Deals reach 15-year low as caution takes hold

Oct 29 2008 by Paul Mankin for The Journal

NOT surprisingly, the deepening financial crisis across the globe had an effect on transactions in the region in the third quarter.

The worldwide credit crunch, which began more than a year ago, continued to worsen and the debt markets in particular remain in a state of turmoil.

Globally, Dealogic reported a 16% decrease in deal volumes for the first nine months of the year compared with the same period in 2007. The largest drop in activity was in deals valued above $1bn.

Mid-market transactions also succumbed to the difficult conditions despite previously being more resilient to the financial turbulence than the larger deals.

In the North East, figures for the third quarter reflected the worsening climate with 46 transactions completing with a disclosed deal value of £201m. The first nine months of 2008 show deal values in the region totalling less than £500m – the lowest for more than three years.

Deal volumes for the nine months appear less affected, with the same number of transactions completing in 2007 and 2008.

However, figures for the second quarter masked the underlying downturn in mergers and acquisitions and were buoyed by a push to complete deals by the end of the tax year and the withdrawal of capital gains tax taper relief.

Certain sectors fared better than others, with some industries undergoing a period of consolidation in response to the volatile economic conditions, notably the financial services sector.

Care homes sector experienced continued activity during the period. Southern Cross raised more than £50m to pay off debts, selling 16 homes in two transactions, and Autumn Care Group sold three of its properties in a £5m deal.

In the North East three businesses were acquired out of administration, including ScS Upholstery plc.

The acquisition, by a US private equity group, saw ScS disposing of its entire trading operations to the European arm of Sun Capital Partners for an undisclosed nominal sum. The 96-store chain suspended its shares at the end of June. Less than two years ago, the shares were traded at more than 550p.

Two North East plcs continued to grow in Europe, Arriva making two acquisitions and Sage buying two businesses in Spain and one in France.

Taking into account current market conditions and the resulting funding crisis it seems unlikely that the annual total value of deals in the region will exceed £1bn. This has not occurred for more than 15 years and underlines the rare financial climate.

Paul Mankin is head of corporate finance at PricewaterhouseCoopers LLP in Newcastle

… it seems unlikely that the annual total value of deals in the region will exceed £1bn. This has not occurred for more than 15 years …