With a recession to contend with, dealmakers had their work cut out in 2009. James Harris looks at the deals that transcended a difficult environment.
With a recession to contend with, dealmakers had their work cut out in 2009. James Harris looks at the deals that transcended a difficult environment.
January
Company: CVS
Type of deal: Acquisition
Recession? Market freeze? Not according to CVS. This veterinary services consolidator started the year as it meant to go on by making its 56th acquisition. The AIM-listed group bought Melton Veterinary Practice in Suffolk, following that up during the year with veterinary hospitals and clinics in Doncaster, Southend, Newbury and Warrington.
After the Melton acquisition, Simon Innes, chief executive of CVS, commented, ‘The resilience of the business to the current recession augurs well for the time when more normal economic conditions return.’
In the company’s latest financial results, it reported an increase in turnover of 23 per cent to £76.6 million, while pre-tax profits remained constant at £4.4 million.
February
Company: Quantum Specials
Type of deal: Management buy-out
The number of UK management buy-outs (MBOs) in 2009 fell to levels not seen since the mid-1980s, but that didn’t stop the management team of Quantum Specials buying the medicine manufacturer for £32.5 million.
MD Ian Edge led the MBO, which was backed by private equity firm LDC and Yorkshire Bank, describes the deal as coming ‘at a crucial time’ in the company’s development.
The financial package comprised a combination of loans and shares worth £14 million from LDC, while Yorkshire Bank provided a £18.5 million package of senior debt and working capital.
County Durham-based Quantum Specials generates sales of £22 million and produces drug formulations that are not available from larger manufacturers.
March
Company: Vanguard Healthcare Solutions
Type of deal: Management buy-out
Gloucestershire-based Vanguard Healthcare Solutions was acquired from health charity Nuffield in a £31 million MBO led by CEO Ian Gillespie and its original founders, Andrew Allen and Gary King.
The deal was backed by investment firm MML Capital Partners with senior debt from HSBC. Says Gillespie: ‘In the current climate, no business is a shoo-in. The banks were aggressive and covenants were tight, but they are well within our reach. In the first quarter of the year, there was little appetite from banks. Luckily, healthcare is perceived as bulletproof compared with other sectors.’
April
Company: Robert Dyas
Type of deal: Management buy-out
After struggling to agree terms with lenders on its debt position, homeware retailer Robert Dyas completed an MBO led by CEO Steven Round and non-executive chairman and restructuring expert Ian Gray. Lloyds and Allied Irish Bank had part-financed the £60 million the original MBO of Robert Dyas in 2004 by private equity firm Change Capital Partners (CCP). In last year’s deal, the MBO team acquired CCP’s stake for £1 million and the company’s debt has halved to £15 million, the remainder being converted to equity. FD Graham Coles says: ‘We now have the right amount of debt and we are motivated to maximise the value of the business for our new owners – the banks.’
May
Company: Wonga
Type of deal: VC fundraising
Quick credit may be out of fashion in these austere times, but short-term loan website Wonga.com managed to attract one of the biggest VC funding rounds in Europe this year. Wonga raised $22.25 million (£14 million) from new investors Accel Partners and Greylock Partners, while existing backer Balderton Capital also contributed. Laurel Bowden, partner at Greylock, commented: ‘In this market, there are some excellent opportunities to build innovative financial services businesses. Wonga’s management team has developed a very innovative and real-time credit offering, solving relatively small immediate cash needs, and the business has shown impressive traction in the market.’
June
Company: The Foundry
Type of deal: Management buy-out
With discretionary spending in freefall, many predicted Hollywood would be devastated. However, the continuing health of the movie industry has boosted the fortunes of businesses like The Foundry, the developer of software behind the visual effects in Avatar and Where the Wild Things Are, which was acquired from Digital Domain in a management buy-out led by CEO Bill Collis and backed by Advent Venture Partners.
Collis says: ‘People still like going to the cinema and it’s a relatively inexpensive pleasure. In fact, box office takings have risen even though DVD sales have been badly affected. It’s the big budget effects-laden films that are being made, which is where our software lies.’
The London-based company specialises in visual effects compositing, which is the manipulation of image sequences to create a final shot, and doubled revenue in the year ending June 2009 to $10 million (£6 million).
July
Company: System C
Type of deal: Acquisition
The public sector didn’t catch the recession bug in 2009. That benefited healthcare IT services provider System C, which acquired Liquidlogic, a specialist in social and adult care IT systems, for £14.2 million. AIM-quoted System C financed the deal through a placing of shares which raised £12 million. CEO Ian Denley says: ‘Equity markets were more buoyant than earlier in the year and we were oversubscribed for the placing, having a very supportive blue chip investor base.’ Although healthcare has held up well, Denley expects a tougher times this as year as cuts in public spending begin in earnest.
August
Company: Daisy Group
Type of deal: Acquisition
Weeks after the £81 million reverse takeover of Freedom4 Group, telecoms concern Daisy Group went back on the acquisition trail. The Uxbridge-based company acquired AT Communications Group, which specialises in servicing small and medium-sized companies, and telecoms supplier Eurotel for a combined consideration of £20.5 million after both businesses fell into administration. Daisy had to move quickly. Steve Smith, the company’s M&A director says, ‘We were in a better position to acquire the companies compared with rival bidders. as we had raised the money already and didn’t need shareholder approval.’ Smith says there’s more to come from Daisy, which aims to ‘become a credible alternative to BT’ for medium-sized businesses. ‘We still have lots of money for further acquisitions, as well as a pool of institutional investors who could support fund raising. With our low level of gearing, even larger transactions are manageable.’
September
Company: London Care
Type of deal: Buy-out
Most private equity firms deserted the market in 2009. Not Sovereign Capital, which focuses on investments in the healthcare and education sectors, and acquired domiciliary care business London Care for £18 million. It employs 1,500 staff and operates from 13 sites across the UK. Sovereign’s managing partner Andrew Hayden says, ‘We put serious amounts of money behind companies and the capital is used for further acquisitions. We’re hoping to land our first acquisition for London Care shortly.’ Last year the firm supported three of its 21 portfolio companies in bolt-on acquisitions.
October
Company: Burford Capital
Type of deal: IPO
Commercial litigation specialist Burford Capital raised £80 million in an AIM float. At that point, the deal was the second largest AIM IPO of the year after Max Property raised £220 million in May. City of London-based Burford is owned and run by US commercial litigation lawyers Christopher Bogart and Selvyn Seidel. It backs either the defendant or the claimant and pays the costs of litigation in return for up to 40 per cent of the sums recovered. Bogart says: ‘At this point of the economic cycle, there is a lot of litigation. Even so, when you go to market, you never know how you are going to be received.’
November
Company: Pasta King
Type of deal: Management buy-in
Jamie Oliver’s healthy eating campaign was manna from heaven for Pasta King, a supplier of hot meals to schools. The company was acquired from its incumbent management and Matrix Private Equity Partners in a £13 million management buy-in (MBI) backed by NBGI Private Equity.
Matrix made £5.7 million from the MBI, representing a return of 3.2 times its original investment. Chief executive Mark Wignall says, ‘At the time, we had an educated guess that the Jamie Oliver campaign would get traction and would help the business as it was so focused on the schools and school dinner market.’
The deal was led by Pasta King’s new managing director Howard Farquhar and chairman Mike Cole, both of whom have worked with NBGI before.
December
Company: Subocean Group
Type of deal: Fundraising
Christmas came early to sub-sea construction expert Subocean Group as the Aberdeen-based company raised a monster £42 million.
Subocean secured £17 million from LDC, the private equity arm of Lloyds Banking Group, while HSBC provided £25 million. The company employs 90 staff and is expecting to increase its turnover from £70 million to £300 million by 2014.
MD John Sinclair says that Subocean works on 50 per cent of offshore windfarm projects currently under construction in UK waters, adding: ‘This investment will enable us to expand our existing offshore wind operations, invest in the latest equipment and further develop our offering in both renewables and oil and gas markets.’
