News - Midlands
Niche players
Here's a story to really warm the hearts of anyone with a taste for business. Once upon a time Peter Harrington spent weekends in the garage of his Derbyshire home overhauling air compressors and building generators - like you do.
He was rather good at it and before long the garage was getting a bit cramped, so he began moving the generators into a nearby farm's old milking parlour. Before long, even that space wasn't enough and he decided enough was enough - it was time to take this hobby seriously.
So, in 1987, he founded Wirksworth-based Harrington Generators International (HGI) and went into business designing and supplying solutions for providing power supplies, in situations where mains power is unavailable or reliable standby power is required.
A simple idea maybe, but one whereby Peter certainly found a niche - a niche which earlier this year was spotted by FKI plc as worth a cool £37m.
The sale of HGI is just one example of the hundreds of little gems of businesses out there just waiting to be unearthed.
It's also fair to say that a good many of these deals seem to emanate from the likes of the East Midlands, being a large, rather undefined region which, inevitably, isn't perhaps as well trawled for deals as other parts of the UK.
John Farnsworth, corporate finance partner at accountant Smith Cooper, was the man who sniffed out the HGI deal.
He first got to know Peter's business two years ago. "At the time it was worth about £32m but I could tell it was growing very quickly, heavily backed by government contracts," he says. "Although there was already pressure to find a buyer, we urged him to wait and secure a few more big contracts first.
Once those were bottomed out, we knew we could get a much better price - and we did." HGI specifically produces generator products capable of withstanding rough handling in military applications, temperature extremes, high altitude and corrosive environments.
It won't be a surprise to hear that their products are being used in Iraq as we speak.
As well as the military sector, the products are sold into the rail, industrial, oil and gas, telecoms, plant hire and construction sectors throughout the world.
A more famous East Midlands little gem - one which has received a flood of press coverage since the deal was concluded - was the £370m recapitalisation earlier in 2006 of self-tanning giant St Tropez.
The deal was honoured at Insider's East Midlands Dealmakers Dinner in May 2006 as the region's Deal of the Year (see page 54).
Here was a business which grew from humble beginnings in Nottingham into the UK's leading player.
The deal also helped Mark Freer, investment director at funder LDC, become the region's Dealmaker of the Year at our awards.
However, being a little gem didn't mean the deal was easy. "It was the most difficult deal I have been involved with," says Freer. "We were effectively buying two businesses in the UK and the US - and a lot of brainpower was required to structure it properly.
The fact that it was almost completely done by Nottingham-based advisers helped immeasurably." So, given that these gems keep popping up, is it true to say the East Midlands isn't as well-trawled on the deal front? Opinions differ.
Freer for one believes not. "St Tropez was a real off-radar deal, which is the exception these days," he says. "This region is very good at deal origination, which probably goes back to the fact that boutiques like Catalyst and Clearwater were born here. "But the East Midlands market is still a very imperfect market.
It is very difficult to get a deal off-market in other regions because everyone gets to know about it.
If you take Birmingham, for instance, a lot of deals go through the auction route.
I would describe that as a very perfect market.
In this region there are all these hidden gems.
I am constantly amazed when I go to see businesses and find that no-one has been to see them before me." David Jones, who heads up Deloitte's corporate finance team in Nottingham, disagrees.
While admitting that the East Midlands could do with another venture capitalist, he believes there is plenty of trawling going on. "There is a very strong advisory base over here," he says. "Contrary to perceptions about The Big Four, our own owner-managed business is bigger than most mid-tier accountants too." John Sykes, who recently left Tenon Corporate Finance to set up on his own, knows the region better than most.
He says the fact that the East Midlands is home to several cities increases the chances of dispersal. "It's definitely true that there are some great businesses here which are hidden," he says.
Rob Carroll, managing director of Catapult Venture Managers, which manages the £330m East Midlands Regional Venture Capital Fund, is also continuing to find plenty of gems.
In 2006, his firm aims to complete between 12 and 15 investments in the region.
He says there are plenty of thriving sectors to target. "The East Midlands has great strengths in a number of sectors including healthcare, motor sport, food and drink and aerospace," he says. "The East Midlands has an excellent community spirit.
Working together we can enhance and grow the regional economy." John Heaphy, a corporate finance partner at law firm Freeth Cartwright, echoes the trend. "The East Midlands business community is a tight knit one, where strong friendships are teamed with healthy business competitiveness," he says. "When a target East Midlands business is involved in a transaction, due to the quality of the advice available locally it's typical that East Midlands advisers will be instrumental in it.
What's more, they will seek to ensure that other elements of the transaction - such as funding or legals - are kept within the East Midlands.
This type of attitude promotes strong relationships between advisers.
Because of this, transactions run smoother than they might had a disparate set of advisers been recruited from outside." Sometimes the region gets in on the act even when a business isn't wholly based in the East Midlands.
Take the recent sale of a group of homes for autistic children and young adults run by the Hesley group, which was managed by Jones at Deloitte - another on the shortlist for East Midlands Dealmaker of the Year, on the back of this particular work.
The business is based in South Yorkshire, but Jones was appointed to manage the sale of a group of homes in the south to equity group GI Partners. "We ended up effectively splitting the business, which led to a lot of complex issues involving stamp duty, capital gains tax and administrative issues," he says.
The deal was also typical of the way the deals market is increasingly following the opening up of vast swathes of the public sector to the private market. "If it wasn't for businesses like this these children would be in a terrible state," says Jones. "A lot of responsibility when it comes to caring for autistic children falls to local education authorities.
But they haven't the funds to build special schools, which require huge facilities to deliver the care required." Another highlight of the past year for the East Midlands dealmaking community involved a business which is capitalising on the splurge in public sector investment of recent years, namely Nottingham-based Ramesys.
Its education division, which specialises in providing IT products for more than 12,000 schools, was bought out by management in another deal backed by Freer at LDC. "Ramesys really understands schools and what they require from an IT perspective," says Freer. "It is completely different putting a computer in front of a child, compared to putting one in front of you or me.
There are also huge logistical issues when 3,000 children turn on a computer screen at the same time." Heavily involved in the government's Building Schools for Future programme, the business certainly seems to be looking towards a bright future. Farnsworth makes the point that with the UK economy more stable now than 18 months ago - and with a benign tax regime to boot - plenty more little gems should be unearthed. "With shares performing well there is a feel good factor out there.
Things are reasonably rosy," he says. He adds that the meaningful return of the trade buyer is significant too. "From our experience there are far more trade buyers in the market than there were two years ago.
But they are only buying good niche businesses.
You have to have really good targets. venture capitalists want to invest, but I would say they have been exiting rather than buying businesses of late." Rob Britton, partner at Clearwater Corporate Finance, adds that the return of US buyers has also sparked activity from vendors. "Overall activity levels are encouraging and there is a real feel good factor amongst the East Midlands corporate finance community which continues to be a rich source of deal flow," he says.
Clearwater continues to keep itself busy.
Only recently, in May 2006, the company advised Newark-based Caledonian Building Systems on the sale of its secure portable accommodation hire business, trading under the name Caledonian Safemaker, to Speedy Hire for £313.7m (see Agenda).
Decorative laminate producer Wilsonart, a subsidiary of Chicago based Illinois Tool Works, also acquired the laminate worktop business of Orama Holdings in March 2006 with Clearwater advising Orama shareholders.
It is one of the world's leading high-pressure decorative laminate producers with manufacturing and distribution activities in North America, Europe and Asia.
He was rather good at it and before long the garage was getting a bit cramped, so he began moving the generators into a nearby farm's old milking parlour. Before long, even that space wasn't enough and he decided enough was enough - it was time to take this hobby seriously.
So, in 1987, he founded Wirksworth-based Harrington Generators International (HGI) and went into business designing and supplying solutions for providing power supplies, in situations where mains power is unavailable or reliable standby power is required.
A simple idea maybe, but one whereby Peter certainly found a niche - a niche which earlier this year was spotted by FKI plc as worth a cool £37m.
The sale of HGI is just one example of the hundreds of little gems of businesses out there just waiting to be unearthed.
It's also fair to say that a good many of these deals seem to emanate from the likes of the East Midlands, being a large, rather undefined region which, inevitably, isn't perhaps as well trawled for deals as other parts of the UK.
John Farnsworth, corporate finance partner at accountant Smith Cooper, was the man who sniffed out the HGI deal.
He first got to know Peter's business two years ago. "At the time it was worth about £32m but I could tell it was growing very quickly, heavily backed by government contracts," he says. "Although there was already pressure to find a buyer, we urged him to wait and secure a few more big contracts first.
Once those were bottomed out, we knew we could get a much better price - and we did." HGI specifically produces generator products capable of withstanding rough handling in military applications, temperature extremes, high altitude and corrosive environments.
It won't be a surprise to hear that their products are being used in Iraq as we speak.
As well as the military sector, the products are sold into the rail, industrial, oil and gas, telecoms, plant hire and construction sectors throughout the world.
A more famous East Midlands little gem - one which has received a flood of press coverage since the deal was concluded - was the £370m recapitalisation earlier in 2006 of self-tanning giant St Tropez.
The deal was honoured at Insider's East Midlands Dealmakers Dinner in May 2006 as the region's Deal of the Year (see page 54).
Here was a business which grew from humble beginnings in Nottingham into the UK's leading player.
The deal also helped Mark Freer, investment director at funder LDC, become the region's Dealmaker of the Year at our awards.
However, being a little gem didn't mean the deal was easy. "It was the most difficult deal I have been involved with," says Freer. "We were effectively buying two businesses in the UK and the US - and a lot of brainpower was required to structure it properly.
The fact that it was almost completely done by Nottingham-based advisers helped immeasurably." So, given that these gems keep popping up, is it true to say the East Midlands isn't as well-trawled on the deal front? Opinions differ.
Freer for one believes not. "St Tropez was a real off-radar deal, which is the exception these days," he says. "This region is very good at deal origination, which probably goes back to the fact that boutiques like Catalyst and Clearwater were born here. "But the East Midlands market is still a very imperfect market.
It is very difficult to get a deal off-market in other regions because everyone gets to know about it.
If you take Birmingham, for instance, a lot of deals go through the auction route.
I would describe that as a very perfect market.
In this region there are all these hidden gems.
I am constantly amazed when I go to see businesses and find that no-one has been to see them before me." David Jones, who heads up Deloitte's corporate finance team in Nottingham, disagrees.
While admitting that the East Midlands could do with another venture capitalist, he believes there is plenty of trawling going on. "There is a very strong advisory base over here," he says. "Contrary to perceptions about The Big Four, our own owner-managed business is bigger than most mid-tier accountants too." John Sykes, who recently left Tenon Corporate Finance to set up on his own, knows the region better than most.
He says the fact that the East Midlands is home to several cities increases the chances of dispersal. "It's definitely true that there are some great businesses here which are hidden," he says.
Rob Carroll, managing director of Catapult Venture Managers, which manages the £330m East Midlands Regional Venture Capital Fund, is also continuing to find plenty of gems.
In 2006, his firm aims to complete between 12 and 15 investments in the region.
He says there are plenty of thriving sectors to target. "The East Midlands has great strengths in a number of sectors including healthcare, motor sport, food and drink and aerospace," he says. "The East Midlands has an excellent community spirit.
Working together we can enhance and grow the regional economy." John Heaphy, a corporate finance partner at law firm Freeth Cartwright, echoes the trend. "The East Midlands business community is a tight knit one, where strong friendships are teamed with healthy business competitiveness," he says. "When a target East Midlands business is involved in a transaction, due to the quality of the advice available locally it's typical that East Midlands advisers will be instrumental in it.
What's more, they will seek to ensure that other elements of the transaction - such as funding or legals - are kept within the East Midlands.
This type of attitude promotes strong relationships between advisers.
Because of this, transactions run smoother than they might had a disparate set of advisers been recruited from outside." Sometimes the region gets in on the act even when a business isn't wholly based in the East Midlands.
Take the recent sale of a group of homes for autistic children and young adults run by the Hesley group, which was managed by Jones at Deloitte - another on the shortlist for East Midlands Dealmaker of the Year, on the back of this particular work.
The business is based in South Yorkshire, but Jones was appointed to manage the sale of a group of homes in the south to equity group GI Partners. "We ended up effectively splitting the business, which led to a lot of complex issues involving stamp duty, capital gains tax and administrative issues," he says.
The deal was also typical of the way the deals market is increasingly following the opening up of vast swathes of the public sector to the private market. "If it wasn't for businesses like this these children would be in a terrible state," says Jones. "A lot of responsibility when it comes to caring for autistic children falls to local education authorities.
But they haven't the funds to build special schools, which require huge facilities to deliver the care required." Another highlight of the past year for the East Midlands dealmaking community involved a business which is capitalising on the splurge in public sector investment of recent years, namely Nottingham-based Ramesys.
Its education division, which specialises in providing IT products for more than 12,000 schools, was bought out by management in another deal backed by Freer at LDC. "Ramesys really understands schools and what they require from an IT perspective," says Freer. "It is completely different putting a computer in front of a child, compared to putting one in front of you or me.
There are also huge logistical issues when 3,000 children turn on a computer screen at the same time." Heavily involved in the government's Building Schools for Future programme, the business certainly seems to be looking towards a bright future. Farnsworth makes the point that with the UK economy more stable now than 18 months ago - and with a benign tax regime to boot - plenty more little gems should be unearthed. "With shares performing well there is a feel good factor out there.
Things are reasonably rosy," he says. He adds that the meaningful return of the trade buyer is significant too. "From our experience there are far more trade buyers in the market than there were two years ago.
But they are only buying good niche businesses.
You have to have really good targets. venture capitalists want to invest, but I would say they have been exiting rather than buying businesses of late." Rob Britton, partner at Clearwater Corporate Finance, adds that the return of US buyers has also sparked activity from vendors. "Overall activity levels are encouraging and there is a real feel good factor amongst the East Midlands corporate finance community which continues to be a rich source of deal flow," he says.
Clearwater continues to keep itself busy.
Only recently, in May 2006, the company advised Newark-based Caledonian Building Systems on the sale of its secure portable accommodation hire business, trading under the name Caledonian Safemaker, to Speedy Hire for £313.7m (see Agenda).
Decorative laminate producer Wilsonart, a subsidiary of Chicago based Illinois Tool Works, also acquired the laminate worktop business of Orama Holdings in March 2006 with Clearwater advising Orama shareholders.
It is one of the world's leading high-pressure decorative laminate producers with manufacturing and distribution activities in North America, Europe and Asia.