North East M&A market falls behind global trends: The PwC M&A review

Paul Mankin of PwC investigates why the North East's deals market is down

Paul Mankin of PwC
Paul Mankin of PwC

The North East is lagging behind national and international deals activity, and we’ve yet to see a firm follow Kromek, Utilitywise and Applied Graphene Materials onto the stock market this year. Paul Mankin, corporate finance partner at PwC in Newcastle, reviews the deals that have taken place in the region in the first half of 2014.

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In recent years activity in the M&A market in the North East has tended to lag behind that reported both globally and nationally.

This certainly seems to be the case so far this year.

Global deal values for the first half of 2014 reported by Dealogic are up 41% on the same period last year at US$1.83tn.

The same figures for Europe show a smaller but still significant increase of 29%.

A similar trend in increased deal values is also reported by Thomson Reuters although the number of transactions is marginally down to 17,698 from 17,820 in the previous year0

In the North East both the value of transactions and volume of completed deals are down when compared to the first half of last year with 74 deals with a total disclosed deal value of £989m – the lowest figures since the first six months of 2010.

Interestingly, the deal landscape in the region mirrors that for the first six months of the previous two years. This year eleven deals with a disclosed value of between £1m and £50m and four transactions with a disclosed deal value of more than £50m were recorded.

Comparable figures for last year are twelve and three respectively and for 2012 it was eleven and three.

Possibly the greatest differential between the deals market in the North East and that nationally is the number of IPOs.

Europe is approaching record numbers with proceeds of 33.7 billion Euros raised already in 2014, which is more than any full year since 2007.

Meanwhile in the North East we have yet to see a company seeking a listing this year.

Since 2007 only three local companies have come to the market; Utilitywise in 2012, and Kromek and Applied Graphene Materials in 2013.

Perhaps some of this inactivity can be explained by the relatively low number of private equity backed businesses in the region.

More than half of European IPO activity in 2014 has been driven by private equity.

In the UK PE backed IPOs accounted for more than two thirds of UK IPO proceeds in the last quarter.

Buyout groups are opting for a listing rather than selling assets to each other in a secondary buyout as stock markets are offering higher valuations.

Contrary to current trends, however, PE company Candover sold Cumbrian based Innovia Films in a secondary buyout to Arle Capital and Electra in the largest deal of the quarter for over £400m.

In the second largest deal North Yorkshire-based R&R Ice Cream, itself subject to a secondary buy-out last year, acquired Australian business Peters Ice Cream for £242m.

Cash rich corporates with strong balance sheets are also fuelling M&A volumes and providing strong competition for the PE houses which currently have over US$1tn available to invest according to Preqin.

In May, Connection Capital sold its minority stake in Cramlington-based Advanced Electronics to FTSE 250 company Halma Plc for an initial consideration of over £14m with additional payments of up to £10m.

The company has grown considerably since the initial investment was made in 2003 and is recognised as a world leading supplier of fire protection systems.

It will be interesting to see if the region’s deals market remains in its current static position towards the end of the year, or whether we follow national trends and see strong local assets changing hands via flotation or acquisition.

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