After over 30 years standing on the M&A sidelines as a chartered accountant, David Thompson has sealed his first deal with the acquisition of Wakefield-based Cable-Talk Communications, a company that designs and installs structured cabling systems for voice and data networks.
Following the example of the scores of entrepreneurs that he has shepherded through the acquisition process over his career as a senior partner at Leeds accountant Buckle Barton, and together with fellow directors Keith Madeley, chairman of the Yorkshire Society and Xperience gb; and Dr Jon Harris, chief executive of a £37 million venture fund; Thompson has set up Great Northern Solutions (GNS), a business consultancy turned investment company, in order to acquire fast-growing businesses.
“GNS was established early last year to provide business consultancy services to the local business community. We were approached by all sorts of people for business advice, anything from raising capital to resolving shareholder disputes.
“As consultants we began to look closely at a number of businesses and it occurred to us that, with our joint expertise and network of contacts, we could buy these businesses, whip them into shape, add value and sell them on at a later stage,” says Thompson.
And this is exactly what they are doing. The no-nonsense Yorkshireman describes the Cable-Talk deal, funded with GNS’s existing cash pool plus debt from Co-operative Bank and funding from the European regional development fund Partnership Investment Finance, as a reassuringly smooth process.
Thompson claims the £2.8 million price tag for the IT services company was a ‘bargain’, as the owner was looking to cash in his investment and re-invest elsewhere. “The owner had taken a £3 million-turnover business as far as he could and was looking to sell. We started negotiations and agreed a price last April. Since then the profits have increased, making it even more of a bargain.”
Their first acquisition seems to be a safe bet as the European ICT industry is growing steadily, according to the findings of the European Information Technology Observatory (EITO). The organisation predicts 2.9 per cent growth in this market this year, up to €687 billion (£528 billion), and claims the sector is being driven primarily by IT services, software applications and broadband data.
Putting finance in place
As borrowing became more difficult last year, GNS began talks with a number of debt providers. Thompson took the deal to the larger banks, which showed an interest at first but subsequently pulled out, often with no explanation.
Thompson remarks: “Cable-Talk is highly profitable” – however, he steers away from numbers – and at no point did financial turmoil in the markets threaten the deal’s completion. “We’re happy with Co-operative Bank. They were impressed with its growth potential and backed the deal for £1.35 million.”
“Cable-Talk is a strong business with an excellent track record of growth since it was set up 12 years ago. The new management team is well placed to develop the business further,” adds Richard Gandy, Co-operative Bank business development manager.
For the remaining £250,000 funding, GNS turned to a less traditional source:
Partnership Investment Finance (PIF). The fund, which was set up to offer loans and equity to SMEs in Yorkshire, The Humber and north Lincolnshire, is a mixture of private and public finance provided by the EU, regional development agency Yorkshire Forward and Barclays. Andrew Wright, PIF investment manager, described the company’s prospects as encouraging and the GNS team as extremely experienced.
Cable-Talk is typical of the type of acquisitions that the investment company is looking to bring to fruition. In this deal, GNS bought Cable-Talk’s entire share capital although Thompson says that he would consider a 75 per cent stake in a growth business.
GNS is already on the prowl for further investments and is not limiting its search for potential targets to specific markets. Thompson says sector is less important than the possibility of taking a company trading profitably at £1 million EBIT (or above), with minimal debt, growth potential and a strong management team, and “putting it on the right footing”.
“We intend to monitor our acquisitions through monthly meetings and add value by cutting costs or introducing sales from our network of contacts.” Thompson’s streamlining strategies and new business contacts will ensure that Cable-Talk and any other future investments cope with tougher times this year.
And it would seem that Yorkshire likes to keep its businesses lean and mean – the recent Yorkshire Report compiled by accountant BDO Stoy Hayward has revealed that the county’s top 150 companies saw their net profits soar by 99 per cent to £2.9 billion last year as a result of streamlining their operations.
Where next for Great Northern Solutions?
With Cable-Talk veteran Steve Slater set to replace outgoing founder and managing director, Tony Pickard, who will work as a consultant to the business over the next 12 months, the GNS venture has a firm hand on the tiller as Thompson, Madeley and Harris eye further opportunities and a potential exit in the next five years.
GNS is currently in talks with a couple of potential acquisitions; a technology company and a second business in the refrigeration control market. However, Thompson is tight-lipped about these deals as they are yet to come on to the market.
He focuses instead on the cabling company’s beginnings in
With Cable-Talk, Thompson has stepped off the M&A sidelines and joined the region’s entrepreneurs, such as Michael Ziff and Sir Ken Morrison on the acquisition trail.
“People have a stereotypical image of accountants: bespectacled and sitting behind a desk all day adding up figures – I would hate that. I see myself more as an entrepreneurial accountant, and they are few and far between.”