Punitive bank rates hit North takeovers
Jan 8 2009 by Peter McCusker, The Journal
THE seizing-up of bank credit lines and the economic downturn has seen the value of company acquisitions in the North East fall from £6bn to £1bn in a year.
However, the new figures released today show there is still takeover and merger activity with 224 deals taking place last year. And the findings also show a less marked decline in deal value and volume in the last three months of 2008.
Corporate finance experts say the general lack of confidence in the economy is holding back ambitious businesses from initiating takeovers.
Many of those finding suitable takeover targets are being held back by a lack of credit and the punitive rates being charged by banks. Neville Bearpark, corporate finance partner with Newcastle accountants UNW, said: “Just a few years ago ambitious businesses could get 100% debt funding from banks for takeovers.
“Traditionally a deal was completed with a large amount of leveraged borrowing, but businesses are finding that now they just cannot get the money to do the deal. People just cannot raise the finance.”
The new research released by corporate finance analysts Corpfin show the values of deals completed in the North East fell by 85%, from £6.6bn in 2007 to £1bn in 2008.
While 2007 saw the £2.2bn takeover of Wilson Bowden of Leicestershire by Newcastle-based Barratt’s there were also a further 10 transactions worth £2.5bn between them. The largest deal in 2008 was the disposal of £170m worth of Wellstream shares by private equity firm Candover in April.
However the decline in the volume of deals was less marked with 224 merger and acquisitions (M&As) and public share offerings (IPOs) in 2008 compared to 282 in 2007.
Andrew Scaife, head of corporate finance for KPMG in the North East said last year was split in two.
“The first quarter was busy as shareholders looked to get deals completed before the unfavourable tax changes on April 1.
“The rest of the year was much quieter as a natural result of the impact of the problems in the economy. A number of deals have gone on hold as the pricing is not right.”
The fall in the North East has been more marked than elsewhere in the UK. Across the country there was a 21.5% decrease in M&A and IPO transactions completed during 2008 compared to 2007.
And £207.4bn worth of transactions were announced in the UK in the year, down 54 % on 2007.
Brian Rarity, strategic consultant with Corpfin, said: “Given the scale of the economic downturn, it’s no surprise that deal volumes and values are down for 2008.
“Importantly, however, deal activity has not stopped altogether and Q4 2008 figures should be considered as a comparator for Q1 2009 performance. The move into 2009 brings the psychological benefit of a re-start, with confidence most in need of a timely boost.”
In the last quarter of 2008 in the North East the number of transactions completed dropped by just 5% from 43 to 41.
