Private equity firms and overseas buyers are predicted to be increasingly active in the UK M&A sector this year.

Stephen Baker, head of the London corporate finance advisory team at Grant Thornton, sees the current M&A market as being characterised by consolidation deals, as companies seek to add assets at a time when prices are competitive. ‘Generally we’re seeing corporate M&A as being stronger than private equity transactions at the moment, and I think that will continue,’ he says.

Recent deals that Grant Thornton has been involved in include MITIE Group’s acquisition of Environmental Property Services from Uberior Holdings for up to £38.5 million, and the sale of HobbyCraft to private equity firm Bridgepoint.

Retail’s return

Baker comments that the recent increase in transactions has been more pronounced in the past six to seven months in the support services, healthcare and consumer products sectors, the latter including retail: ‘Retail is one of those areas where, if you’ve got quality businesses that are performing well in this environment, they’re attracting lots of interest and premium prices.

‘Many international buyers are looking at UK assets at the moment, and we’ve completed a number of deals with overseas buyers where the relatively low value of sterling is making the UK an even more attractive place than normal.’

Despite recent fears about the economy sinking back into recession, Baker considers it too early to call a double dip. ‘We think it’s going to be a long, slow recovery and we don’t see a very fast upturn. From a corporate finance point of view, while we’re still active and have been for the past six to nine months, we’re not anticipating an underlying market recovery.’

If markets do improve, Baker believes that some banks may press more distressed sales. ‘There’s been a general sense among the banks, particularly with RBS and Lloyds where there’s a substantial state investment, that they might as well sit and wait for markets and business activity to recover.’

Baker states that difficulty in securing debt continues to have an adverse impact on transactions, but has forced some resourceful acquirers to find alternative ways of financing deals. ‘A key factor on deliverability is the availability of funding. Corporate acquirers with good balance sheets and financing lines remain in a pretty good position.’

Certain sectors, such as support services, have been characterised by a lot of mergers, Baker notes. ‘If you’re a large support services business you’re going to be playing on a global stage, where there’s been quite a bit of consolidation. Therefore, if you’re a mid-market listed corporate you’ve got to decide whether are you a consolidator or a consolidatee. In some recent cases, someone set out to be a consolidator and a bigger shark has come along and snaffled them up.’

Grant Thornton’s own pipeline is looking strong for the year ahead, says Baker. ‘We’ve had a cracking past six to nine months. I think our focus on the mid-market, which tends to be relatively robust throughout all the cycles, is certainly helping us.’

Stephen Baker,
Head of London Corporate Finance Advisory,
Grant Thornton
Tel: 020 7728 3100
Email: stephen.baker@gtuk.com
Web: www.grant-thornton.co.uk