News - Midlands
A year in review
So how was 2003 for you? Yes, a tricky question to answer, isn't it? For some the picture remained deathly quiet - plenty of deals hit the in-tray but few came out the other side; for others it was decidedly mixed - the odd cracking deal, the rest seemingly never seeing the light of day; and for the lucky few it was a stormer - you just couldn't get enough.
Of course, much depended on where your specialisms lay. Those who are adept in that rarely seen concept of flotations had another dreadful year (the 11th hour float of Nottinghamshire-based Center Parcs was the only Midlands company to achieve a full listing). Those who ply their trade in the private equity arena had another challenging 12 months too - although as we shall see later that didn't mean it was an impossible market.
Plenty of selling
But elsewhere there was plenty to go at. It was definitely the year of some big buyouts as famous Midlands names sold up, most notably Linpac, while other entrepreneurs on the main market finally realised their wealth, including John Caudwell of Caudwell Communications and Tim Radford of Project Telecom who both got nice cheques from Mr Vodafone. With the markets off limits, for those who remained in the private arena it was often a question of doing a buyout again, and again - and who knows, maybe even again in 2004. Twelve months ago we talked about the phenomena of secondary buyouts. Today one can definitively say that they've really come of age. John Kelly at Gala went one better and pulled off an unprecedented tertiary buyout.
It was a good year on the whole for bankers too. There were plenty of re-leveragings and refinancings as companies adjusted to the new economic environment of low inflation, low growth, low interest rates - low everything really.
Such trends were of course picked up in this magazine's Dealmakers awards this autumn, not least in the granting of our dealmaker of the year title to a very popular winner, Trevor Foster from Bank of Scotland.
Foster says: "2003 was a superb year, the best ever for the BoS Midlands team and a busier year, in terms of general market activity, than 2002."
Another busy team was Barclays Private Equity which showed that even in the VC arena there was still plenty to report if you looked hard enough.
Director Phil Griesbach says: "We had a great year - far better than perhaps we might have anticipated with both new deals and exits. In a period when the regional market has been relatively subdued, we have enjoyed success in deals such as Caretech, FirstAssist, Fosbel and the disposals of Frank Thomas, Kingdom of Leather and, most recently, Graphicraft."
However, no-one is relying on a surge in private equity (PE) activity to bring corporate activity back up to the levels of three or four years ago given the enhanced competition between funders in a market of fewer mandates.
Ian Tetsill, head of Barclays Leveraged Finance in the Midlands, says: "It was a good year for us overall despite lower new private equity dealflow for much of the 12 months from Midlands-based PE houses. In the event we hoped to complete 14 deals over the year - a real mixed bag of public-to-privates, secondary buyouts, re-capitalisations, MBOs and acquisitions."
Mixed bag
Quite. A real mixed bag rather nicely sums up the market at the moment. Steve Halbert, partner at KPMG, is another who points to the shortage of PE deals.
"2003 was very much a tale of two halves, the first half continuing a generally depressed M&A market, but the second half much improved and the year not nearly as difficult as it was shaping up to be. That said, too many of the deals we concluded were acting for the vendors and there wasn't enough new private equity going in to the market - although not for the want of anyone trying."
Ian Morris, head of corporate at EMW Law, is another who touches on the trend.
"Our pipeline is looking solid but reflecting on 2003 we did less private equity deals and a lot more debt-based buyouts and buy-ins, often with a significant vendor rollover. We did a number of debt-based secondary buyouts using the debt raised to facilitate a VC exit."
Morris says that although VCs are talking up 2004 he doesn't see it being much different to 2003.
Charles Cook at law firm DLA says that while 2003 was a tough year some good deals still got away, most notably the take-private of car dealership group Ryland, the disposal of Thomas Sanderson Blinds and the sale of bookstore Remainders.
Indeed the signs for 2004 are encouraging if activity levels in the last few months of 2003 are anything to go by.
Law firm Gateley Wareing, which notched up an incredible 110 deals last year, was particularly busy in the run-up to Christmas. In December the firm acted on the completion of Project Neptune, the BIMBO of three watercooler businesses, funded by 3i, advised by Osborne Clarke, and RBS, advised by Eversheds. The deal, which was led by John Dundon, involved the simultaneous acquisition of four companies from three vendors to create a national watercooler business.
Mike Ellwood at Royal Bank of Scotland also enjoyed a busy Christmas. "We saw a significant upturn during the last quarter. We completed three deals in the latter part of October arranging over £3100m of debt."
Rising in the east
There was plenty to shout about in the east of the region too. Partner Karl Jansen at law firm Freethcartwright is typical in his optimism for 2004. "2003 was a record year for us in terms of the number and value of deals completed. We did more than 60 deals with a total value in excess of £31.1bn, including nine deals of £315m-plus." Jansen says his order book is as good as he can remember, particularly for £310m-plus.
However, he accepts that a continuing frustration is the time it is taking to get deals done. "Although there are exceptions, a number of our deals have taken considerable time to really get going, even after heads have been signed. In the absence of any common cause of delay, it seems to be just a reflection of the fact that there is still some caution in the market and generally buyers will not be rushed into deals. As confidence continues to return, this trend will hopefully dissipate and we can get back to the days of ridiculously short timescales." Jansen also touches on another positive sign for the whole region, namely the return of the overseas buyer. "We are currently acting on a sale and an acquisition where the buyers are part of large US groups."
John Sykes, director of Tenon Corporate Finance in the East Midlands, viewed the second half of 2003 as a period of stabilisation. "Following the split within TLG and the departure of the Clearwater team we had to prove to the market that Tenon had a credible corporate finance offering in the Midlands. Deals such as the sale of Millingtons and the public-to-private of High-Point Rendel proved emphatically that we have.
"We aim to push hard into 2004 and the picture looks pretty positive, particularly in the East Midlands. We are seeing more and more entrepreneurial business owners and ambitious management teams putting their hands up and saying they want to do a deal. This is in marked contrast to 12 months ago and, as a result, the pipeline is stronger than it has been for some time."
The inevitable focus on bigger deals also masked the fact that 2003 still saw its fair share of quality deals at the lower end.
Barclays Ventures, the equity financing arm of Barclays UK, enhanced its position as one of the leading venture capitalists in the sub-£35m investment market in the region with a number of new investments and successful exits
Richard Bucknell, regional director for the Midlands, says: "The second half of 2003 demonstrated that smaller equity deals continue to represent profitable investments for venture capitalists with a clear focus on this market segment. By the end of the year we realised three Midlands-based investments which generated an average IRR in excess of 30 per cent." Bucknell points to deals such as the management buy-back of their investments in the Snowdome, in Tamworth, and Crane Care, in Aston, as well as the recent realisation of Ventures' holding in Nottingham-based Robert Prettie & Co.
Outlook for 2004
So what of the outlook for 2004? Well, no-one is shouting from the rooftops quite yet although there are broadly positive mutterings about the months ahead.
Griesbach says: "We don't foresee major changes as we go through 2004. The market has shown some signs of growth but if you exclude nationally the two multi-billion transactions completed in 2003, the £32.5bn buyout of the Scottish & Newcastle pub estate and the £31.7bn delisting of Debenhams, we're left with a market which is still fragile.
"However, our expertise in four sectors, presently accounting for some 75 per cent of our investment activity, is fundamental. By focusing on support services, healthcare, financial services, consumer and travel, we bring equity money and intellectual capital to a deal and we intend to do so in the year ahead."
Tetsill is also upbeat. "We are feeling cautiously optimistic for 2004. Deal activity seemed to pick up noticeably in the last quarter of 2003 and the pipeline is building up nicely. Stock market performance and general corporate data suggest green shoots may finally be arriving, but it is still a case of picking out the winners from the losers and the consumer economy remains finely balanced regarding interest rates and property prices."
Joanne Bligh from law firm Browne Jacobson is similarly confident. "The flow of funded transactions seems to be on the up in the last quarter of the year and I think that we should start to see the number of deals done in the region increasing next year rather than seeing a further decline in the numbers that we have suffered over recent years."
Some even hope - or should that be pray - that the IPO may one day return.
Halbert adds: "If we see a continued stable stock market - which is what I expect - then we'll see a strong IPO market coming through, which in turn will feed an uptick in secondary issues and corporate deal activity."
But no-one's holding their breath. In the meantime many observers believe there will be an ever-increasing number of secondary, tertiary and, who knows, maybe even quartenary buyouts.
And all the time Midlands advisers and investors will continue to spread their wings outside the region.
The trend is typified by the likes of Kroll Corporate Finance and recent deals such as Valeo
Director James Grenfell says: "The transaction highlights a growing trend within our business of originating our own deals, which are not only outside the Midlands but possibly in mainland Europe. Our strategy is to target high quality management teams and opportunities and be less concerned with traditional geographic barriers."
Furthermore Grenfell reports that other local firms have been exceptionally supportive of this strategy and helped to facilitate access to their local European counterparts.
So, stretching the boundaries, but also sticking to fundamentals too. Richard Bishop, head of 3i Midlands, concludes: "The prospects look good this year for the Midlands. I see a confidence building that has been lacking over the last two years and a real increase in activity. I am also optimistic that we will be more active on the new investment side than has been the case in 2003.
"As always, those firms that drive their own origination and bring proprietary deals to the Midlands will succeed and thrive. Those that wait for the phone to ring will be left behind."
For the full list read on
For the fuller picture, subscribe to Insider every month.
Of course, much depended on where your specialisms lay. Those who are adept in that rarely seen concept of flotations had another dreadful year (the 11th hour float of Nottinghamshire-based Center Parcs was the only Midlands company to achieve a full listing). Those who ply their trade in the private equity arena had another challenging 12 months too - although as we shall see later that didn't mean it was an impossible market.
Plenty of selling
But elsewhere there was plenty to go at. It was definitely the year of some big buyouts as famous Midlands names sold up, most notably Linpac, while other entrepreneurs on the main market finally realised their wealth, including John Caudwell of Caudwell Communications and Tim Radford of Project Telecom who both got nice cheques from Mr Vodafone. With the markets off limits, for those who remained in the private arena it was often a question of doing a buyout again, and again - and who knows, maybe even again in 2004. Twelve months ago we talked about the phenomena of secondary buyouts. Today one can definitively say that they've really come of age. John Kelly at Gala went one better and pulled off an unprecedented tertiary buyout.
It was a good year on the whole for bankers too. There were plenty of re-leveragings and refinancings as companies adjusted to the new economic environment of low inflation, low growth, low interest rates - low everything really.
Such trends were of course picked up in this magazine's Dealmakers awards this autumn, not least in the granting of our dealmaker of the year title to a very popular winner, Trevor Foster from Bank of Scotland.
Foster says: "2003 was a superb year, the best ever for the BoS Midlands team and a busier year, in terms of general market activity, than 2002."
Another busy team was Barclays Private Equity which showed that even in the VC arena there was still plenty to report if you looked hard enough.
Director Phil Griesbach says: "We had a great year - far better than perhaps we might have anticipated with both new deals and exits. In a period when the regional market has been relatively subdued, we have enjoyed success in deals such as Caretech, FirstAssist, Fosbel and the disposals of Frank Thomas, Kingdom of Leather and, most recently, Graphicraft."
However, no-one is relying on a surge in private equity (PE) activity to bring corporate activity back up to the levels of three or four years ago given the enhanced competition between funders in a market of fewer mandates.
Ian Tetsill, head of Barclays Leveraged Finance in the Midlands, says: "It was a good year for us overall despite lower new private equity dealflow for much of the 12 months from Midlands-based PE houses. In the event we hoped to complete 14 deals over the year - a real mixed bag of public-to-privates, secondary buyouts, re-capitalisations, MBOs and acquisitions."
Mixed bag
Quite. A real mixed bag rather nicely sums up the market at the moment. Steve Halbert, partner at KPMG, is another who points to the shortage of PE deals.
"2003 was very much a tale of two halves, the first half continuing a generally depressed M&A market, but the second half much improved and the year not nearly as difficult as it was shaping up to be. That said, too many of the deals we concluded were acting for the vendors and there wasn't enough new private equity going in to the market - although not for the want of anyone trying."
Ian Morris, head of corporate at EMW Law, is another who touches on the trend.
"Our pipeline is looking solid but reflecting on 2003 we did less private equity deals and a lot more debt-based buyouts and buy-ins, often with a significant vendor rollover. We did a number of debt-based secondary buyouts using the debt raised to facilitate a VC exit."
Morris says that although VCs are talking up 2004 he doesn't see it being much different to 2003.
Charles Cook at law firm DLA says that while 2003 was a tough year some good deals still got away, most notably the take-private of car dealership group Ryland, the disposal of Thomas Sanderson Blinds and the sale of bookstore Remainders.
Indeed the signs for 2004 are encouraging if activity levels in the last few months of 2003 are anything to go by.
Law firm Gateley Wareing, which notched up an incredible 110 deals last year, was particularly busy in the run-up to Christmas. In December the firm acted on the completion of Project Neptune, the BIMBO of three watercooler businesses, funded by 3i, advised by Osborne Clarke, and RBS, advised by Eversheds. The deal, which was led by John Dundon, involved the simultaneous acquisition of four companies from three vendors to create a national watercooler business.
Mike Ellwood at Royal Bank of Scotland also enjoyed a busy Christmas. "We saw a significant upturn during the last quarter. We completed three deals in the latter part of October arranging over £3100m of debt."
Rising in the east
There was plenty to shout about in the east of the region too. Partner Karl Jansen at law firm Freethcartwright is typical in his optimism for 2004. "2003 was a record year for us in terms of the number and value of deals completed. We did more than 60 deals with a total value in excess of £31.1bn, including nine deals of £315m-plus." Jansen says his order book is as good as he can remember, particularly for £310m-plus.
However, he accepts that a continuing frustration is the time it is taking to get deals done. "Although there are exceptions, a number of our deals have taken considerable time to really get going, even after heads have been signed. In the absence of any common cause of delay, it seems to be just a reflection of the fact that there is still some caution in the market and generally buyers will not be rushed into deals. As confidence continues to return, this trend will hopefully dissipate and we can get back to the days of ridiculously short timescales." Jansen also touches on another positive sign for the whole region, namely the return of the overseas buyer. "We are currently acting on a sale and an acquisition where the buyers are part of large US groups."
John Sykes, director of Tenon Corporate Finance in the East Midlands, viewed the second half of 2003 as a period of stabilisation. "Following the split within TLG and the departure of the Clearwater team we had to prove to the market that Tenon had a credible corporate finance offering in the Midlands. Deals such as the sale of Millingtons and the public-to-private of High-Point Rendel proved emphatically that we have.
"We aim to push hard into 2004 and the picture looks pretty positive, particularly in the East Midlands. We are seeing more and more entrepreneurial business owners and ambitious management teams putting their hands up and saying they want to do a deal. This is in marked contrast to 12 months ago and, as a result, the pipeline is stronger than it has been for some time."
The inevitable focus on bigger deals also masked the fact that 2003 still saw its fair share of quality deals at the lower end.
Barclays Ventures, the equity financing arm of Barclays UK, enhanced its position as one of the leading venture capitalists in the sub-£35m investment market in the region with a number of new investments and successful exits
Richard Bucknell, regional director for the Midlands, says: "The second half of 2003 demonstrated that smaller equity deals continue to represent profitable investments for venture capitalists with a clear focus on this market segment. By the end of the year we realised three Midlands-based investments which generated an average IRR in excess of 30 per cent." Bucknell points to deals such as the management buy-back of their investments in the Snowdome, in Tamworth, and Crane Care, in Aston, as well as the recent realisation of Ventures' holding in Nottingham-based Robert Prettie & Co.
Outlook for 2004
So what of the outlook for 2004? Well, no-one is shouting from the rooftops quite yet although there are broadly positive mutterings about the months ahead.
Griesbach says: "We don't foresee major changes as we go through 2004. The market has shown some signs of growth but if you exclude nationally the two multi-billion transactions completed in 2003, the £32.5bn buyout of the Scottish & Newcastle pub estate and the £31.7bn delisting of Debenhams, we're left with a market which is still fragile.
"However, our expertise in four sectors, presently accounting for some 75 per cent of our investment activity, is fundamental. By focusing on support services, healthcare, financial services, consumer and travel, we bring equity money and intellectual capital to a deal and we intend to do so in the year ahead."
Tetsill is also upbeat. "We are feeling cautiously optimistic for 2004. Deal activity seemed to pick up noticeably in the last quarter of 2003 and the pipeline is building up nicely. Stock market performance and general corporate data suggest green shoots may finally be arriving, but it is still a case of picking out the winners from the losers and the consumer economy remains finely balanced regarding interest rates and property prices."
Joanne Bligh from law firm Browne Jacobson is similarly confident. "The flow of funded transactions seems to be on the up in the last quarter of the year and I think that we should start to see the number of deals done in the region increasing next year rather than seeing a further decline in the numbers that we have suffered over recent years."
Some even hope - or should that be pray - that the IPO may one day return.
Halbert adds: "If we see a continued stable stock market - which is what I expect - then we'll see a strong IPO market coming through, which in turn will feed an uptick in secondary issues and corporate deal activity."
But no-one's holding their breath. In the meantime many observers believe there will be an ever-increasing number of secondary, tertiary and, who knows, maybe even quartenary buyouts.
And all the time Midlands advisers and investors will continue to spread their wings outside the region.
The trend is typified by the likes of Kroll Corporate Finance and recent deals such as Valeo
Director James Grenfell says: "The transaction highlights a growing trend within our business of originating our own deals, which are not only outside the Midlands but possibly in mainland Europe. Our strategy is to target high quality management teams and opportunities and be less concerned with traditional geographic barriers."
Furthermore Grenfell reports that other local firms have been exceptionally supportive of this strategy and helped to facilitate access to their local European counterparts.
So, stretching the boundaries, but also sticking to fundamentals too. Richard Bishop, head of 3i Midlands, concludes: "The prospects look good this year for the Midlands. I see a confidence building that has been lacking over the last two years and a real increase in activity. I am also optimistic that we will be more active on the new investment side than has been the case in 2003.
"As always, those firms that drive their own origination and bring proprietary deals to the Midlands will succeed and thrive. Those that wait for the phone to ring will be left behind."
For the full list read on
For the fuller picture, subscribe to Insider every month.