North East megadeals drive up global deals

A series of megadeals have driven up global deal values so far in 2014, as Paul Mankin, corporate finance partner at PwC in Newcastle, explains

Paul Mankin of PwC
Paul Mankin of PwC

According to Dealogic, global deal values are up 34% on the same nine-month period in 2013.

Thomson Reuters reported a similar increase with announced deal values for the period surpassing full year results for 2013.

Closer to home in Europe, deal values were recorded at more than $78bn for the nine-month period according to Dealogic which is the highest value since 2008.

However, these results have been flattered by the resurgence of the megadeal – deals with a value greater than $5bn – with 14 transactions accounting for almost 20% of deal values.

There has been debate on the extent some of these deals have been motivated by tax.

Dealogic said there have been 14 so called tax inversion deals, but recent action by the US Government will reduce any tax incentive.

We’ve recently seen the withdrawal of the £43bn offer for UK pharmaceutical company Shire Plc by AbbVie. Prior to this US based Medtronic successfully acquired Irish medical supplies company Covidien for $43bn.

This was the latest in a number of significant deals in healthcare which has been the most active sector globally this year.

In the North East, Consort Medical Plc, an international healthcare company listed on the London Stock Exchange, announced an agreement to acquire Newcastle-headquartered Aesica Pharmaceuticals for £230m.

The acquisition, which was approved by the shareholders of Consort on October 16, is subject to clearance by the German competition authorities and expected to complete later this year.

Aesica was founded in 2004 and since then it has evolved from an active pharmaceutical ingredient (API) manufacturer into a full service contract manufacturing organisation (CDMO).

In the last 10 years the business has increased revenue and staff numbers tenfold to £180m and 1,300 respectively.

Although deal values have increased, the volume of deals has stabilised with Thomson Reuters reporting a global increase in the number of deals of only 2% on the first three quarters of last year.

Deals activity has slowed down significantly in the last three months with activity down by 22% on the previous quarter.

In the North East activity also slowed, to levels last seen in early 2010.

Only 32 transactions completed during the quarter which is 25% down on the previous three months.

The ONS reported historically low levels of UK M&A activity in the first half of the year and this looks set to continue with the FTSE100 index hitting a 16 month low, steep falls on Wall Street and the Asian markets falling.

Continuing concerns over the global economy partly explain the quietening down of the IPO market which suffered significantly in the last few months compared with the bumper start to the year.

The North East drought of new listings could be broken with the announcement that Virgin Money, which was created from the failed Northern Rock business, is looking to raise £150m from an IPO.

While this was originally announced in early October, stock market turbulence forced the high street bank to delay its plans – but they will now forge ahead with the plans before the end of November.

Although UK private equity levels are reasonably strong, the only significant PE activity in the region during the quarter was the investment by NorthEdge Capital in pawnbroker Ramsdens Financial in September.

This is the second North East investment for North Edge in less than 12 months having backed the £25.5m management buy-out of Fine Industries last November.

It will be interesting to see if the current lull in M&A activity continues to the end of 2014 or whether the lingering caution is overcome by corporates looking to acquire companies who have asset and IP rich balance sheets particularly in the hot sectors of healthcare, technology and oil and gas.

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