Industry observers have warned that more merger and takeover deals will fall through after last week’s management buyout of fit-out firm Styles & Wood was abandoned.

The plug was pulled on the private equity-backed deal after the £315m-turnover company told the stock market that it would not meet market expectations in 2008.

Observers said more aborted deals would follow, given the tightening of lending criteria among banks affected by the credit crunch.

In a statement to the City, Styles & Wood said: “We have concluded that it is inappropriate to pursue our indicative offer and hence all offer discussions have ceased.”

Turnover had been expected to hit £338m in 2008, and pre-tax profit was forecast to be £14m but the figures are understood to have fallen closer to 2007 levels of £315m and £11.8m respectively.

Its share price fell 60% to 41p after the news.

According to financial sources, other deals in the sector have either fallen through or been put on hold recently.

Construction is not exactly the flavour of the month anyway,
which is related to its poor margins

Peter Gray, Cavendish

Peter Gray, a partner at Cavendish Corporate Finance, said construction would be one of the first sectors to feel the pinch. He said: “The industry is not exactly flavour of the month anyway, which is related to its poor margins. That has been exacerbated recently by banks rationing their debt.”

Another source described the banks’ attitudes towards lending as “uptight” and said the fact that interbank lending rates were higher than the base rate showed they did not trust each other in the current market.

Andy Brown, an analyst at Panmure Gordon, said: “There have to be question marks over whether any sensible financier would take on a company such as Styles & Wood in the current market.”

He added that banks would still look favourably at companies with strong balance sheets. “At the end of the day, they make their money by lending.”

What a difference a month makes

“Targeting premier league retailers helps to insulate us from the cyclical nature of consumer spending. The key driver for our services is our customers need for change and as a result we continue to see good prospects ahead.”
Styles & Wood annual report 2007, 23 April 2008