Midlands firms still likely to drive deals activity

INDUSTRIAL companies in the Midlands are strong enough to face up to the current stock market turmoil and will continue to drive deal activity in the region, advisors have said.

Corporate finance experts at PwC in the Midlands said concern about the debt crisis affecting Eurozone countries and fears that it could spread to larger economies such as Spain and Italy had led to significant stock market volatility in the UK and around the world.

The situation has been compounded by increasing concerns about the stability of the US economy, reflected by the downgrade of America’s credit rating.

However, PwC said despite the market uncertainty, there was a core of strong, well-run industrial companies in the region that are trading strongly and have healthy cash reserves.

They said these businesses would either be looking to grow through acquisition or attract investment to facilitate their growth plans.

Matt Waddell, head of corporate finance at PwC in the Midlands, said: “While the extent of the fallout from the current stock market turmoil is impossible to predict, there are a significant number of industrial companies in the region which have been trading well through the economic downturn and have the cash reserves in place to make strategic buying decisions.

“These businesses have done everything right in terms of making cuts at the start of the economic downturn and some have also completed mergers and acquisitions – some at bargain prices – that are already beginning to deliver value. These strong trading performances have been attracting market attention from corporate trade buyers and other investors and there is no reason to think this will not continue.”

PwC said corporate trade buyers had demonstrated their willingness to pay higher multiples for an equity share in businesses that are trading strongly despite the challenging economic conditions.

“The appetite for deal-making in the region is definitely there. This is driven by many factors including the strong cash position of some well-run businesses, combined with a lack of assets coming to market,” added Mr Waddell.

“Companies operating in the power generation, marine, oil and gas and renewable energy markets – particularly those with exposure to the BRIC economies – are attracting a higher level of investor interest as corporate buyers seek to gain access to markets with good potential for growth.

“We are also finding that industrial companies with a presence in the aftermarket – selling parts or support services – are in a particularly strong position when it comes to attracting investor interest as this type of trading activity has the potential to boost the cash position of the business further.”