Bumper year for deals will take some beating
2014 was the year that big-ticket public market deals returned to favour in the City, and this saw a clutch of well-known North West companies storm through the IPO window.
It was also notable for the arrival of The Rainmaker Awards, successfully launched by TheBusinessDesk.com and Out There Events, for the regional corporate finance community.
After five years plus of fairly lean pickings for mid-market firms, new found investor appetite triggered the £1bn+ flotations of Bolton’s AO.com, Pets at Home and B&M Bargains on the main market, while a host of smaller firms with growth potential led, typified by Boohoo.com, took to the AIM market.
From an advisory perspective 2014 was something of the Zeus Capital show, as Richard Hughes and his team delivered a barnstroming year of deals, raising an impressive £1bn for clients. Unsurprisingly Hughes and Zeus were major winners at the Rainmaker Awards in May.
Zeus has continued to be active even as stock market sentiment turned negative with listing of home improvements firm entu, North East-based Quantum Pharma, and C4X Discovery, particular autumn highlights.
As public markets deals became more scarce, there was a second half resurgence from private equity, with Palatine and newcomer NorthEdge Capital particularly active.
Palatine acquired Gusto Restaurants from Living Venrtures and this month backed a secondary buyout at Stockport-based licensed branded bedding firm Character World, while NorthEdge continued to invest its maiden fund, with major deals for Blackburn-based Accrol Papers and Cheshire law firm Roberts Jackson.
At the lower end of the deals market, the North West Fund continued to invest at pace, and has now invested more than £100m into 300 business across a range of sectors throghout the region.
Looking ahead into 2015, there is cautious optimism in the corporate finance community for a busy start to the new year, before a softening of activity around the general election in May.
Richard Hughes of Zeus said: “2015 should start strongly with a number of private equity houses raising new funds and public equity markets will be receptive to high quality companies. Secondary fund raising activity is also expected to be strong, with the low interest rate environment driving the quest for yield and growth.
“However the global economy still has a number of significant threats which remain unresolved including potential stagnation in the Eurozone, the tensions in Russia and the uncertain outcome of the UK election in May which could compress the deal activity into the first quarter or the back end of the year.
“We however believe in the strength of the UK economy and the resilience of SMEs and believe that opportunities exist for both private equity and listed funds to make superior returns from good quality small companies and we therefore look forward to 2015 with confidence.”
Richard Harding, partner in EY’s transaction services team in the region added: “We’ve known the date for the next general election much longer than for previous elections, which in itself has removed an element of uncertainty for business.
“However, if there’s no clear winner on May 7 as many of the polls suggest, political instability could create a post-election lull on the public markets. With this in mind, companies could create a small flurry of IPO activity early in the new year.
“While this trend is likely to be less pronounced in the North West M&A market, there could still be more deals being done prior to 7 May than normal to ensure companies benefit from pre-election market conditions. Our record prior to the close of 2014 and our strong pipeline for early 2015 suggest that this could be the case.”
Jonathan Watkins, head of corporate at DLA Piper said the firm was “cautiously optimistic for 2015”. with continued strong levels of private equity activity expected and “decent volumes in mid market M&A”.
He added: “Pricing is a bit frothy still – people are paying significant multiples but we are still far from the days of outrageous valuations. Leverage seems to be picking up; lending confidence is solid and this will continue.”
From a sector perspective he expects technology and financial technology in particular to remain a key driver of activity.
“Not only has the UK government given its public backing to this nascent sector, there is a lot of innovation in the world of mobile payments, to give one example. Some young companies are courting large investments and high valuations.”
Giles Chesher, corporate partner at Squire Patton Boggs in Manchester, expects further in-bound M&A from the US.
“Cardtronics’ acquisition of Sunwin Services from the Co-operative Group demonstrates US companies’ appetite for growth into what is viewed as a safe zone from an investment point of view.”
Paul Lupton, head of advisory corporate finance for Deloitte agreed with this sentiment, stating : “High M&A deal values made an emphatic return in 2014, which is especially evident in the healthcare, TMT and consumer products sectors. In the first three quarters of 2014, companies spent US$2.5 trillion on M&A activities, making 2014 the best year for deals since 2007.
“The high value of deals will remain in 2015, with a cautious but steady pick-up. In 2015 I would expect to see these sectors continue to perform well, but in addition to more activity in the mining and resources sector, with speciality finance also being one to watch. By geography, the faster pace of recovery in the US over Europe will also deliver more trans-Atlantic interest in the industrial and manufacturing services.”
The Rainmaker Awards 2015 will take place on June 18 at the Hilton Hotel, Manchester.