John Nelson of GE Capital sees signs of an upturn in M&A activity in the coming months.

The summer may be over but all the signs suggest the next few months could be a piping hot time for M&A. Private equity buyers are actively investing in companies and lenders are on the lookout for exciting deals to back.

John Nelson is the commercial leader of GE Capital, Commercial Finance, the UK lending division of global infrastructure, finance and media company, GE, confirms that the market is certainly looking a lot better than it has done for a long time. ‘We have seen an encouraging increase in enquiries in the M&A sector since the end of the summer holiday. Furthermore, there seems to be a little more conviction among management teams in exploring buy-out opportunities,’ he says.

If the upturn in deals does arrive, it’ll be most welcome after another rocky twelve months for companies. Nelson explains that in the first quarter of 2010 continued where 2009 left off with evidence of more positive talk and a trickle of deal activity coming through, while April through to June was hijacked by the election and concern about the hefty spending cuts to be introduced by the new government.

‘The summer may have brought with it the most benign levels of activity that I have witnessed in my working life,’ comments Nelson. ‘The mix of low interest rates, a sympathetic HM Revenue and Customs which allowed struggling businesses extra time to pay outstanding taxes, and uncertainty around the depth and scale of public sector cuts, meant that businesses took their time to assess strategic options. It seems that where decisions could be put off, they were put off.’

Piles of cash

Traditionally, the final quarter of the year has been the busiest period for GE Capital. ‘It is a question of whether investors and management teams sense that the market offers best value,’ says Nelson. ‘Finance is available whether it’s in the form of private equity funds, corporate cash piles or asset based lending.’

However, this buoyancy could be undermined by the effect of fiscal policy. ‘The government and media have primed us for substantial public sector spending cuts but the specific outcomes are unknown and this uncertainty makes it difficult for businesses to plan ahead,’ says Nelson. ‘Once the details are released at least businesses can then start to take action. But before these details emerge, there is a danger about “fearing the worst”, which will again slow activity.’

At GE Capital, which specialises in financing receivables, inventory, plant and machinery, the approach has been to position the firm so it can be there for those companies in need of growth finance. Nelson says: ‘We have found that asset based lending has plugged the gap left by the withdrawal of many senior debt providers, focusing on a commercial lending space, which for us means facilities starting at £500,000 but more typically, £10-30 million.’

A real signal of intent is that GE Capital has recruited nationally over the summer to build a new business team and expand the firm’s reach, both in London and regionally. ‘Whilst we have undertaken a lot of change here at GE, we also continue to develop and invest. We are looking to recruit in the West Midlands and have already written more new business than in 2009 and are keen to grow this number still further,’ he says.

For more information, contact:

John Nelson, Commercial Leader – Lending.
GE Capital Europe, Middle East and Africa
Address: 30 Berkeley Square, London, W1J 6EW
Email: john.nelson7@ge.com