Foreign buyers to rise on Teesside

Apr 30 2008 Evening Gazette

TATA, the Indian owned firm that bought Corus three years ago, is likely to be followed by more Asian investors in Teesside as the cut-price pound attracts foreign buyers.

According to North-east business advisory firm Deloitte, the UK’s “open door” policy and liberal labour practices, will boost mergers and acquisitions, particularly in the pharmaceutical sector - one of the three industries targeted in development agency, One NorthEast’s new inward investment campaign, due to launch this summer.

Paul Kaiser, head of corporate finance at Deloitte Newcastle, said Indian investors had deep pockets and were attracted to British shores because there were “less barriers to entry than mainland Europe”. They were coming with a shopping list for established firms with high brand value, he said.

“India is one of the economies going through high growth, which will continue while we are all in recession,” said Mr Kaiser.

The value of the pound has dropped 13% since last year’s peak - roughly the same as the devaluation in 1967 and not far off the fall in 1992, when the UK was ejected from the ERM (Exchange Rate Mechanism).

He said firms were looking for “front end partnerships”, which would not necessarily lead to asset stripping and offshoring.

Tata’s acquisition of LandRover and Jaguar was typical of the strategy likely to be adopted.

“I would imagine that primary production will stay in the UK - generally, these are high value brands and they can’t take the risk of relocating them. What they may be do is put some of the component supply back to the home country.”

But India is not the only country going shopping on Tees.

Pride Valley Foods at Seaham was recently bought by Mexican tortilla king Gruma, which wanted to maximise flat bread production in the UK specifically to access British multiples.

The bad news, said Mr Kaiser, was that bidding was likely to become tougher for UK firms as they competed against foreign money.

Uncertainty in the home market had already seen buyouts and buyins in the first quarter decline significantly from £12.7m in 2007 to £3m for the first quarter of 2008, said Mr Kaiser.

"Quarter one of 2008 has seen no sizeable MBO/MBI’s transactions within our region,” said Mr Kaiser.

“These larger transactions clearly have a significant impact on the reported values. However, I do suspect that there will be several larger transactions completed throughout the course of the year.”

He predicted that sovereign wealth funds, particularly from the Middle East, Singapore and China, would also become more active in the region.

“These funds are buyers because they have the cash. It’s got to be good news, particularly if they are taking local firms into new markets.”