EU holds key to inward investment `miracle'
COMMENT: `Overseas investors are such a feature of the landscape that if they all upped sticks and left en masse they would blow a gaping big hole in the economy'
Wednesday 29 January 1997
The trumpet Mr Nelson blew at yesterday's Social Market Foundation seminar in London was truly an impressive one. When it comes to attracting foreign money, no one does it better than Britain. More than half- a-million jobs created since 1979, a role call of multinationals that would turn any regional development agency green, 40 per cent of all Japanese investment into Europe, and not just because of the golf.
In fact, overseas investors are now such a feature of the landscape that if they all upped sticks and left en masse they would blow a gaping big hole in the economy. They account for half all manufacturing investment, one-fifth of employment, a quarter of output and 40 per cent of visible exports, sorry, goods sold overseas.
The secret of this runaway success, so Mr Nelson tells us, is Britain's deregulated labour market. While we are basking in the lowest level of strikes in more than a century, the Germans and the French are fleeing to Britain from the social costs imposed on business by their own governments. No surprises for guessing what happens to the paradise land if Labour gets in. Interference, intrusion, the return to corporatism and a pipeline called the Social Chapter positively bulging with fresh untold horrors.
Some of this may be true. Some of it may even be to the point. But the bigger truth that Mr Nelson singularly failed to address yesterday is that Britain's prime position as a location for inward investment will, in future, depend crucially upon its relationship with the rest of Europe.
Most of the provisions of the Social Chapter would have little or no effect on the type of companies that invest here, because they have already taken them on board. What the likes of Siemens, Toyota and BMW really want to know is whether Britain is heading for further integration into Europe, full isolation or a suspended state of semi-detachment.
The answer to that will have a much bigger bearing on our ability to repeat the inward investment miracle of the past 20 years than any number of new laws to deregulate the labour market.
Phoenix sticks with its niche market
The great bull market in investment bankers continues unabated. Hot on the heals of NatWest Markets' purchase of Hambro Magan come the Americans to snap up another of London's corporate finance boutiques, Martin Smith's Phoenix Group. The amount being paid is apparently not significant enough to warrant a formal Stock Exchange announcement by Donaldson, Lufkin & Jenrette in the US, but at a likely pounds 30m-pounds 40m paid mainly in shares, it ain't bad for a company which employs less than 30 people. Hambro Magan, with little more than double the number of staff, went for around pounds 100m.
Deal-making is a glamorous business and the smaller niche players like Phoenix have managed to be very successful at it in recent years, slipping in under the noses of the bigger investment banks to steal a march and some very significant transactions. The merger of United Friendly and Refuge Group is probably one that Phoenix would rather forget, but there have been plenty of others jealously regarded by bigger City competitors. Corporate clients like the personal touch, the attention to detail of senior people and the specialisation in particular sectors that these boutiques can offer. But are they really worth this kind of money?
Investment banking is, on the whole, a poor business to be in. For all but a few very large international players, returns are mediocre to poor, even in boom years like the one just past. However, it seems possible that in companies like Phoenix and DLJ, which claims to be a much larger Wall Street version of the same thing, we are witnessing the arrival of a new, faster moving form of investment banking where valuations of this sort can indeed by justified. DLJ is the most profitable part of the Equitable/Axa stable in the US, a position it has achieved by shunning the big commodity- driven securities markets, and concentrating instead on higher margin specialist markets.
Phoenix has probably found a rather better home for its talents than Hambro Magan, whose corporate financiers are rather awkwardly being integrated into the NatWest Markets behemoth. Hambro Magan took the view that the age of the niche domestic player is largely over, that access to capital and international markets will be the future stock in trade of the successful investment banker. Phoenix is going the other way. Even within the larger Wall Street investment bank, specialisation will remain its hallmark and it will continue to avoid involvement in the main European securities markets. At this juncture at least, it looks as if Phoenix has probably chosen the more rewarding approach.
Stagecoach rides into the headlines again
Stagecoach grabbed the headlines again yesterday as the golden egg that is Porterbrook Leasing was finally laid. Those rail managers and City bankers who had the foresight to spot a bargain in Porterbrook and then swop it for Stagecoach's cash and equity will make millions out of yesterday's sale of most of their shareholding in Stagecoach.
But the more intriguing question is why sell out now through UBS's fancily entitled accelerated global tender? Do they, by any chance, reckon that they are selling at the top of the market?
Stagecoach has enjoyed a meteoric rise over the past 12 months, more than doubling in value since the start of last year. Even after yesterday's 21.5p slump - a fall of some 2.5 per cent - its shares are trading about 250p above their level at the time of the Porterbrook deal.
But these are increasingly tricky times for Stagecoach and its chairman Brian Souter. The day before yesterday he was told his bid for ScotRail would be sent to the Monopolies Commission before he even knows if he is the preferred bidder. Further on the horizon, but not that far away, is the prospect of a Labour government and tougher regulation of the bus industry than Mr Souter has thus far been accustomed to.
Charterhouse, the investment bank that financed the Porterbrook deal and is the main seller in the UBS tender, is keeping an uncharacteristically low profile about the whole thing. That is partly to do with the personal fortunes that some of its executives will make out of it. But when did it last dispose of such a large slug of its quoted equity portfolio in one go? This may prove a rather more difficult tender than UBS thinks.
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