Despite fragile market confidence GE Capital is seeing signs of an upturn in M&A activity across the UK.

Despite a slow start to the year and fragile market confidence, GE Capital is seeing signs of an upturn in M&A activity across the country.

‘I don’t think there was a point at which the market officially switched over into being more active,’ says John Hughes, GE Capital’s regional director for the South of the UK. ‘But just by reviewing my pipeline, there’s been a general improvement and M&A work has started to pick up since summer.’

Business refinancings characterised the early half of 2010, according to Hughes, and despite an upturn in the autumn, deals are still taking longer to negotiate. ‘At the tail end of this year we should see a flurry of mid-sized deals being completed, which for us will be hinged primarily on invoice finance,’ he adds.

Making headway

Hughes comments that the manufacturing and distribution sectors have been picking up in the South of the country this year, as companies begin to look for growth opportunities.

GE Capital supported one such refinancing deal in September, by providing a £2 million invoice finance facility to the forklift truck attachment manufacturer B&B Attachments. Hughes says that the Berkshire-based company had not been able to secure sufficient debt to support its growth plans from other sources.

The North had a difficult start to 2010 compared with its previous resilience, according to GE Capital’s director for the region, Simon Wells. ‘From 2007 to 2009, M&A activity fell by around 23 per cent in the North West, compared with 55 per cent nationally,’ says Wells, a fact he attributes partly to the presence of a large number of private equity houses in Manchester, and the city’s development as a major financial centre.

He adds that, while there were fewer deals in the first half of 2010, the average deal size was higher, citing the £955 million buy-out of Cheshire-based retailer Pets at Home by the US private equity firm KKR. Wells believes that the decline in the number of deals at the lower end of the market is due to fewer trade buyers, as fears linger of a possible double-dip recession.

As is the case in the South, refinancing has characterised the first half of the year in the North of the UK, Wells adds.

In the Midlands, GE Capital’s regional director Paul Edmeades has seen M&A being driven by stressed businesses, which he describes as inherently good businesses that have just taken on too much debt. He adds, ‘A lot of these transactions were done in 2006-07, when higher multiples were paid for businesses. In the current climate it’s going to be impossible to service those debt levels, so the businesses need to go through some form of restructuring in order to go forward.’

In March, GE Capital backed the management buy-out of Redditch-based Vision Seafoods, by providing a £4.75 million invoice discounting facility and an inventory loan facility. Edmeades comments, ‘The business was a strongly performing subsidiary of a larger group that was purchased out of administration. It wasn’t typical of the deals we’ve seen this year because a large number of companies see refinancing as a potential alternative and haven’t had to go through administration.’

Looking to the year ahead, Wells expects to see more M&A activity driven by non-core divestments by larger corporates and by private equity firms looking for opportunities to invest the cash reserves that they have failed to spend thus far.

Edmeades concludes, ‘While we have seen some upturn locally, there is still some caution in the market, which I think will dissipate in 2011 as economic growth continues.’

GE Capital
The Ark, 201 Talgarth Road,
London, W6 8BJ
Tel: 020 7302 6300
Web: www.gecapital.co.uk