13 February 2006
The private equity-led buyout market remains one of the principle drivers for the corporate sector in the North West, and in Manchester in particular. As with the previous two years, the past 12 months have seen some sustained private equity activity in the region. There has also been a healthy deal flow, allowing Manchester to maintain its ranking as second only to London in terms of both the volume and the value of the transactions that have been completed.
Consistent with the UK buyout market as a whole, deal volumes in the North West have remained relatively steady. However, deal values have not been driven upwards in the same way as they have in the capital. With one or two notable exceptions, such as the take private of Manchester United Football Club and Mersey Docks, the mid-market remains the engine room in the North West.
There are several key factors at work here that keep the market buoyant. First, although the UK is not yet reeling under the much-heralded (but yet to surface) wave of money that commentators were predicting 18 months ago, the UK mid-market has more money available to it now than at any time in the past. The finance is available from both the traditional equity providers and the banks, but also increasingly from alternative providers of debt and mezzanine finance.
This proliferation of funders with an appetite for doing deals in this market has been very apparent in the way the deal process has evolved in the region. Prices are high and are kept so as the competitiveness in the market drives the inevitable auction process. Little wonder, then, that there is no shortage of sellers.
That aside, it is the maturity and experience of the market in Manchester, in terms of both the institutional players and the advisory teams, that is one of the key factors in its continued success. No one can seriously doubt that, in terms of private equity transactions, the corporate finance and legal advice available in Manchester is second to none in the UK. The only real difference in advising in Manchester, as opposed to advising in London, is that lawyers probably get home half an hour quicker once the deal has completed.
It helps that there are a number of high-quality accountancy and legal firms with proven track records. This drives out inefficiencies in the deal process and makes the environment more conducive to getting the deal completed.
All this is set in the context of sustained economic stability in the UK in recent years, with low interest rates and an increased availability of debt continuing to sustain this market.
The signs remain good, although there is no room for complacency. The continued downturn in consumer spending, the principle driver of the UK economy, combined with rising fuel prices are ominous clouds on the horizon. In addition, the ever-increasing number of players joining what is fast becoming an over-engineered, auction-led process can start to prove a costly exercise for both funders and advisers alike.
Adding to the buoyancy of the buyout market has been a welcome return of corporate purchasers, whereas previously their appetite to enter the fray has been suppressed. The maintenance of high vendor price expectations, fuelled by the competitiveness of the private equity players, has kept corporate enthusiasm deflated in recent years. However, while the issues of low consumer spend and high fuel price do still act as a break, more corporate purchasers are beginning to surface.
Finally, AIM had a significant role to play as a catalyst to deal activity levels in Manchester. The comparative lack of regulation has made it an attractive proposition, particularly when held up against the full list or Nasdaq. Increasingly, AIM is seen as a realistic source of funding, particularly in the emerging technologies sector, or as an exit strategy.
In Liverpool, activity levels on the buyout and acquisition front are also optimistic. In recent years, some of the more high-profile private equity transactions have been Merseyside-based. However, what Liverpool lacks is a real commitment from the private equity institutions on the ground.
Additionally, as regards AIM, Liverpool's experience is pretty stark in comparison to Manchester's. Merseyside is one of the worst represented regions on the market. However, this is counterintuitive, as many of the businesses in Merseyside would seem ideal candidates. The technologies sector is vibrant in Merseyside, backed by strong universities and with early-stage finance available that is unrivalled elsewhere in the country.
The problem has partly been one of educating the market. In what is a highly entrepreneurial economy, there has been long-standing scepticism of listing or of growth through bringing on board a private equity partner. That scepticism has been broken down in recent years and the opportunities that present themselves in Merseyside are encouraging. Although the market, both in terms of private equity activity and AIM, is not as mature as Manchester's, there are real grounds for optimism.
There is a renewed sense of confidence on Merseyside and the investment in real estate and infrastructure over the past few years has laid a good foundation on which the corporate sector can build. Despite a nervous start to 2005, where deals were down in terms of volume and value in the first half of the year, things have picked up and the future looks bright at both ends of the M62.
Paul Jefferson is a corporate partner at Halliwells