Large corporate US buyers help fuel M&A boom in Wales

This year has featured a momentous volley of mergers and acquisitions in Wales and around the world, writes Frank Holmes, senior partner at Gambit Corporate Finance


GLOBALLY, 2006 has been the biggest year for mergers and acquisitions in history, surpassing the boom of 2000 which preceded the dotcomcrash.


According to market analyst Dealogic, the value of global deals has so far reached £1,774bn and so has the number of deals increased. This transaction activity includes 44 deals each worth more than £5.5bn.

In deal value, 17% of all activity worldwide has been funded by private equity firms focusing on telecoms, finance, healthcare, utilities and real estate sectors.


In Wales we saw the £125m secondary buyout of Uskmouth PowerStation by Deutsche Bank. This transaction alone demonstrates the fire power of such institutions.


Recorded and disclosed transactions in Wales, excluding property deals, for the 10 months to October 31 exceeded £600m and encompassed some 80 deals. Because of our involvement, we are aware of two transactions in November which alone will increase this figure by £200m, including the Bluestone fundraising at £110m.


Among the Welsh transactions, we have advised on a number of significant sales involving Biotrace International to 3M for £52m, Celtic Inns, the pub chain, to The Wolverhampton & Dudley Breweries for £44m. Alkare, the specialist care home operator for £22m to Sovereign Capital and the partial sale of Acorn Recruitment to Synergie of France.


It is interesting to note that a recurring deal type in Wales involved the trade sale of biotech and healthcare sector companies to large US corporate buyers, such as the sale of Brecon Pharmaceuticals for £38m.


On the acquisition front, both Welsh AIM quotes, IQE and British Biocell were active in making US and UK purchases, respectively.


Historically, MBO and MBIs have been quite prominent in Wales, generally driven by owner manager succession plans and exit values. Although these management-led transactions will continue, they have in 2006 typically been at the lower end of the deal size spectrum.


What is driving this M&A global activity? The analysts comment that the availability of funds on corporate balance sheets and access to cheap debt makes the acquisition route more compelling.

In addition, the private equity houses have raised record funds and confidence levels for bigger deals remains high.


Arguably some of the factors that will have a bearing on this frenzy are the availability of good corporate targets, sector consolidation and the entry of new players from emerging markets such as India, China and Russia.


Back home we have seen a number of local quality businesses change hands with US, Irish, French and Spanish trade buyers or through venture capital backed acquisitions.


When will this cycle come to an end?


It is difficult to predict a decline in activity which generally starts with the deterioration of market confidence.


This can arise for unforeseen circumstances such as the terrorist attacks of 2001, the collapse of a major hedge fund or the realisation that deals have become too over-valued and a series of corporate collapses ensues.


At the time of writing it is difficult to pinpoint a specific timeframe but what is certain is that history repeats itself and other opportunities emerge.

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