Financial crisis has caused significant drop in corporate finance transactions
The UK economy has seen businesses cut back on corporate finance transactions to a greater extent than anywhere else in the world, since the beginning of the banking crisis.
The volume of all of forms of financing transactions has decreased by 63% since mid-2007, according to law firm Allen and Overy.
This is more than double the 30% global decline in deals involving lending, debt issuance, merger funding, leveraged finance and equity raising.
Surprise at the scale of the issue
The fact that companies were keen to scale back on such transactions is hardly surprising, indeed many companies had to enter into agreements such as a pre-pack administration as the result of the recession and its impact.
However, the scale of the drop might raise some eyebrows.
Of 34 global markets in the study, only three saw more drastic falls in corporate finance activity, notably Greece, Hungary and Argentina.
Stephen Kensell, head of Allen and Overy’s banking practice said: “Everyone knows that there has been a dramatic fall in deal volumes in much of the world, but the extent of the decline in the UK is quite striking.
“Having said that, a large proportion of financing activity in the UK market has traditionally been in financial services, and that has obviously been particularly affected by the crisis.”
Due to involvement in markets across the globe, the City of London is less affected than the overall UK figures may suggest.
In many cases, bankers and lawyers are involved in transactions involving companies from continental Europe, the Middle East and Africa who go via the UK into global markets.
Developing countries have seen dramatic increases in some markets, with companies now attempting to take advantage.
The state of the economy since 2007 has meant there is more risk associated with deals which could be linked to the decline in transactions.
Alternatively, it could be a case that many companies have simply not had the available finances as they were forced to cut back in order to stay trading at the height of the recession.
With companies struggling with their finances, corporate recovery services have had a greater role to play to ensure that the number of companies which cease trading is limited.
By Phil Smith