The corporate deal market in the North East was remarkably buoyant in the first six months of this year despite the UK's return to recession. Paul Mankin, corporate finance partner at PwC in Newcastle, asks whether the whole story is as good as the headlines.
THE North East M&A market held up relatively well during the first half of the year with 83 transactions completing, representing a modest increase of almost 4% compared to the first six months of 2011.
Deal values dropped by 32% to £1.12bn from £1.66bn during the period although both of these figures are artificially high due to a number of large transactions that have completed over the last 18 months. These included Wellstream and Marlow Foods during the first half of 2011 and the disposal of Northern Rock in January this year. Deals of this size are infrequent in the region and distort the underlying deal values.
Globally, Dealogic reported M&A volumes down by 16% for the first half of the year reflecting continuing economic turmoil – particularly in the eurozone.
Despite the market uncertainty, Utilitywise, an energy management company based in South Shields, raised £8.86m on AIM, giving the company a market capitalisation on flotation in April of almost £37m. This was the first stock market listing by a North East company since eTherapeutics floated on AIM in November 2007. Utilitywise, which was established in 2006, advises businesses on energy procurement and energy management.
Significant investments in the region in the last three months included £10m in Wear Inns in May. The Business Growth Fund (BGF) invested £8m and took a minority stake in the business together with £2m of growth capital provided by NVM Private Equity which has backed Wear Inns since it was set up by John Weir and John Sands in 2006. This was the first investment in the North East by the BGF. Formed last year by some of the largest banks in response to the Government’s green paper, Financing a Private Sector Recovery, the BGF aims to fill a gap in the market for funding companies with a turnover of between £10m and £100m.
Also in May, ISIS Equity Partners made a significant investment in fitness footwear brand inov-8 to support continuing international expansion. The company was established in 2003 in County Durham by Wayne Edy and already exports worldwide with its main markets being the UK, Europe and US.
Other mid-market size transactions completing during the quarter included the acquisition of Delta Labelling by OpSec Security for £12.5m and the sale of Marishal Thomson for over £5m. Sage, once again, can be credited with the largest transaction of the period by acquiring a controlling interest in Brazil’s Folhamatic Group for £125m. This is a particularly significant step for Sage’s global expansion.
Since the initial drop in deal volumes after 2008, the market in the North East has stabilised over the last couple of years. The deal mix now includes a significant level of venture capital which was absent for a long period of time. It will be interesting to see if there is a continuation of the same levels of activity in the second half of 2012.