There is scant deal-making action in the region, but what mid-market activity there is, is keeping the wolf from the doors of its advisers and funders. Mark Dunne reports
Simon Hughes liked Johnson Clothing so much he bought the company – twice.
The chief executive originally led a buy-ÂÂÂÂout at the corporate wear specialist eight years ago for £14.6 million.
Four years later, the vendor, Johnson Service Group Plc, bought back the Leicestershire supplier of uniforms to high street retailers, such as Marks & Spencer and Tesco, for £27.5 million.
In April, Hughes led a secondary MBO for £82.5 million, renaming the business Dimensions Clothing. Both buy-outs were backed by Gresham Private Equity, with debt provided for the latest deal by Lloyds TSB, Barclays, HSBC and Royal Bank of Scotland.
Hughes says with Gresham’s support he will be able to expand into new sectors: “We had a good relationship throughout Gresham’s previous ownership and will use their knowledge of the business to continue our success.”
Gresham’s investment was just under £40 million and was managed by its Birmingham office, which has four people covering the Midlands. This is the only primary deal the buy-out firm has backed in the region so far this year.
One deal in six months may not seem a lot, but partner Paul Franks claims it is not unusual. “We do deals worth between £10 million and £100 million. In the Midlands, there are around 15 to 20 deals of this size a year and, as a business, we are looking to do at least two of them.”
Strength in numbers
In 2007, the Midlands generated a total of 500 deals, according to research specialist Zephyr. Of these, 292 were completed in the west of the region, and the combined value of the deals based on revealed prices was £9.1 billion.
The east lagged behind, generating £4.2 billion from 199 deals – a drop in value of some 50 per cent on 2007.
In the year to July 2008, the west’s 107 deals produced a reported £2.5 billion, more than double the £1.1 billion from 86 in the east. Transactions in the Midlands have included businesses in the retail, support services, engineering, construction, leisure, defence, aerospace and manufacturing sectors.
Several of these deals won the support of Clydesdale Bank’s acquisition finance team, which has lent £100 million in the Midlands during the past 12 months, despite stiff competition from rivals.
Clydesdale director Sue Varley describes the Midlands as a mature region for deal making. “There are many individuals who have been operating on the patch for some time and who are creating opportunities to grow and make acquisitions,” she says. “There are also shareholders looking to retire or change the blend of management to bring in new skills, so it’s a fertile ground for deal-making.”
Close to home
Varley’s view is echoed by Roger Buckley, head of corporate at accountant BDO Stoy Hayward. The Birmingham firm works on between 30 and 40 deals a year and has completed more than a dozen so far in 2008, including the buy-out of Tyrrells
Potato Chips in Hereford.
Buckley says: “If you look at the credit crunch and where it has done most damage, it’s mainly hit the larger deals in London. The regions tend to be mid-market in terms of approach, and this space isn’t going to suffer as much as the larger deals.”
Franks believes another strength of the Midlands is its strong advisory and funding community: “There are very few deals that cause businesses to go outside the Midlands to execute. We take all our advice locally.”
The quality of the advisers in the region is a theme Buckley warms to, claiming that people have been looking for deals outside Birmingham and then bringing them back for many years. “We travel, we hunt, we find and we bring back.”
But Varley sounds a note of caution: “Over the past three months, there has been talk about several banks pulling out of the leveraged market and being cautious about any kind of corporate lending. This has all been caused by liquidity issues, so it is an interesting time for banks.”
Varley claims the next 12 months will be quieter than usual, but that there is still work to be done as the banks’ pipeline is strong, with several deals put on hold earlier in the year.
She believes there will be more opportunities to restructure under-performing businesses: “It’s about getting them in the right shape to go forward.”
Buckley agrees that there is work to be done on deals that failed to close before April’s tax deadline: “The fact that there is a little extra tax to pay doesn’t stop entrepreneurs from doing the right thing for their business.
“If you were going to sell in the first six months of the year, it would have made sense to do it in the first three months,” he adds. “But if it wasn’t the right time, leave it for another six to12 months until it is the right time.”
In February, Stuart Robinson and Mike Thorne bought Blueberry, a Leicestershire-based supplier and distributor of speciality ambient food to independent retailers.
The directors acquired the group for an undisclosed sum with the backing of Close Growth Capital. The vendor was 3i, which backed the original buy-out in 2005.
Derby County FC
Derby County FC was bought by US investor General Sports & Entertainment in January this year for an undisclosed sum in a cash deal, not funded through debt.
The acquirer targeted the club to build it into a global brand and has introduced Tom Glick, an ex-chief marketing officer for the New Jersey Nets basketball team, to its board as president and chief executive.
Claimar Care Group Claimar Care
Claimar Care Group Claimar Care Group Plc, a Birmingham-based provider of domiciliary care services to local authorities throughout the Midlands and the North West, bought Acorn Home Care in February 2007 for an initial £10.2 million payment. Acorn is a domiciliary care provider in the Midlands and the North of England. Its 600 staff deliver some 13,000 hours a week for 13 local authorities.