TAKING STOCK: Lending on rise but uncertainty persists in mergers market

By Mark Foxwell Updated: 17:01 EST, 24 April 2011

Big companies may now have the cash and access to finance takeovers, but chief executives are being unusually coy.

And experts say their lack of confidence is causing the entire mergers and acquisitions market to dry up.

Unrest in the Middle East, concerns over inflation here and Japan's earthquake have rattled the City.

Robert Leitao, head of mergers at investment bank NM Rothschild, said: 'Although there is more activity in the pipeline, the volatility is halting a big recovery in mergers and acquisitions.

'There is no obvious trend in the market towards a particular sector, which is making people pessimistic and nervous about investing.'

Such uncertainty has seen several planned flotations in London pulled in the past month.

Vacuum engineering group Edwards halted a £1 billion listing, along with online payments business Skrill.

Meanwhile, Russia's ProfMedia shelved plans for a £600 million London listing along with Russian energy firm Topaz.

And shares at the first British company to list this year, media group Perform, have fallen by 11.5 per cent to 230p since this month's float.

However, despite the uncertainty, experts are hopeful that the outlook will change as the lending drought of the past few years starts to become more fluid.

Brian McKay, head of European investment banking at advisory firm Houlihan Lokey, said: 'Many companies are finding that lending by banks is improving and Facebook Ads the corporate bond market is on fire, making financing more attractive than before.

'We are seeing a lot of activity from buyers in India and China, who are looking to invest in Britain. We haven't seen this sort of activity from overseas buyers for at least five years.'

A recent study by accountancy giant Ernst & Young revealed that more than 50 per cent of the British businesses it polled believed financing would be available to fund big takeovers in the next six months.

That was ten per cent higher than six months ago.

However, available finance is still by no means back to the levels of a few years ago during the mergers boom.

Private equity houses were king, but this is no longer the case.
The lack of cheap finance means they are unable to take part in mega-deals involving big borrowings such as those dominating takeovers in 2007.

Jon Hughes, transaction advisory services leader for UK & Ireland at Ernst & Young, said: 'This year looks to be no less challenging or predictable than 2010.

There are many complex issues in play impacting capital markets, both globally and domestically.'