New figures have shown the extent to which the world of financial deals has crashed in the Midlands over the last few months as a result of the global financial freeze.
Merger and acquisition activity in the Midlands fell to the lowest ever recorded level at the end of last year, according to market analysis group Experian.
Its Corpfin research group found the deals done in the region in the last three months of 2008 were worth a total of just £878?million – the first time a quarterly figure had dropped below £1?billion and the lowest amount since their records started in 1994.
Only 120 deals were done in the region during the last three months of the year, a drop of nearly 20 per cent on the quarter before. As a whole 2008 saw only 620 M&A and IPO deals announced, significantly lower than the 863 completed the year before.
Just one large deal worth more than £100?million was completed in the last few months of 2008 – the move by German aviation firm Lufthansa to take a controlling stake in rival carrier British Midland. Thiscompares with the 2007 £8 billion takeover of Hanson plc (right) by HeidelbergCement AG. This was the second lartest deal carried out in the Midlands since the turn of the century
Corpfin strategic consultant Brian Rarity said: “Given the scale of the economic downturn, it’s no surprise that deal volumes and values are down for 2008. Importantly, however, deal activity has not stopped altogether and Q4 2008 figures should be considered as a comparator for Q1 2009 performance.
“The move into 2009 brings the psychological benefit of a re-start, with confidence most in need of a timely boost.”
The best-performing financial advisers in the Midlands last year was Grant Thornton, who completed 33 deals in 2008. Corporate finance partner Phil Jackson described the year as a “roller-coaster”, but said there were some encouraging signs the bottom of the downturn was approaching.
He said: “The fourth quarter of 2008 was hopefully a watershed. We want to get some sort of reversal in 2009, even though we know the deals will be at lower values.
“What we saw last year was a roller-coaster. At the start of the year M&A was extremely busy, partly driven by changes to capital gains tax, so there was a plethora of private company sales before then. Broadly speaking they were done under the previous economic climate.
“Contrast that with the last quarter, which has probably been the quietest one for many many years, and that’s really driven by the fact that as the year went on confidence has waned, and the price purchasers were prepared to pay has skewed significantly. What we have seen in the second half of 2008 is quite a few transactions fall over because of differences on price.
“As the year went on profitability has been impacted and therefore, as a buyer, if profits are going down we are going to be paying less. We are now in a situation where we have got a lot of potential buyers who are saying they think there are going to be a lot of opportunities in the next 18 months.”
On the legal side of things, Eversheds was the top law firm in the Midlands, advising on six deals in the last quarter, and 47 throughout the year. But Colmore Row rivals Wragge & Co’s three deals in the quarter were worth the most, advising on contracts such as the purchase of software firm Commerce Decisions by Worcestershire-based defence giant Qinetiq in October.
Wragge corporate finance partner David Vaughan said: “It was a curate’s egg of a year. It started off reasonably strong, and built to a bit of a crescendo driven by the changes in CGT.
“But there was clearly an awareness that the economy was in for a bit of a change. At the start of the year we saw some good deals being driven by the clients with cash, from clients who needed to restructure and deadlines driven by the financial year end.
“But then from summer onwards of course there were no leveraged deals because of the lack of liquidity.”
He attributed Wragge’s performance to being one of the only firms to concentrate on pulling in national and international deals into a regional headquarters, rather than opening new branches around the UK.
And he added: “Who knows what we’ll see this year. I think what I’m expecting to see is an increased number of companies going into administration.
“On an optimistic note, my hope is there might be some transaction activity driven on the back of the weakened pound, there will be more outsider interest in UK businesses.”