Fall in distressed deals reflects drop in insolvencies

However they continue to account for a significant proportion of all M&A activity in the UK.

In the six months to the end of December, 100 deals in the UK involved companies acquired out of administration or other formal insolvency procedures, equivalent to one in thirteen of all mergers and acquisitions.

This compares to 137 such deals in the first half of 2010, or one in eleven of all acquisitions. The number has fallen since 2009 when close to one in nine acquisitions were distressed deals. However, just two years ago only one in twenty six deals involved an insolvent business, reflecting the then market.

Steven Law, R3 President, said:

“Insolvent deals have been running at high levels since mid-2008, when the economic problems began to set in. The numbers peaked between mid-2009 and the middle of last year, and have since fallen back to the levels of early 2009.

"Even looking at the last two quarters of 2010 we can see that the number of distressed deals has dropped significantly; from accounting for nine percent of all acquisitions to six percent.

“Buyers who have had the money have been taking the opportunity to pick up businesses and assets during the downturn while values remain low. The fall in distressed deals in the past six months may reflect the fact there have been fewer insolvencies, and therefore fewer distressed businesses coming on the market.

“R3 members predict that this will be a difficult year for business so potential buyers should be aware that in the run-up to recovery there is still a window of opportunity to acquire businesses that are potentially profitable, but in need of sound management.”