Deal activity was only slightly up in the third quarter of 2009, but there is a new-found sense of optimism in the Greater Manchester market. “Private equity is back,” is how one relieved corporate financier put it.

Date provider Zephus lists a total of 110 deals in Crain's coverage area during the three months to the end of September, up from 106 in quarter two. But according to Andrew Thomas, Manchester-based managing director at investment bank NM Rothschild, the quantity of deals in the last quarter does not reflect the level of work in progress currently on dealmakers' desks.

“The market has really picked up in the last month or so and there have been a lot more in-bound enquiries from private equity firms and client companies,” he said. “The volume of possible opportunities is much higher than it has been.”

Rothschild was the most active corporate financier in the third quarter, having advised on four deals with a combined declared value of £1.275bn. This included the sale of Aberdeen-based offshore oil and gas services company Viking Moorings by the Manchester office of Inflexion Private Equity.

In the legal sector, Eversheds led the way in terms of value, with two of the deals it completed having a combined value of £191m. However, DWF completed more deals than any other firm. It completed six transactions, compared with five from Halliwells and four from DLA Piper.

Breached

The quarter's largest transaction by value was the £780m debt-for-equity restructuring by Wilmslow's Four Seasons Health Care. The care homes operator agreed a debt-for-equity swap with lenders which reduced its outstanding debt burden by around half. Despite generating an ebitda of around £100m, it had breached its banking covenants in September 2008 and spent a whole 12 months trying to thrash out a bid with a panel of 35 lenders.

Much of the deal flow tended to originate from distressed opportunities. The Zephus data showed that just 8 per cent of deals in the region were funded by private equity buyers, with the largest being the £10m investment by Manchester-based Zeus Private Equity for a majority stake in Manchester-based recruiter Air Energi.

However, only nine of more than 250 transactions completed during the quarter were financed by new bank facilities.

Thomas argued that the level of new instructions currently being received by advisors from private equity firms looking either to sell or pick up assets again in recent weeks had been encouraging. Crain's understands the firm has recently been instructed by the Manchester office of Montagu Private Equity to begin an auction process of Belfast-based marine safety business Survitec.

“When we look at our work in progress, the pipeline is much more full than it was,” he said. “Some of the mid-cap houses haven't been very active and will have to turn over some of the assets in their portfolios if they are to keep their investors happy.”

He also argued that private equity houses were now “more confident” that banks would fund deals, albeit at much lower levels than previously.

James Dow, of Daresbury-based corporate finance boutique Dow Schofield Watts, is less confident of the prospects for recovery, arguing that any increase in deal activity undertaken in the last quarter of 2009 is more likely to be driven by “distress rather than greed”.

He believes that some firms have been given an artificial lifeline by the "time to pay' initiative, under which Her Majesty's Revenue & Customs has held back from winding up smaller firms behind in paying their taxes. “We also have a couple of clients who are concerned capital gains tax will go up again,” Dow said.