The business services sector in the Midlands is still very active, despite the economic downturn, according to corporate financiers at PricewaterhouseCoopers.
The sector is continuing to experience significant mergers and acquisitions activity even during the difficult trading conditions, the firm said after releasing its latest M&A Insights report.
And while huge corporate merger deals like the £1.6 billion takeover of Somerfield by the Co-operative are still going on, the majority of growth in M&A deals in the region is buoyed by continued private equity investment in mid-tier companies, it added.
According to the report, the number of deals is still booming across the UK, contrary to expectations. Business services deal volumes reached a five year high, with 517 transactions recorded between July 2007 and a year later, compared with 480 in 2006-07, although deal values dropped over the same period.
The combined value of deals in the UK’s business services sector in the year to 31 June 2008 was £13.8 billion, down significantly from the £31.5 billion recorded in 2006-07, but still well above the amounts recorded in earlier years.
In the Midlands, one recent example of private equity interest in mid-tier business services companies was in the recent investment by 3i and Newco in SLR Holdings – a leading environmental consultancy business, valued at £100 million. The corporate finance team at PricewaterhouseCoopers in the Midlands advised the private equity company, 3i and Newco on the transaction.
Matt Waddell, the head of corporate finance at PricewaterhouseCoopers in the Midlands, said: “While the reduced availability of credit is of course affecting all sectors, it is having far less impact on medium-sized companies.
“Therefore, we are expecting well-managed, asset-rich business services companies in fields such as transport, distribution and logistics, facilities management, professional advisory, human capital management and business process outsourcing to remain potential targets for private equity investment during 2008 and into 2009.”
“With price expectations slowly realigning, it is increasingly likely that investors will see 2009 as a good time for buying opportunities.
“While major strategic moves have been put on hold, smaller in-fills and bolt-ons remain and an increase in corporate restructuring will start to fuel deal flow, with the mid-market sector, which dominates in the Midlands, capturing a large proportion of this deal activity.”
Mr Waddell added: “Private equity firms have an opportunity to pick up some good assets in the region’s business services sector. In the last downturn in 1991-92, corporates began to look for ways to dispose of non-core assets and if this trend is replicated it will produce attractive buying opportunities.”