Fog begins to lift for mergers and acquisitions market


Since the last time I write, writing on financial issues has become a somewhat cheerier pastime. Q4 of 2009/10 sawus leave recession at last and as we enter spring all the signs are that the first quarter of the new financial year will show similar GDP growth of 0.4 per cent. While this is not a stellar performance it should be seen more positively as this period saw VAT return to 17.5 per cent, the end of the car scrappage scheme and, though it seems a long time ago, the snow-induced chaos. So as spring appears to have sprung, the economy also seems to be leaving its own deep and dark winter and those protagonists of the double-dip theory are running out of causes. The January VAT rise was supposed to bring more gloom according to them, interestingly if you look back a lot of the commentators who were predicting the negative impact of the VAT rise were the same ones who were extremely vocal about its ineffectiveness in the first place.


Alistair Darling’s (last?) Budget was generally uneventful and he thankfully resisted the temptation to throw in any pre-election poison pills. So now all that needs to be cleared up is the general election. Now as my colleagues will happily tell you I am no great student of politics and the associated ideology. I do have my views but I am the first to admit they will not be supported by the strongest argument, and as such I don’t have any stunning insight as to which party will be better for the economy. All I do know is that as the national debt has the potential to reach £1 trillion in the next few years the political debate of the last week or so has been focussed on the £6 billion relating to the National Insurance rise. If this is the key economic battleground for the parties then this strengthens my view that individual governments have ceased to be the key influence over the ebbs and flows of the global economy.


The big issue that is concerning everyone, quite rightly, is the national debt, the last of hope of the double-dippers, and even if you look at this there are some reasons to be cheerful. Firstly, in terms of actual spending I am sure that I am not alone in thinking that over the last ten years while the public sector has definitely got bigger it hasn’t necessarily got better or more efficient. Whichever way you look at it, if the public sector takes the approach that we private sector businesses have had to in the face of static or decreasing revenues, then there must be significant opportunities to reduce the spending or to generate significant improvements at no extra cost.


Secondly, as much by accident as by design, the average maturity of UK debt at 14 years is significantly longer than our foreign counterparts such as the US at five years and Germany at six years. Simply put this means we have significantly longer to repay or refinance our debt than other countries, almost three times as long as the US, and therefore have longer to put our house in order. On a more local level we are seeing an increased level of measured confidence which is manifesting itself in a discernible increase in the level of activity in most areas. In the funding market the banks, on the whole, have settled down and we are seeing some encouraging signs in terms of the funding they are starting to offer. At the same time businesses are generally getting more confidence and visibility in their outlook and as such we are seeing more appetite to invest and borrow.


In the deals market we are seeing what I would describe as a convergence in price expectations between buyers and sellers which is resulting in the pipeline of deals slowly but surely picking up. We are a long way from the levels of activity we saw three or four years ago but the signs are certainly positive. By the time I write again towards the end of the summer the political fog will have lifted and the volcanic ash cloud will have cleared so we can all enjoy our holidays. While I expect the economic weather to be sunnier, there will doubtless be a few showers along the way or if you want an alternative view try the film I have just watched with my eight-year-old son: Cloudy with a chance of meatballs.