With this week's news that the Organisation for Economic Co-operation and Development and the European Central Bank believe that the downturn in the world economy had bottomed out, lawyers from Hammonds LLP in Birmingham are forecasting an increase in corporate activity as cash rich buyers seek out cut-price deals.
New figures from the FTSE Index which recorded a 40% surge in global equity prices since March, coupled with the 6.3% rise in April sales from the previous year registered by the British Retail Consortium go some way to support the signs of the beginning of a recovery.
Ben Gordon-Smith, a corporate lawyer at Hammonds, says: "In previous recessions, there was a steady volume of distressed sales of struggling businesses, often being bought up by competitors or private equity funds at knock down prices. This has largely not happened this time round. That may be due to a lack of buyers out there or banks being more reluctant to write off their investment".
However, given the welcome signs of more positive news about the state of the economy, Gordon-Smith believes this will change and that companies who have been in the fortunate position of being cash rich may now look to enter into the market and look for strategic acquisitions, particularly if they come to believe that the market has bottomed out.
A recent survey of 100 top corporate executives by Merger Market, the mergers and acquisitions intelligence service, stated that 77% of them would look to engage in M&A activity in 2009, having postponed so many proposed transactions in 2008.
"It remains a buyer's market" says Gordon-Smith and once the market sentiment does turn, there will be a rush to secure acquisitions at the lowest price. Whilst strategic acquisitions can add tremendous value to businesses, Gordon-Smith warns potential buyers to not be blinded by bargains. "Given what companies have been through in this recession, it is vital that any potential acquisition of a business fits with the existing strategy of the acquiring business and adds value".
This also goes for turnarounds, warns Gordon-Smith. Companies looking to turnaround the fortunes of struggling businesses must see past the mentality of "grabbing a bargain and realising a hugely inflated value later down the line". Whilst turnarounds might be cheap to buy, they are seldom cheap to successfully make work. It is extremely rare that turnarounds can be achieved without significant time and further investment and it needs to be worth the effort and expenses.
That said, the Government message is quite clear. Banks must start to lend to businesses again. The extra £50 billion that the Government pledged last week to pump into the economy could start to appear sooner rather than later. Gordon-Smith takes a cautious view, "Whether this will happen anytime soon remains a key issue. We saw a false dawn at the beginning of the year when recovery in the financial markets were wiped out by a second wave of crises such as at RBS and Lloyds. Moreover both banks last week announced a sharp increase in bad loans to British business customers, which may prevent the increase in lending that the Government is so desperate to see".
However, as in any difficult time, there are always opportunities out there and if the dust is indeed beginning to settle from the fallout of the past 18 months, there will be tremendous opportunities for the region's businesses to emerge strongly, consolidate their position and create a footprint from which to grow.
For further information contact:
Nicola Woodmass, Head of Communications, Hammonds LLP, on 0121 222 3690 or email: email@example.com
In May 2008, international law firm Hammonds became a limited liability partnership. Hammonds LLP and its affiliated undertakings has offices in Birmingham, Leeds, London and Manchester in the UK, and in Berlin, Brussels, Beijing, Hong Kong, Madrid, Munich and Paris.