Q1 North East UK deals activity: a tentative start to the M&A year

 

UK deal volumes are on the rise according to our latest Deals Index. Small and mid-market deals accounted for an increasingly large proportion of deals in 2013 and, as a result, the average size of deals overall has decreased. Confidence is positive with 71 per cent of corporates and 70 per cent of private equity (PE) respondents believing volumes will increase in the first half of 2014.

The UK economy is also improving after a couple of sluggish years and is now gathering real momentum. According to our latest Economic Outlook this recovery is anticipated to continue in 2014 with the North East expected to grow by 2.1 per cent.

This economic optimism, coupled with increased deal confidence, is promising for a strong deals market. So how is the mergers and acquisitions (M&A) market performing in 2014?

Globally, Dealogic reports disclosed deal values at their highest first quarter level since 2008, although the total number of transactions has dropped by 15 per cent compared to the first quarter of 2013. UK targeted M&A value was US$24.2bn, the lowest since 2009 and less than half that for the same period last year.

Thomson Reuters reports a similar picture, with the number of deals dropping by 14 per cent compared to the first three months of last year. But it also reports that half the total of global deal values came from deals worth US$5 billion or more. So although there isn’t a significant uptick in the market, the steady growth in large deals implies an underlying confidence.

In the North East last year the M&A market reflected these global trends with a greater number of transactions completing with a £50m increase in disclosed value compared to the previous year. However, the first three months of 2014 saw the lowest levels of deals activity in the region since Q3 2010, with less than £100 million in disclosed deals values so it was a tentative start to the M&A year.

2013 saw a material increase in PE activity in the region which accounted for the majority of the disclosed total deal value. Much of this activity took place during the latter part of the year but this momentum has not been maintained during the first three months of 2014. Only two significant PE investments have been made in the North East; Agilitas Partners backed the management buy-out of Impetus Waste Management, and the £3.5 million investment by NVM in tortilla chip manufacturer, It’s All Good.

The resurgence in IPOs has continued, particularly with a focus on companies with an internet related business and also increasingly companies in the financial services sector. After a dearth of new listings for North East companies, 2013 saw two companies listing on AIM in the latter part of the year. No companies in the region have floated yet in 2014.

Four cross border investments took place during the quarter. The first of which was Prudhoe headquartered Specials Laboratory, who was acquired from UDG Healthcare as part of a £23.5 million pound deal by Professional Compounding Centers of America Inc. The business, which was established in 1999 by Fiona Cruickshank and Brian Dougherty, was acquired by UDG in 2008.

Although there are signs that economic conditions are improving and there is more available and affordable debt funding, it appears that momentum, especially in our region, is building at a slower rate than anticipated. Hesitancy prior to the budget announcements in March may also have had a negative effect on the market this quarter.

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