M&A activity drops in NW but deals value soars

Merger and acquisition activity in the North West receded in the first half of the year, according to the latest report by consumer credit specialist Experian.

But the value of deals surpassed the previous year’s levels, the most recent figures show.

During the first half of 2020 the North West, along with the rest of the UK has seen M&A activity drop, with a 40% decline in volumes compared with the same period in 2019.

However, thanks to two big ticket transactions announced in February and April, the values of deals in the region has soared by just under 130%.

The two mega deals have cross-border involvement with shares in the Indian subsidiary of Port Sunlight-registered Unilever being sold for more than £2.5bn, and Blackburn garage forecourts retailer EG Group’s offer of around £2bn for Caltex Australia, a Sydney-based firm.

The North West had an involvement in 10.6% of UK transactions in the first half of 2020, while contributing 7.4% of overall value.

In the North West there has been a substantial rise in the total number of rights issues year-on-year, and, the report says, with more than an 80% increase this looks to be a reliable way for the region’s companies to raise capital in the current economic climate.

There were four large rights issues in the top 10 North West deals, each with a different purpose for the funding.

These deals included a £198m rights issue conducted by Boohoo group to fund potential expansion as a result of the opportunities likely to emerge in the coming months caused by the global pandemic.

Meanwhile the £186m share issue by Auto Trader Group was intended to strengthen the balance sheet and liquidity position, Assura plans to use the funds raised in its £185m rights issue to support onsite development, acquisition opportunities and general corporate purposes, and Dechra Pharmaceuticals raised gross proceeds of £133.4m in June to provide financial strength, resilience and flexibility through a period of possible disruption arising from COVID-19.

All the sectors in the North West saw a downturn in activity during H1 2020. However, interestingly, there was a shift in the most prolific industry in the region.

Usually, manufacturing has the highest volume of deals, but during the crisis this has dropped below the volumes of professional services and wholesale and retail transactions.

The wholesale and retail industry was responsible for 28% of the transactions in the mid-market and higher, with financial and professional services both contributing to 25%.

The most active industry in the rights issue deal type for the North West is professional services, however, of the 74 transaction in that sector, only eight per cent were rights issues, the majority were acquisitions with 63% of deal volumes.

Looking at the funding picture, Maven Capital Partners and NPIF Maven Equity Finance together invested in a total of 10 transactions in the North West in H1 2020.

Bank debt has dropped from 14% of volume in H1 2019 to 8.5% so far this year.

In contrast, the volume of transactions with private equity as a source of funds increased from 17% in H1 2019 to 23% in H1 2020.

The traditional debt providers, such as HSBC, invested in only two transactions compared with 12 deals in H1 2019.

It appears that companies have gone elsewhere for their funding, or the banks have changed the way they provide the support, said the Experian report.

Gateley was top of the volume tables for legal advisers in the North West, with a total of 15 transactions, ahead of Hill Dickinson with 13.

Addleshaw Goddard, with £700m worth of assists, was at the top of the value tables, with Simpson Thacher & Bartlett second with £343m.

The financial adviser value table was strongly influenced by the previously mentioned large rights issues, with Zeus Capital top and Citigroup second.

In terms of volume in the North West, RSM advised on the most transactions, followed by Dow Schofield Watts.