The Thames Valley is the UK’s heartland of technological innovation, incorporating the towns of Oxford, Reading and Guildford. In the first half of this year the region saw a total M&A transaction value of around £4.6 billion, roughly the same as for the whole of 2009.
Dominic Ely of NVM Private Equity is head of the firm’s Southern region, excluding London. He has noticed more management buy-out activity over the last three months, and talking to the advisory community sees more ahead.
’Larger corporates are beginning to strategically realign themselves and decide what’s core and what isn’t,’ says Ely. ‘We are definitely seeing trade bidders compete against financial bidders, whereas over the last couple of years financial bidders have been able to out pay trade buyers.’
Ely comments that corporate balance sheets are looking strong relative to two to three years ago as they’ve paid down debts and built up cash reserves, giving them the wherewithal to compete for deals.
He adds: ‘There’s been a significant reversal in capital structures as people are structuring far more deals on equity rather than bank debt. At our end of the market we back businesses worth up to about £20 million, so we’ve never relied too heavily on large amounts of leverage.’
In March NVM backed the management buy-out of the Berkshire-based software company Kerridge Commercial Systems. Ely comments that that the deal was funded roughly through half debt and half equity. NVM invested £9 million in the transaction.
‘The vast amount of what we see is in business services,’ says Ely. ‘The healthcare sector is also seeing activity, particularly in social and elderly care. The difference at the moment is that there’s not very much deal activity in the retail space.’
The law firm Osborne Clarke has three offices in the South of England. Sara Valentine is a corporate partner at the firm based in its Thames Valley office in Reading. Like Ely, she has noticed an increase in M&A activity in the region over the past few months, particularly in the mid-market sector.
’The upturn includes clients in both the private and listed sectors, so we’re seeing some acquisitions at the moment that are being funded by placings,’ says Valentine. ‘One of the other things we’re seeing is more trade to trade M&A activity.’
She adds: ‘Some of our US clients are starting to look at acquisitions in the UK market again, which was one of the first things to drop away when the market fell.’
Valentine says that the firm has seen a lot of transactions in the pharmaceuticals and telecoms sectors, as well as a lot of university spin-outs due to the proximity to Oxford.
Time to talk
Gary Marsh is the chief executive of the technology company Solid State, which acquired its competitor Rugged Systems for £254,000 in September. Marsh says that Solid State had approached Rugged Systems a couple of years previously regarding a takeover, but were unable to reach an agreement.
He adds: ‘In the downturn they had issues in common with lots of other companies regarding bank funding, although their business was doing reasonably well. So we restarted negotiations again and reached a settlement.’
Solid State intends to keep Rugged Systems in its Surrey location, which Marsh says is a useful area between the company’s existing operations in the Midlands and the South-East.
Despite a good year for Solid State, Marsh predicts a slowing down of growth for 2010: ‘Part of the reason our sector has improved is that it did in general suffer quite badly last year, so it’s a bit of a bounce-back now, but I don’t think it’ll continue at that pace.’
Last month EKF Diagnostics acquired Surrey-based Quotient Diagnostics for up to £5.41 million. EKF’s CEO, Julian Baines, says: ‘Quotient have a diabetes test platform that they’ve developed over seven years, which is becoming the gold standard for diabetes monitoring.’
EKF Diagnostics is currently based in Germany, but following its admission to AIM earlier this year the company plans to move its head office to he UK close to Heathrow airport. Baines adds: ‘Geographical access is a large reason why we chose the Thames Valley Region.’