This article appeared in the Yorkshire Post on Thursday 22nd June 2006.

Good Times Ahead as Interest in Region Grows

Richard Feltham Corporate Finance Director

Work Following a very strong showing for the Yorkshire and Humber region in terms of dealflow in 2005, marked by substantial deals such as the Polypipe transaction at almost £300 million and the merger of Wallace Arnold and Shearings at £200 million, the first-half of 2006 has been relatively quiet.

This is not just anecdotally what one hears in the market, but is supported by statistics from the Centre for Management Buyout research which shows our region as having reported 17 buy-out deals with a value of only £97 million in the first quarter of 2006. Buy-out activity broadly represents approximately 50 per cent of all independent sales and acquisitions of UK companies in the UK and so is a useful barometer.

What appears to be missing so far in 2006 are the larger transactions which make such a difference to the statistics. The actual number of buy-out deals is, however, also lower than seen in the last few years.

This does not appear confined to the Yorkshire and Humber area. Deal volumes and values are down across the UK as a general trend in the first quarter of 2006, and yet this is against the backdrop of a strong stock market until the recent correction.

Too much should not be read into statistics, however. There are some underlying reasons for the slightly slow 2006 deal arena and the picture would have been different if the potential £400 million private equity purchase of Kingston Communications had not been rejected. There are also some significant Northern Foods divestments in the pipeline and the £182 million Richmond Foods deal has recently been approved by shareholders.

There are still a number of openly acquisitive companies based in the region such as Spice Holdings plc and Glisten plc, which are keeping advisers busy and consolidation in various markets continues to throw up deal opportunities.

So, apart from some concerns over longer-term economic factors and the recent jittery performance of the stock market, there is no real reason why 2006 should have shown a slow start in terms of activity in the region. There is still a degree of quiet confidence in the local market as we move through 2006.

Yorkshire and Humber in 2005 remained the third largest region outside London in terms of recorded deal volumes and has a local talent of dealmakers across all sizes of deal that is increasingly being recognised outside the region as well as within.

Perhaps the best evidence of a resurgence of the region seen over the last few years is the inward interest being shown by those players who do not have a local presence. A few years ago there was a feeling that venture capital houses were abandoning the region following a spell of poorer deal-flow. Now it is quite the reverse. Private equity houses are showing an ever-increasing interest in Yorkshire and Humber and many are bemoaning the over-supply of both advisers and funders in other regions.

In Yorkshire and Humber we seem to have got this balance about right, with healthy competition for deals without oversupply of advisers or undersupply of opportunities.

Business confidence in Yorkshire is at its highest level for more than a year according to the latest UK Business Confidence Monitor and this should translate into deal flow at some stage in the future. Yorkshire and Humber remains very much on the map for deals and confidence amongst the corporate finance community is high, despite the slower than average start to 2006.

Richard Feltham is head of Corporate Finance at the Leeds office of Yorkshire accountants Garbuttt & Elliott.