Paul Mankin, corporate finance partner at PwC reviews the North East deals market.

DESPITE a strong start to the year and total deal volumes being up on the previous year, deal activity remained subdued towards the end of 2010, with the majority of interest in North East companies being shown by UK-based and international trade buyers.

There were 143 transactions completed during 2010 with the traditional flurry of year-end deal completions not materialising. The last three months of the year remained static with only 22 businesses bought or sold in the region.

This slowing down of activity may have been due in part to the uncertainty which surrounded the Government Spending Review in October. Although some transactions did subsequently complete before the end of the year, the majority weren't sufficiently advanced to complete before the start of 2011.

Disclosed deal values for 2010 were however significantly up on the previous two years at almost £2.08bn although the majority of this increase is accounted for by the £1.6bn acquisition of Arriva.

North East companies continued to attract strong interest from trade buyers despite the pervading uncertainty about the impact of the public sector cuts. During the last quarter insurance intermediary Cullum Capital Ventures acquired the BIB group of businesses comprising BIB Darlington and BIB Underwriters adding to its acquisition of North East-based Bishop Skinner earlier in the year.

Robson Brown, the Newcastle-based advertising agency was subject to two ownership changes during the year. US firm Round2 Communications acquired Robson Brown in April as part of ambitious expansion plans which proved to be unrealistic when it went into administration in November. Talks of a management buyout followed but in December it was announced that London based Mission Marketing Group had acquired certain assets including the name and property rights.

Cross-border trade sales of North East businesses continued in the last quarter including the disposal of Innocore Gaming to Taiwanese company Advantech. Although not completed during the year, General Electric also announced the acquisition of Wellstream Holdings.

The propensity for private equity backed deals is significantly greater than a year ago and this indicates that the steady upturn in M&A activity seen since the start of 2010 is set to continue. During the final quarter of 2010 Baird Private Equity announced an undisclosed investment in Nigel Wright, the Newcastle-based recruitment businesses.

Private equity companies are increasingly finding that they are able to access levels of debt finance that make corporate investments more viable and this will further boost activity over the next six months.

North East businesses made a number of acquisitions during the year. Aesica, which was formed in September 2004 through a management buyout of the former BASF site at Cramlington, acquired R5 Pharmaceuticals in June and announced in December that it had signed contracts ahead of acquiring three manufacturing sites in Germany and Italy.

As we start 2011 it is apparent that there has been something of a move away from aggressive auction processes towards an understanding that in this climate allowing an appropriate amount of access and a reasonable amount of time to make a decision is likely in some circumstances to lead to a better deal than rushing potential buyers or investors through a very aggressively structured auction. At the extreme end, there are transactions being done off market, without a formal sale process. In the middle ground, sale processes have longer timescale with more care and attention lavished on the potential buyer. Designing the right sale process for each specific set of circumstances is a skill that differentiates the better corporate finance advisor.

There is an underlying confidence in the marketplace, evidenced by the recent completion of some significant acquisitions and refinancing deals in the region and if the current strength of our own work in progress is any measure, this is likely to continue to improve in 2011.

:: Paul Mankin is corporate finance partner at PricewaterhouseCoopers, Newcastle. For further information telephone 0191 269 4318 or email paul.mankin@uk.pwc.com . See www.pwc.com for more information.