Transactions Blog

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The final quarter of 2009 saw encouraging signs of confidence returning across a broad spectrum of bank lending. The mild softening in pricing and the lengthening of tenors in the corporate market, a cluster of new leveraged buyouts at the end of 2009 and the re-entry of banks into the commercial property market (on a selective basis) all presage a more active banking market in 2010.

Corporate lending – There are signs of increasing confidence in the corporate lending market reflecting a slight softening of pricing, particularly on larger deals and the extension of tenors to four years in some instances. Lenders are also more willing to consider financing a new borrower where there has been a resilient track record through the recession and prospects are attractive. There are initial signs that banks are beginning to consider taking material underwriting positions; a key milestone in the return to a more normalised market.

Leveraged finance – 2009 was the quietest year for over a decade in the syndicated leveraged finance market. However, there was an uptick in activity in the fourth quarter and the pipeline for new deals is encouraging. Whilst the market is not about to accept a surge in highly leveraged, thinly priced deals, a gradual improvement in lending conditions is realistic.

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On 8 January 2010, PwC has published the Q4 2009 IPO Watch Europe report. The IPO Watch Europe surveys all new primary market equity IPOs on Europe’s principal stock markets and market segments (including exchanges in Austria, Belgium, Denmark, France, Germany, Greece, Holland, Ireland, Italy, Luxembourg, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the UK).

Europe’s IPO markets recorded a distinct upturn in activity in the fourth quarter of 2009, with both value and volume rising markedly over the previous nine months when stock exchanges continued to suffer from the worldwide loss of confidence in the capital markets and the recession. However, pricing proved difficult in what remains a buyers market.

There were 61 IPOs on European exchanges in the last quarter of 2009 with an offering value of €4,994m, compared with 44 listings that raised €1,375m in the previous quarter and the 64 IPOs with a value of €1,238m that were recorded in the final three months of 2008.

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Whilst credit markets have improved since the beginning of the year, borrowers continue to find raising or extending existing credit lines challenging. One of the big stories of the year has been the bond market.
Banks remain cautious and often reluctant to advance loans to new customers. However, during the third quarter, upward pricing pressure on bank lending has abated. Although we have yet to see significant falls in bank pricing, in the absence of further major economic shocks, the peak for pricing may now have passed.

Key findings of Q3-09 Debt Market Update:

Corporate Lending - a focus on existing customers but cautiously open for new business. 
Any new lending proposal will be heavily scrutinised and banks are reticent to refinance lending with others to avoid taking on their “problems”. A slight recovery in confidence could signal potential for a competitive tendering process for modestly-sized debt. We are seeing a strong strategic drive within some state-backed banks to increase their lending, albeit within more stringent credit quality parameters.

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The economic downturn continues to negatively impact deal activity and deal value in the first half of 2009. Global deal volume in the transportation and logistics (T&L) sector was down 45% in the second quarter of 2009, compared to the prior quarter, and overall deal value dropped 55% over the same time period.

Far behind the pace of 2007 and 2008, companies focused more on weathering the economic crisis instead of committing their available capital to new transactions. Credit restraints and a weaker operating environment have shifted attention in the sector toward smaller deals, minority stakes, divestitures and distressed targets. The three largest announcements during the first half of the year could be classified as “midmarket” and all related to minority purchases or purchases of remaining interest.

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During the last six years (2003-2008), Emerging Market entities made some 844 acquisitions or investments in Western Europe with a combined value of nearly € 120 billion (of which some 3% in Belgium).

As a result of the ‘credit crunch’ and the global economic slowdown, 2008 has been a week year for global M&A activity. Despite this, 2008 was a record year for M&A transactions conducted by Emerging Market acquirers or minority investors, with 256 completed deals with an overall value in excess of € 45 billion.

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Our German practice issued a new publication on the Private Equity Investments in the Automotive Supplier Industry.

It describes how the automotive industry has been hit hard in 2008 with a decline in global GDP growth leading to a decline in its business prospects, uncertainty about the direction the industry will take and the drying up of credit facilities, as confirmed in recent evolutions. As in other industries, investment activity has come to a halt and the industry suffered a substantial loss of shareholder value.

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