It is difficult to open a newspaper or turn on the TV without being bombarded with talk of the credit crunch - but how has the credit crunch affected merger and acquisition activity on a more local level?
It is clear there has been a significant c
hange in the availability of funds at some of the major banks over recent months. This has impacted not only on their willingness to support existing customers but also their appetite for funding transactions that involve businesses changing ownership. Some banks which were very aggressive lenders 12 months ago are now less interested in funding change of ownership deals such as management buy-outs and management buy-ins.
However, this change in appetite by some of the historically more aggressive banks has created a gap in the market and we have seen a number of the traditionally more conservative banks viewing this as an opportunity to increase their market share. This means that whilst the level of debt funding achievable may be lower than 12 months ago, funding continues to be available for the right deals.
The overall outlook for the economy is also looking uncertain. However, this does not necessarily mean we will see a slow down in businesses changing ownership - in fact the worsening economic conditions create many opportunities for entrepreneurial companies or individuals to make acquisitions.
Locally, the high level of businesses in the engineering sector (particularly those allied to oil, gas and aerospace) insulates the local economy, to some extent, from any potential recession. So far it is the financial services sector that has caused the panic and once these institutions resolve their internal difficulties we should see increased merger and acquisition activity towards the end of 2008.
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