Corporate deal activity is growing

May 5 2010 by Paul Mankin, The Journal

CORPORATE deal activity has not increased dramatically this year, but there are signs of growth.

On face value the volume and value of transactions in the region during the first three months of 2010 was comparable to the last quarter of 2009 – 32 transactions completed with disclosed deal values of £310m.

Take a closer look behind the figures, however, and it appears that the M&A market has turned the corner. The majority of the deal values for the final quarter and, indeed, the whole of 2009 were accounted for by the disposal of PD Ports for £323m in November 2009. In contrast a number of significant transactions greater than £10m completed in the region during the first quarter.

Speculation at the end of last year that a number of international corporates with a significant amount of cash on their balance sheets were targeting acquisition opportunities has proved to be correct with a number of North East-based businesses being acquired.

The largest transaction of the quarter took place in February when Hong Kong-based Li and Fung acquired the family clothing business Visage for £173m. The company was started in South Shields in 1981 by Mukesh and Promilla Sehgal and subsequently sold to their son Raj Sehgal, daughter Anita Mehan and her husband Sanjeev Mehan in 2005. The acquisition will allow Li and Fung to strengthen its European presence.

Three North East businesses were acquired by US companies during the period. Newcastle science firm Excelsyn was acquired by Albany Molecular Research for US$19m, Newcastle media firm Robson Brown was acquired by Round 2 International and GJP was acquired by RPM International. In addition Washinton anti-counterfeiting firm OpSec Security Group received an injection of £15.7m from Investcorp Technology Partners in exchange for a 29% shareholding.

In March, environmental and engineering consultancy group Entec was acquired by Amec plc from Growth Capital Partners and management for £61.2m. Originally bought out from Northumbrian Water in 2005 for £30m, the company has 14 offices throughout the UK and is headquartered in Newcastle. The original management team owned 53% of Entec and have agreed to stay with the business following the sale to Amec.

Acquisitive Newcastle businesses Vertu Motors and Technology Services Group both made domestic acquisitions during the period. Barrow-in-Furness plc James Fisher made two acquisitions in Australia and Norway with a total consideration of almost £15m.

Following its departure from AIM last year, Prudhoe-based BNS Telecom was acquired by Daisy Telecom for a consideration of over £10m. Also announcing its intention to delist was Tolent which went back into private ownership in February.

PwC predicted at the end of last year that we would be entering a test period for deals. This appears to be the case. A number of transactions we were aware of before Christmas have now completed and there are a number of quality companies either already on the market or actively contemplating sale. Our own work in progress is at a high level which provides further support to the view that the local M&A market is recovering.

Paul Mankin is corporate finance director at PricewaterhouseCoopers, Newcastle