Flotation Hopes Sunk for Many as Crunch Bites; Problems in the Credit Markets and Dramatic Share Price Falls Have Forced Some of the Region's Up-and-Coming Companies to Rethink Flotation Plans

The Journal (Newcastle, England), June 25, 2008 | Go to article overview

Flotation Hopes Sunk for Many as Crunch Bites; Problems in the Credit Markets and Dramatic Share Price Falls Have Forced Some of the Region's Up-and-Coming Companies to Rethink Flotation Plans


Byline: Peter McCusker reports

THIS time last year, with shares soaring to new highs, many senior company executives were eagerly consulting advisers about taking their companies public.

Royal Bank of Scotland was bedding in its takeover of Dutch bank ABN Amro and a host of similar super-leveraged deals were being mooted in the markets.

But as high summer arrived, the raging bull was felled by the Northern Rock matador and the blood has flowed ever since.

The value of the FTSE has fallen by around 15% since last August - and if the oils stocks are factored out - then the fall is far more dramatic.

Some of those worst-hit are the banks - RBS has seen its share price half to around 220p, wiping billions off its value and forcing it to seek a successful pounds 12bn rights issue.

With banks now tightening credit conditions and rewriting business models in a rush to build up capital reserves, a new mood has taken hold in the Square Mile and its effects are being felt in the North East.

Mick Thompson, senior partner at KPMG in Newcastle, said: "There are a number of examples at the moment of private entrepreneurs looking for funding.

"They are setting out good business cases for growth, but are struggling to get the funds in the right form.

"There is nervousness in the banks and equity markets. I am aware of four to five companies which have failed to get the funds to list on AIM in 2008. Their thoughts of flotation are being put back."

Ray Hope, managing director of Advanced Electronics Ltd which is based in Cramlington and has a US branch, said an Alternative Investment Market (AIM) listing, which had been pursued in detail by the company in 2007, was now off the agenda.

"A listing on AIM was most attractive, but when the stock market started to wobble, we were advised against it.

"A manufacturing company with a branch in America was viewed as having a high level of risk. It's now a non-starter."

Mr Hope says the cash-rich company is still in a position to raise debt finance from the banks.

But he added: "In the current economic climate, company valuations are all over the place."

His views are supported by one of the region's leading financiers.

The senior North East banker, who chose to remain unnamed, said: "We are still seeing a lot of deal activity here in the North East.

"There appear to be two market in operation. At the national level the super-lever-aged deals are just not getting done now.

"But at a regional level there is still an appetite to provide funds. I think on of the problems some companies may be finding is their ability to secure a decent valuation.

"There is a bit more realism in the market and valuations no longer reflect the historic performance of the company but will take a more pragmatic view of future activevity.

"Some companies have seen significant falls in their share prices and we may well see more companies going from public to private."

Mr Thompson added: "I would like to see a greater autonomy in the regions from some of the banks.

"The credit processes are getting much more complicated, so much so that it is getting harder for local bankers to do what they would like to do."

Mr Thompson said the bottleneck in the dealmaking process had even led to a few redundancies at KPMG.

He said around five jobs in transactions services had been shed across the North - at the firm's branches in Manchester, Leeds and Newcastle.

Graham Clark, finance director at rapidly-growing recycling company Alternative Waste Solutions (AWS), of Wallsend, says it has had to reconsider its flotation plans due to the extreme caution being shown by banks.

He says the company has had great support from private equity - earlier this year it received an investment of pounds 1. …

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