Opinion: Clive Bawden

The news that Nectar has at long last overtaken Tesco's Clubcard to become the UK consumers card of choice, brings yet more confirmation that knowledge, and the power to acquire and interrogate data to generate knowledge is rapidly becoming one of the most sought after commodities within the business world.

Lest we forget, Nectar itself, or rather its parent company Loyalty Management Group, fetched a reputed £368 million when sold to Canadian Groupe Aeroplan in December 2007, earning its venture capital backer Warburg Pincus a handsome return on its investment, a price that Aeroplan no doubt considers well worth it given its continued success post deal.

Since then M&A activity in the information industry has been (relatively) prolific in an otherwise moribund market, particularly as 2009's economic challenges saw providers seek to consolidate towards year's end. Example deals include Springer's recently announced investment from private equity fund EQT Partners, and nearer to home Vitruvian Partners acquisition of Callcredit from Skipton Information Group, whilst there continues to be speculation surrounding giants such as Experian and Reed Elsevier.

The power of harnessing data to improve the efficiency of marketing activity has been growing in profile even since Tesco started using its Clubcard powered by its own investment in the space, Dunnhumby. In the value-conscious economy that we now occupy, I am positive that private equity funders have also seen this opportunity and so I expect 2010 to see a continued improvement in M&A within the sector.

As we finish 2009, I think most people in the M&A world are surprised at how few companies have been spun out of quoted conglomerates this year, one that started with most predicting a deluge was about to ensue!

I'm particularly surprised that this hasn't happened in my old industry, building distribution, which appears to have been hit harder than most with the massive decline in building activity during 2009.

Wolseley, Grafton, SIG - all seemed to end the year with significant issues still to resolve internally, and shareholders starting to bay for blood.

What does that mean as we start 2010? With the banking climate now starting to settle, and people starting to call the bottom of the market, whilst sadly the building industry is still largely on its knees, I am pretty sure that we are going to see some deal doing in the industry in 2010, no doubt good news for some of the more dynamic MBI candidates doing the rounds currently in the industry.

It will be interesting to track where this goes next year, although I am pretty positive in this assertion - we will end 2010 with the industry in the UK in a considerably different shape to how it starts the year.

New research shows that investment by the world's 31 major sovereign wealth funds (public investment funds set up by governments of countries with surpluses) has hit its lowest level since Q4 2005 with only 26 deals done in Q1 2009.

Given the way the world has changed in the last twelve months, it is understandable that these investors have slowed their pace of investment. Our own recent experience at Catalyst indicates that SWFs and their respective UK offices are more inclined to look at disposing of assets rather than investing at present.

It will be interesting to see how long it takes for the pendulum to turn, particularly given the weakness of Sterling – something we at Catalyst do not see changing from some time to come. The UK is home to some fantastically strong firms and technologies, not least in our supposedly 'forgotten' sectors such as engineering. The combination of attractive world-class assets, a highly competitive exchange rate

making assets prices much lower and a supportive Government should mean that it will not be long before SWF investment activity in the UK begins to pick up again.

As with many other trading updates from the sector, Grafton's posting of another decline in performance for the first six months of 2009 is not unexpected.

Indeed, rumours abound within the sector of significant cost cutting at Grafton at recent months.

Given its significant growth by acquisition, and its 'light-touch' integration policy of leaving incumbent management largely untouched post deal, it is perhaps not surprising that the group is burdened with too much overhead in a shrinking market.

The question now though is whether in its urgent need to cut overhead Plc management will simply remove redundant overhead, or more damaging in the long-run, cut through to the bone and remove the layers of experience which mark out Grafton from its peers. It will also be interesting once the economic cycle starts to turn again whether Grafton change their historic acquisition policy and start getting tougher post acquisition with its targets.

News that Chip Hornsby has stepped down at Wolseley will not be a great shock to those within the building distribution world.

The question is where now for incoming CEO, and newcomer to the distribution industry Ian Meakins? Will someone with a fresh eye on the business, unencumbered by a long history within Wolseley like Hornsby see opportunities for disposals and a radical re-shaping of the business?

The recent rights issue will have given Meakins some breathing space and there are after all a few signs of housing market recovery in both the US and UK markets in recent weeks. Despite this however I don't think we have yet seen the last of rumours that M&A activity will follow at Wolseley.

Watch this space...