As the market looks to respond to the stop-start situation that continues to hinder progress, Nik Askaroff, chief executive officer of management and corporate finance consultancy EMC, says that more risk needs to be taken to ensure that solid businesses have the chance to prosper.
The south-east England-based firm has done just that and posted a record year on the back of a number of big-ticket deals. Despite being in a fairly tight economy, EMC has grown its team and has opened a major new office in Brighton that is set to be its new centre for western and central Sussex.
‘The end of 2010 and beginning of 2011 was fairly positive, but by the mid-point of this year activity started to slow down again,’ Askaroff explains.
He believes that while most M&A practitioners appear to be doing well, the worry of what is going to happen tomorrow still looms large in the rear-view mirror.
The return of private equity is a development that Askaroff explains has had a positive impact on valuations, with increased competition meaning that EMC has been able to push the button on a number of deals with healthy values.
One such deal was the sale of Genesis Forwarding Group, acquired by Australia’s Toll Group in a A$150 million (£87 million) double deal involving WT Sea Air Group.
In other transactions, EMC has been involved with the education sector in a deal relating to a Sussex private school, as well as a £24 million fundraising for a medical project.
In a new turn of events, Askaroff says that, at EMC’s end of the spectrum, private investors are now looking to corporate M&A as an alternative to poor returns from the bank and a crumbling property market.
He adds that private equity is also looking to bolster its own portfolio companies through buy-and-build strategies, with the bolt-ons being acquired either extending the portfolio life of the business or getting them to an exit more quickly by adding much-needed revenues and profits.
TIME TO USE RESERVES
With private equity active, Askaroff is hopeful that trade buyers will begin to utilise the cash reserves that they have been sitting on while weathering the storm.
The management buy-out work with which EMC has been involved has come on the back of a number of owner-managers believing that they can cash in their stake now and still work for three to four more years, a situation that Askaroff reveals is music to private equity investors’ ears.
Looking at growth sectors, Askaroff feels that it is more of a case of strong and weak players within different verticals: ‘I think we can all pick out retail as being an area that is in a disastrously poor state, but even within that remit there are some good performers.
‘And at the same time, in some of the stronger sectors we have got people who are not doing well, so it’s less about trade segregation and more about businesses that don’t have gearing.’
Askaroff thinks that the struggles of the SME sector and smaller commercial businesses have come after a revival of sorts by the financial services, with the pinch coming much later for business owners.
PLAYING IT SAFE
Rather disappointingly, he adds, the inability to access finance is leading to stronger businesses not seeking out funding for growth, but instead becoming trapped in an environment that has driven them to seek safety.
For companies that are looking for funding, Askaroff does not believe the banks are backing up their pledges with solid results. He says that all too often projects taken to the bank are shot down if there is no debtor book or property (against which to secure any financing), with even the Enterprise Finance Guarantee scheme only getting through about ‘once in every four’.
Askaroff adds, ‘There is still some momentum, but someone needs to give the banks a kick and say that this is a risk undertaking, which is why the government is guaranteeing them.’
For the private sector to help plug the public sector gap, more investment in SMEs is needed, he says, with stimulation required to get businesses over the hump and into growth: ‘It’s not quantitative easing, it’s just getting the banks to lend.’
The old 3i model is a strategy that Askaroff sees as moving in the right direction, with more investments in the sub-£1 million bracket geared towards SMEs.
One frustration that Askaroff sees as driving good business out of the country is the 50 per cent tax rate, which he believes is causing entrepreneurial owners to become frustrated with the system and shy away from growing businesses in the UK.
However, with expansion behind them in the past year and the corporate finance arm of the business performing well, Askaroff is confident that the next 12 months could bring another record year for EMC.
EMC: VITAL STATISTICS
Founder and chief executive: Nik Askaroff
Head Office: Eastbourne
Tel: 01323 410144
Projects managed in the last year: 268
Transactions completed: 18
Pending deal value: £84m