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Private-equity activity remains strong

Businesses looking to raise capital for management buyouts or acquisitions could find their funding in private-equity finance alongside banks, say accountants and business advisers PKF East Anglia.

In a survey by the Mergermarket Group commissioned by PKF, Deal Drivers UK predicts that the mergers and acquisitions market for East Anglia has not peaked and there is still potential for deals to continue in the mid market - £5m to £50m price bracket.

Deal Drivers UK looked at mergers and acquisitions activity across the country in five key markets - hotels and leisure, business services, food, real estate and manufacturing.

It shows that the second half of 2007 saw deals being completed in the £100-£200m range and deals remained strong in the first quarter of 2008.

PKF East Anglia, which has one of the most experienced corporate finance teams in the region, says there is evidence that private-equity interest for management buyouts remains strong and is likely to increase in the wake of the credit crunch.

Keith Ferguson, Partner of Corporate Finance at PKF, which has offices in Ipswich, Norwich and Great Yarmouth, says Deal Drivers UK shows that M&A activity has had two record-breaking years: "With a large amount of small, family owned businesses that favour simple cash-driven financing, there could be more deals to be had."

For those struggling to obtain banking finance, Mr Ferguson advises: "There are approximately 200 private-equity companies in the UK and with specialist help, decision makers on the cusp of a management buyout or wanting to bring in venture capitalist help, could find a suitable financial partner."

PKF East Anglia has handled 20 deals collectively valued at over £200m over the last year, most of which where in the region of £5 million to £50 million. Mr Ferguson says: "It is inevitably quite hard for established business people, who have only used asset-backed finance, to switch to acquisition finance, but there is definitely a growing interest in talking to private-equity providers."

He says that private-equity finance - which could be made up of money from institutional investors such as pension funds and hedge funds - means you will need to be prepared to give up a share in your business and some control to investors.

He admits it is not right for everyone and picking the right private-equity firm from the 200 needs expert help.

"You need to ask yourself a few key questions, and take advice from professionals such as PKF before approaching private equity: Are you ready to give up a share in your business and some control, given that investors may want to become involved in key decisions? And do you have the drive to grow the business?

"Because of the risk to their funds, private-equity backers will be expecting a higher potential return but that also means the rewards for the entrepreneur are higher as well."

If you need to explore whether private equity is suitable for your needs, contact Keith Ferguson or a member of PKF's experienced corporate finance team on 01473 320700.

Article by BDO LLP

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