Pandemic takes toll on North West M&A markets
The volume of North West mergers and acquisitions (M&A) transactions in the first nine months of the year was down by 34%, year-on-year, to 420.
In new year-to-date figures produced by business services group Experian, it showed that volumes dropped sharply from the first quarter to quarter two as the first impact of the COVID-19 crisis took hold of the market, while quarter three has seen volume rise, up to 130 transactions from the 90 in the previous quarter.
This increase appears to be a positive sign as the market makes steps towards recovery, although levels are still some way off the average quarterly figures for the past five years, as yet.
There have been two mega deals so far in 2020 in the North West – the £2.735bn divestment of Hindustan Unilever from Unilever Wirral and The Hut Group’s £1.87bn IPO – which boosted the overall value of North West deals up to £8.6bn, with no £1bn plus transactions having been announced at this point in 2019.
There has been an interesting change in the types of transactions seen in the North West so far in 2020. While acquisitions remain the most popular deal type, the percentage of private equity and rights issue transactions has increased from 16.85% to 20.19% and 2.65% to 6.41%, respectively.
The volume of flotations also increased this year, with four so far announced – compared with only one in 2019.
The North West contributed to 11.14% of the UK transactions and 4.6% of deal value nationally.
In the North West, five of the top 10 deals involved fund raising on the stock exchange, with three rights issues and two flotations worth in total £2.767bn.
This appears to be a dependable way for the region’s publicly-listed companies to raise capital in the current economic climate.
The most recent flotation was that of Manchester’s e-Commerce success story Hut Group, which completed its £1.9bn IPO on the London Stock Exchange in September.
This was the biggest London listing since 2017, the biggest North West IPO on Experian record, and a welcome good news story in what has, by any standard, been a challenging year for corporate finance in the North West.
Following completion, Hut Group was quick to acquire US skincare brand Perricone MD for $60m.
The decline in M&A activity witnessed in the North West so far this year was clear in all the industry sectors under review.
Professional services continued to be the most active sector, with a total of 122 transactions representing a decline of 20.8% on the 154 transactions carried out in 2019.
This industry was the least affected by the downturn, with other sectors seeing declines of between 25% and 70%.
The results, in terms of values, was quite different, with eight industries experiencing a rise in the overall value of M&A activity, despite the drop in volume.
Professional services, manufacturing, infocomms and wholesale and retail, were among those to see values increase.
There was an intriguing shift in the North West in 2020 from wholesale and retail to infocomms as the third most active sector, perhaps as a result of the COVID-19 crisis and its subsequent impact on the retail sector.
Private equity as a source of funds appears in 23% of transactions. Maven Capital Partners and NPIF Maven Equity Finance were the North West’s most active investors, each completing 13 transactions so far this year.
Interestingly, the volume of debt-funded deals dropped from 14% in 2019 to 9.2% so far this year.
The established debt providers, including HSBC, saw volumes of investment drop during 2020 with only four transactions compared with 13 deals in the same period last year.
It appears that the COVID-19 crisis has forced companies to look for alternative sources of funding other than the more traditional avenue of bank debt.
Gateley was top of the volume tables for legal advisers in the North West with a total of 27 transactions, ahead of Hill Dickinson with 21.
Addleshaw Goddard, with £844m-worth of deals, headed up the value table, with Simpson Thacher & Bartlett second on £343m.
RSM (20 deals) was the most active financial adviser, followed by Dow Schofield Watts with a total of 14, while Citigroup topped the deal value table, working on deals with a combined value of £2.4bn.
Jane Turner, research manager with Experian MarketIQ, said: “The COVID-19 crisis continues to have an acute impact on the UK’s M&A market and our latest figures suggest that we’re some way off a return to normality, although a small uptick in volume and a rush of high-value deals in quarter three raise hopes that the direction of travel is positive, at least.
“It looks as if the speed of recovery will vary widely between sectors, with technology, media and telecoms deals leading the way.”
She added: “While market volatility and the challenges in accurately assessing company valuations have led many businesses to postpone their investment decisions, others are eyeing opportunities for consolidation or for the acquisition of distressed assets – a trend we expect to see grow as we move further into quarter four and beyond.
“Elsewhere, the private equity sector remains highly active and we’re still seeing fundraising and refinancing transactions in large numbers – again, this is likely to be a key part of deal activity in the short to medium term.”