processes are underway and, even more positively, some transactions are in exclusivity.”
Sue continues: “Private equity houses have got money and most really do want to spend the cash. The challenge is that the volume of deals remains relatively poor.
“In contrast, trade buyers have the ability to pay strategic prices and will also claim to be more deliverable. This may well be the case until there is a softening of bank lending multiples to help private equity get back in the frame.”
Ian Tetsill, head of regions in strategic debt finance at Barclays Corporate, says: “In terms of mergers and acquisitions activity, the economic and financial conditions have led to a dramatic reduction in deal volumes, particularly for private equity backed deals. However, there is appetite and liquidity across a number of institutions to support quality businesses and quality management teams.”
Jamie Hope, partner and joint-head of the Birmingham office at Catalyst Corporate Finance, has been working in the field for more than a decade after qualifying as a chartered accountant. He comments:
“The first half of 2009 was very difficult for everyone involved with M&A activity. There was very little deal activity – whether trade or private equity – and many companies suffered in the aftermath of the October 2008 credit fallout.
“However,” he continues, “since the turn of the year, people seem to be a lot more positive, and there is no doubt that this is more confidence in general in the market presently.
“Our recent experience suggests that quality businesses remain attractive to investors. While much of the activity in 2009 was driven by the administration cycle, we are beginning to see a return to strategic partnerships with an international element. After all, market share is only generally gained in a downturn when strong performers and differentiated businesses excel.
“This has been brought home more than ever in the last week, with some of my colleagues spending time with our partner firm over in the USA. Here confidence is much stronger and the M&A market is vibrant again as investors seek acquisitions to grow market share before the upturn starts to shorten.
“In the current marketplace (which is likely to continue given the short-term weakness in sterling), strong UK assets are especially attractive to international investors. I found this myself when advising on the deal at the end of 2009 between Coventry-based health software company ScriptSwitch and United Health Group UK (part of the US corporate United Health Group, one of the world’s largest 25 companies).”
With the election scheduled for early May, the question on many lips is whether the outcome will impact on deals activity going forward.
Sue does not think so: “Whatever the colour of the next government, we will continue to be in a challenging environment with transactions being generally difficult to complete.”
Jamie adds: “The one thing we do not want is a hung parliament since indecision will benefit no-one.”
“The next government,” says Sue, “will need to be strong, decisive and in control. If the deal-making market in 2010 is to continue to improve, and even thrive, then we will need greater certainty than currently exists.
“There needs to be a commitment from the government to supporting business activity and loosening some of the legislative burden which may be restricting certain deals from being done.”
Jamie argues that the key components to successful deal-making over the coming year will be experience, drive and a commitment to getting the deal done.
Sue concludes: “2010 will not be an easy or straightforward year. Hard work, skill and sound judgement will be the key to any success.”
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