NW deals market picking up say expert panel

THE volume of deals being completed in the North West remains at lower levels but the deal pipeline is improving and the average transaction value is increasing.

That was the verdict expressed by a panel of corporate financiers gathered at a recent Economic Lunch hosted by Yorkshire Bank’s Corporate and Structured Finance.

“The market has shifted away from smaller deals,” said Adrian Gare, a former corporate financier with Baker Tilly who now serves as a non-executive director at Leigh-based manufacturing firm Ionix Systems and biotech software firm Instem Life Sciences.

His assessment is backed up the most recent research from the Centre for Management Buy-Out Research, which found that although the number of private equity-backed deals in the region almost doubled to 17 from 9 in 2009, deal values increased more than six-fold – to £1.7bn last year, from £270m in 2009.

Yorkshire Bank area regional director Roddy Kilpatrick, pictured right, said that many of the deals for which the bank is being approached requires debt packages of more than £15m.

“We’re not seeing many of those smaller, but faster growing businesses for £4m or £5m,” he said.

David Dodds, below left , who works in NM Rothschild’s debt advisory arm, said that private equity houses tend to prefer companies of a more substantial size as they have typically proved to be safer prospects.

“The larger deals do tend to be more resilient,” he said. “People tend to lose more on smaller deals when things go wrong.”

Andy Gregory, a director at Key Capital Partners, argued that prospects for the region’s deals markets were improving because the quality of firms that are being sold or acquired has also improved.

He argued that while funding many deals remained challenging, the situation seemed more stable than at any time during the previous two years.

Chris Belsham, a director in KPMG’s North West corporate finance team, said that while the prices being achieved on company sales remained “a bit off”, due to some difficulties in raising leveraged debt, they had generally held up well.

There appears to be two reasons for this. The first, as Deloitte’s director of corporate finance Aziz Ul-Haq, pictured right,  explained, is the return of the corporate buyer to the marketplace.

He said that corporate buyers are finding it easier to borrow money to do deals – particularly if they have assets such as properties which can be offered as security – than many private equity purchasers.

Jonathan Massey, business development director at Zeus Private Equity, said that the other source of competition that exists for mid-market deals of between £10m-£50m is the return of larger, mainly London-based private equity firms to regional markets.

Mr Massey said that many of the fund managers in such firms had concentrated solely on larger deals during the boom time, but as they look to raise new funds from investors they have to demonstrate an ability not only to achieve satisfactory exits but also to continue being able to find suitable investments.

“They will face pressure to do deals,” he said.

Mr Massey argued that the economic environment, though shaky, offered many private equity-backed companies a decent chance of either making bolt-on acquisitions to facilitate growth or secure a profitable exit for the first time since 2008.

Roddy Kilpatrick also said that the question of raising leveraged debt from banks was as much about the number and quality of deals being put to funders, than any reluctance to lend.

He said that in the last four or five months there had been a marked improvement in activity In late September, Yorkshire Bank backed RJD in its acquisition of Verdant Leisure, a buy and build platform in the caravan park sector, while in December it funded Bridgepoint Development Capital’s buy-out of Altrincham based Building Automation Solutions.

He added that in the UK, Yorkshire and Clydesdale Bank remains committed to growing market share in corporate lending and to attracting new-to-bank business customers.