Deals dwindle – and some of those are company rescues

May 20 2009 by Paul Mankin, The Journal

THE first quarter of 2009 saw the least deal activity in the North East for almost four years with 39 transactions completed.

The total disclosed deal value was just over £59m – the lowest since the first quarter 2003.

The UK figure as reported by Dealogic was the lowest since its records began in 1995.

Disclosed deal values reached $14.6bn – the lowest since the first quarter of 2004 and roughly half the value for the same period last year.

European M&A activity declined by more than 47% on a year ago, according to Thomson Reuters.

In the region the largest transaction of the quarter was the £32.5m buyout of Prudhoe pharmaceutical company Quantum Specials.

Company founders Ian Edge and Alison Norman bought out two fellow founders supported by a funding package from LDC and Yorkshire Bank.

The buyout also provided an exit for Phoenix Medical Supplies, which bought a 30% stake in the company in 2005.

Limited private equity activity in the UK as a whole was confirmed by the Centre for Management Buyout Research.

Both the market for new investments and exits was slow during the first quarter of 2009, with the expectation being that the market will stabilise at a lower level throughout this year.

Unusually there was little activity by North East plcs during the period. Hargreaves Services announced a joint venture with Evonik Power Minerals together with the acquisition of the remaining 50% of Coal 4 Energy, a joint venture with UK Coal.

Last February Carr's Milling acquired the trade and assets of German remote handling company Hans Walischmiller.

The transaction will complement Carr's Swindon subsidiary Carrs MSM, a supplier of remote handling equipment to the nuclear industry.

Immunodiagnostic Systems (IDS) also announced the conclusion of the sale of IDS Biocide Hycel's haematology business.

Two chemical enterprises were sold during the period. Management acquired the Seal Sands chemical plant from parent company Evonik Degussa in January. During the same month Frutarom announced the acquisition of Hartlepool’s Oxford Chemicals, the food and fragrance flavours manufacturer, for £8.25m.

A number of North East companies falling victim to the recession were rescued during the quarter.

Villa Soft Drinks was acquired out of administration, as were two businesses supplying the automotive sector; Hillside Plastics and Widney Pressings.

Other local companies acquired rival businesses in trouble including acquisitions by MH Southern, Ramsdens and Collectables.

As reported at the end of 2008, deal activity in the region has slowed markedly, with even the current levels being bolstered by the number of struggling companies needing new ownership.

We are unlikely to see a sustained increase in deal activity until the final quarter of 2009 at the earliest.

Paul Mankin is corporate finance director at PricewaterhouseCoopers, Newcastle. For further information telephone (0191) 269-4318 or email paul.mankin@uk.pwc.com