Deloitte: Corporates with cash offer better exit prospects
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Aziz Ul-Haq is a director In Deloitte’s Corporate Finance Advisory team in the North West |
The North West has consistently had the strongest private equity market outside of London, with the asset class having created some the region’s most successful business growth stories. After the flurry of buyouts in 2007 and 2008 at the industry’s peak, portfolio exits are now a priority for a number of private equity houses in order to generate returns for their investors. However, as Deloitte’s CFO survey indicates, CFOs are most concerned about growing revenues and margins, whereas planning for an exit has dropped down the boardroom agenda. In fact the number of private equity-backed firms considering an exit has fallen to only four per cent, compared to 18 per cent last year. Clearly, growing concerns over the impact of the Eurozone and future of the UK economy are causing some shareholders to shelve their plans to exit. With secondary buy-outs and the public markets having been hit by volatile debt and equity markets respectively it has been the turn of trade sales, in recent times, to pick up the slack in M&A activity. According to data provider Dealogic, trade sales accounted for 82.4% of all European Private Equity exits in the first quarter of 2011 compared with 46.6% at the height of the M&A boom in 2007, when the secondary buy-out market was at its peak and the debt markets were at their most liquid. Over the last 18 months we have seen direct evidence of this across the North West, examples have included the sales of British Salt to Tata Chemicals, Crown Paints to Hempel AS, BWA Water Additives to Berwind Corporation and WFEL to Krauss Maffei Wagman. Large corporates that adopted cautious and defensive strategy aimed at reducing costs and shoring up their balance sheets during the downturn, have found that those strategies have culminated in them amassing a record cash mountain. US Corporates alone are reported to have $1.9 trillion of cash is sat on their balance sheets. The options for these corporates include, maintaining the cash pile and earning a deposit rate return on their cash in a low interest environment, returning the cash to shareholders – a form of admitting corporate defeat – or deploying the cash in developing new growth opportunities of which M&A is a key cornerstone. In this environment private equity-owned assets have offered and will continue to offer a ready-made M&A opportunity. The Eurozone crisis has inevitably caused some corporates to pause for thought and return to some of that defensive behavior however their long term appetite remains strong with timing of M&A alone being the variable factor. Whilst the Eurozone Crisis and its potential impact on UK’s growth prospects will continue to cast a shadow over M&A, there remain growth markets and interesting M&A opportunities. For us, technology has been the stand out sector in terms of interest from investors. Cloud computing, social media and e-commerce are driving business growth in the North West, enabling our companies to engage with international markets and operate more efficiently. Businesses in the sector are often extremely able and confident to tell a solid growth story that will win over suitors. Aziz Ul-Haq is a director In Deloitte’s Corporate Finance Advisory team in the North West More articles in
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