Business as usual

NOT all of the City's power brokers have decamped to the Cheltenham Festival. Quite a few clearly felt they could not afford to after the lengthy post-11 September lull in bids and deals.

Investment bankers such as Goldman Sachs and Credit Suisse First Boston may still be slimming down, but the drought in mergers and acquisitions shows signs of ending. In the last 24 hours, no less than five deals were unveiled to investors. Admittedly, none of these are particularly earth-shattering or anything like the scale of the bubble deals of yesteryear, when Vodafone paid a whopping £79bn for Mannesmann.

Still, the pace is picking up. Last week Imperial Tobacco was comfortably able to raise £1bn through a rights issue to complete a £3.2bn takeover of German cigarette company Reemtsma.

Among the latest spate of transactions are several which have been in the pipeline for months but could not be consummated in the aftermath of 11 September, when confidence drained away and equity markets drifted. Johnston Press has been able for instance to swoop on Regional Independent Media at a cost of £560m. This may be a figure well below what it would have paid at the height of the technology, media and telecoms boom. But it must still be considered a good price. It also suggests a return of confidence to certain sectors of the media industry, with advertising starting to buck up.

Many of the deals recently revealed are clean-up operations. Amersham is buying in a minority interest in its Biosciences offshoot. Thistle Hotels is using the £555m it raised from selling 37 regional hotels to improve its balance sheet. Haslemere has received an offer worth £900m - from Israeli investors - which it cannot refuse.

In the rarefied world of academic publishing, the successful quoted group Taylor & Francis is seeking to put the divided Blackwell family out of its misery.

In all these cases investors, whether private, institutional or venture capitalists on the make, will welcome the chance to cash out after living through a period of drought.

There may be no signs of a strong stock market rally at present. That is not surprising given events in the Middle East and the run-up in the oil price. But the clutch of bids does provide an indication that the bear market is drawing to an end and the normal business of capitalism is being restored. We can all be thankful for that.

Shaft of light
JUST as it looked as if the worst of the British slowdown was over in the final quarter of last year, along come the manufacturing figures. The headline data look ominous with output falling by a further 0.4% in January, for a year-on-year decline of 6.1%. This appears to conflict with the brighter data from the purchasing managers.

Closer study suggests that this data is not as bad as it looks. The main reason for the slump is the problems of the tech sector which fell 6.4%. Telecom equipment was particularly badly hit and computer production was also down. If the tech sector is stripped away, the rest of manufacturing actually spurted 0.4% against December levels with car production, up 5% and textile, machinery and food all making a contribution.

At this juncture it looks as if tech industries will not be a great driver of growth. An analysis by Merrill Lynch of the communications sector shows huge overcapacity, price pressure, poor cash flow in many of the companies and not much chance of a recovery until 2003 or beyond.

So the next upturn will have to be powered by more traditional sectors such as cars and construction.

Work done by Simon Rubinsohn of Gerrard suggests that the most important development for the British economy will be an upturn in the United States. Despite the pressure from manufacturers for a lowering of the sterling exchange rate, Gerrard finds that it is only a 'relatively small influence'.

The really important barometer is growth among the Western economies. It is estimated that every 1% rise in the output of the OECD countries lifts British production by 2%. Among the OECD countries, American demand is clearly the most significant particularly in machinery, electrical and optical components. Thus the US pickup should help us.

There is also some authoritative evidence to suggest that business investment is already responding to the possibility of a stronger economy. Despite the poor data, the long nightmare for British manufacturing may be drawing to a close.