BusinessCorporate FinanceNew lease of life for ailing sector

New lease of life for ailing sector

A resurgence in M&A activity and improved confidence in equity markets is breathing new life into corporate finance.

M&A activity 2001 – 2003 graph

Grant Thornton said it had completed more M&As over the past four months than for the whole of the preceding 12 months. During the four-month period it completed £100m worth of deals, which it believes is concrete evidence that the market has finally bottomed out.

Mike Hughes, director of M&As at Grant Thornton, said: ‘It’s been really hard to keep up morale over the past year, so this is bloody good news. We don’t see things going backwards, so there’s certainly going to be more deals over the next six to 12 months.’

With recent improvement in the stock market linked to hopes that the global economy is finally on the road to recovery, there are also hopes that more firms will have the confidence to raise capital on the equity markets.

‘If the market stays at 4,200 to 4,300, we’re going to see more companies doing rights issues,’ said Hughes.

But the market is expected to be picky about what types of businesses get the cash. While big players like Royal & SunAlliance, which has just announced a £960m rights issue, are showing more confidence in the equity market, smaller companies need to have more convincing stories.

Richard Hall, partner at Ernst & Young, for the emerging growth market, said: ‘We’re having conversations that we simply were not having a few months ago. The big question is the appetite the market has for the type of business. My view is yes, there is a market, but it has to be a quality business with a strong growth record, good growth potential, profitable and cash generative.’

The recent M&A deals Grant Thornton has achieved have been across a range of business types, including a deal between media groups Risk Waters and Incisive media, and the most recent deal involving Reed Elsevier. It has also completed a significant deal with car leasing firm Lease Drive.

However, companies with utility type characteristics have the best chance of success at pulling off rights issue, said Young. He cites the £389m rights issue on Aim by Northumbrian Water. ‘They’re less volatile offerings,’ said Hall.

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