Downturn felt by region's dealmakers

Aug 21 2009 By Peter McCusker, The Journal

THE world of corporate finance has suffered a rude awakening in the last year with the relative “feast” years of the middle part of the decade being replaced by the “famine” years.

The seismic change can be most clearly demonstrated by huge drop in the value of North East corporate finance transactions from £6bn in 2007 to £1bn in 2008. The major victim of this steep drop in activity has been the corporate finance team at Deloitte which was closed down, with the loss of a handful of jobs, in response to the virtual freezing of the private equity-backed deals in which had developed a strong identity.

The global business advisory service says any corporate finance work in this region will now be handled from its Leeds office. However there has not been the shake out in jobs in accountancy and corporate finance that other North East professional business support services, such as the legal profession, have witnessed.

Many of the region’s accountancy practices reacted quickly to the changes in the market by redesignating staff, who were previously at the cutting edge of corporate finance, into restructuring or business support functions.

Newcastle Quayside-based KPMG - where Richard Bottomley was succeeded in the senior partner post by Mick Thompson - ensured it stayed ahead of the game by aligning its dealmakers and restructuring teams into an integrated unit.

It has been an unprecedented period for world banking with the collapse of Lehman Brothers and here in the UK the taxpayer took major stakes in RBS and Lloyds. The takeover by Lloyds of HBOS has led to the merging of their two corporate finance teams and the combined team, led by Mike Mullaney, has promised to lend £300m into the North East corporate market in 2009, which is double the amount it lent in last year.

Mullaney, Lloyds’ director and head of large corporate banking in the North East, said: “We are continuing to lend through the cycle. Our customers have now got their heads around what has been happening in recent months and are becoming increasingly optimistic about the future.”

The Government’s commitment to lend money to business through its Enterprise Finance Guarantee scheme has kept many corporate finance teams busy in 2009, with the North East getting its fair share of the £200m lent, or committed nationally, by the end last month.

Of the corporate finance deals completed in 2009, the largest was the £32.5m management buy-out at drug company Quantum Specials in Burnopfield. Quantum Specials is one of the UK’s largest suppliers of tailor-made medicines to the pharmaceutical industry. It produces ‘specials’ – bespoke formulations which are not usually available from major drug manufacturers.

Managing director Ian Edge said one of the key reasons for the deal being done is to safeguard North East jobs. The business was bought from the Phoenix Medical Group with the backing of private equity house LDC (Lloyds TSB Development Capital) and Yorkshire Bank.