View from City Road: Rights flood will be for acquisitions

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The Independent Online
Trafalgar House has given the market adequate warning of the pounds 400m rights issue it is due to launch on Tuesday, but it would be surprising if other chief executives were not conscious that, post-Budget, the demand for equities has been seemingly insatiable.

So far, the market's strength has mainly tempted the venture capitalists to lock in their gains by floating their investments. But previous periods of buoyant share prices - most notably in 1991 and the spring of this year - have led to a flood of rights issues.

Judging by the post-Budget flurry of activity in corporate finance houses, the same could be about to happen again. But this time, the reasons for the rights issues could be markedly different.

The pounds 9.3bn raised in 1991 and, to a large extent, the pounds 10.8bn raised so far this year repaired the damage to balance sheets done by the recession. That exercise is now largely complete. The corporate sector turned cash-positive in the third quarter for the first time in five years.

The next crop of rights issues is, therefore, likely to be tied to acquisitions rather than recovery. Virtually every large company has divisions that are in effect for sale. High prices may be expected. But with the market on a prospective multiple of 15, predators can afford to pay handsomely.

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