No big deal?
2009 might not have been a stellar year for deals, but a number of North West firms pulled off transactions that made us stand up and take notice. EN looks back on some of the best.
DEAL OF THE YEAR
DAISY (REVERSE TAKEOVER/FLOTATION)
A deal that, as soon as we heard about it, we suspected would occupy the region’s top spot this year.
When, back in 2007, we first spoke to CEO Matthew Riley he told EN about his ambition to list Nelson-based telecoms reseller Daisy on the stock market. What none of us could have imagined back then was that he would fulfil that ambition during the deepest, longest recession in living memory – completing one of the biggest deals of 2009 not just in the region but in the UK as a whole.
On 21 July Daisy reversed into AIM-listed Freedom4Group, simultaneously acquiring Vialtus – the former business division of Pipex – in a £200 million deal that included an £83 million fundraising.
The deal valued Daisy at £85.6 million – for which sole shareholder Riley received £27.6 million in cash and a 24 per cent stake in the enlarged business.
Daisy Group plc has since used its war chest to go on an acquisition spree that has seen it purchase Eurotel, AT Communications and Redstone’s telecommunications business.
The reverse takeover and subsequent acquisitions haven’t come without legacy issues, and the group posted a pre-tax loss of £2.1 million for the first nine months of 2009 – much of this due to goodwill writedowns and restructuring costs.
However Daisy has embarked on an integration process, including the net loss of 300 jobs – all in the South East where call centre staff and call centres themselves cost a lot more than they do in East Lancashire. Riley has said he is comfortable with market expectations that the year to 31 March 2011 will see EBITDA of £37 million (in the nine months to 30 September 2009 EBITDA was £1.4 million).
Advisors: Eversheds; Liberum Capital (NOMAD and broker)
THE CONTENDERS
AIR ENERGI (MBO)
In August private equity outfit Zeus backed the vendor-initiated management buy-out of Manchester-based Air Energi, which recruits technical staff into the oil and gas sectors worldwide, in a deal which valued the company at £30 million. Air Energi’s profi ts had doubled in the previous year. Its accounts for the year to the end of December 2008 showed an increase in turnover of 35 per cent on 2007 to £113.7 million. Pre-tax profits jumped from £2.1 million to £4.2 million.
Zeus provided equity funding of £10 million alongside management, in the deal that provided an exit for some existing shareholders and saw Gary Tipper and Ed Fazakerley of Zeus join the company’s board. Barclays Bank provided working capital facilities to underpin Air Energi’s “aggressive growth plans”.
The investment is the sixth for Zeus since it closed its maiden £100 million fund in December 2007.
From its Manchester-based head office, Air Energi has been a global provider of personnel to the energy sector for over three decades and now operates in over 50 countries.
Air Energi executive chairman, Ian Langley, led the deal along with CEO Duncan Gregson. Commenting on the deal, Langley said, “The completion of this deal in a very tough market is testament to the quality of the company and the people employed. With the backing of Zeus and Barclays, we are looking forward to continued success in the international energy markets.”
Advisors: Deloitte, KPMG, Halliwells, The Quinn Partnership, BDO Stoy Hayward, Pannone, Hammonds.
ASCRIBE (PUBLIC TO PRIVATE)
When EN spoke to Stephen Critchlow a few months after closing the deal that returned Ascribe – the healthcare IT firm he founded in 1997 – to private ownership, he said “buying back wasn’t spectacular – it wasn’t the deal of my life”. But we still think it was pretty good.
Floating the company on AIM four years earlier, at a price of 18 pence per share, was still considered his best deal but de-listing, he says, was “the logical thing to do” to allow the management team’s plan of continued organic growth and acquisitions to take shape.
Ascribe’s share price grew from 18 pence and peaked at 63 pence. It had dropped to 28 pence when Critchlow de-listed in February this year – representing a premium of 55.6 per cent to the fl otation price and a similar premium to the price on 14 July 2008 – and Ascribe was returned to private ownership in a £33.3 million management buy-out backed by private equity house ECI and with debt funding from Yorkshire Bank.
Ascribe reported turnover of £17.4 million and post-tax profi ts of £2.9 million for the year ending in June 2008.
The firm made its fi rst acquisition since being taken private in July, paying an undisclosed sum for Sydney-based medical software supplier iClinix and is seeking more acquisitions in the IT solutions sectors in the UK and abroad.
Critchlow, Ascribe’s chief executive officer, led the management team bid, together with Chris Dickson, chief operating officer and Jeremy Lee, financial director.
Advisors: Altium Capital, PWC, Ernst & Young, Pinsent Mason, Hammonds, Eversheds
DARBYSHIRE GROUP (ACQUISITION OF TPT)
If Steve Morgan’s return to the helm of Redrow was audacious, we struggle to find a suitable superlative to describe Gareth Darbyshire’s £7 million swoop for Swanseabased TPT Construction in March.
The deal itself seems straightforward – Preston-based housebuilder Darbyshire Group takes advantage of market conditions to swoop for a business that largely works for local authorities, thus spreading the balance of risks.
But add in the fact that the company secured funding from London-based private investors at a time when votes of confi dence in anyone’s business plan were rare and it starts looking a little out of the ordinary.
Then look at Gareth Darbyshire, the entrepreneur who, following the deal, sits at the head of a £20 million-turnover business. At the time of the deal he was aged, in the words of the Paul Hardcastle song released some years before he was born, “n.n.n.n.n.n.n.nineteen”.
Advisors: Knightsbridge Business Sales, Brabners Chaffe Street, Berrymans, Champion Accountancy.
JD SPORTS (ACQUISITION OF CANTERBURY)
In August Bury-based leisurewear retailer JD Sports acquired rugby kit brand Canterbury of New Zealand for £6.5 million from its Middle Eastern owner Kuwait Finance House, along with the assets and business of its European subsidiary which it bought out of administration for around a further £2 million.
The deal also had the dubious honour of including New Zealand’s fi rst-ever pre-pack administration.
The Canterbury brand is well-established in the Southern Hemisphere, where replica rugby kits are bought in the way football colours are in Europe, and the previous owners had made considerable fi nancial investments in the brand. But, while the brand was marketed through a network of licensees in its Antipodean heartland, the European operation was run as a standalone business and proved heavily loss-making.
JD, which has acquired worldwide rights to the brand but will keep the existing licensees in place – including the Australian licensee which acquired its business separately as part of the asset realisation.
JD, which also recently acquired rugby brand Kooga from JJB, plans to run the two businesses as wholesale operations separate from its core retail business. Nonetheless, it should be able to bring synergies to bear that ought to enable it to generate considerably more cash from the world’s leading rugby brand than its previous owners managed.
Advisors: KPMG, Addleshaw Goddard
JJB (CVA)
A deal that makes the cut not just because it was a good one (it saved the company so it must have been) but because of what it represented – the fi rst creditors voluntary arrangement involving a company with a full listing on the London Stock Exchange.
The CVA, supervised by KPMG and backed by 99 per cent of creditors, was signed off in April. It enabled the Wigan-based company to come to a fi nal agreement with the landlords of the 140 stores it needed to close, under which they were to be paid a total of £10 million for the £17 million rent roll, and with the owners of its remaining 250 outlets to pay rent on a monthly rather than traditional quarterly basis.
Since the deal the company has had its ups and downs, but in June was able to carry out a £50 million refi nancing with Barclays and Bank of Scotland and at the end of October received shareholder approval for a £100 million stockmarket fundraising.
The JJB CVA opened the floodgates for a number of other such deals, with the likes of Focus, Blacks
and Flannels having since followed suit.
Advisors: KPMG
STEVE MORGAN (REDROW COUP)
In March Redrow’s founder Steve Morgan was able to carry out a boardroom coup, having built up a 29.9 per cent stake in the company.
Cheshire-based Morgan, now once again chairman of the company, had originally retired from the business in 2000.
His return to the head of the boardroom table was followed in late September by a £150 million rights issue, in spite of the company posting its worst-ever results weeks earlier. The rights issue also coincided with the acquisition by the housebuilder of Harrow Estates, the brownfield developer founded by Morgan following his initial exit from Redrow.
The company’s recovery remains very much a work in progress but Morgan is nothing if not canny and, if he can reapply the Midas touch he brought to the business in 1980s and 1990s, then his decision to build up his shareholding during the worst days of the housing market crash could be one of his shrewdest moves to-date.
Advisors: Mace & Jones (legal advice to Harrow Estates)
NIMANS (ACQUISITION OF ROCOM)
Founder and sole director of Salford-based telecoms distributor Nimans, Julian Niman described the deal that saw his company buy its main competitor, Wetherbybased Rocom, from its parent company AT Communications as “the opportunity of a lifetime” and said “no other firm will have the depth and diversity of stock at their disposal”.
It’s certainly big news in the communications distribution world. The acquisition in March this year, for an initially quoted sum of £12.45 million (£500,000 of which was believed to be deferred consideration), is the biggest in the industry since the £20 million merger of Westcon and Crane two years ago.
Both Nimans and Rocom specialise in the sale of telecoms equipment from major manufacturers including BT, Panasonic, Siemens and NEC.
AIM-listed ATC bought Rocom for £17.6 million in 2006. In the year to the end of December 2008, Rocom generated underlying earnings of £3.5 million (up from just over £2 million in 2007) on revenue of £45.4 million (down from £48.6 million in 2007).
The deal, for which Nimans took on debt funding from its bankers RBS, is expected to double Nimans’
total turnover to nearly £100 million.
Since the deal was completed, the trading assets of Rocom’s former parent company, Londonbased AT Communications Group plc (ATC) – which expected the £12.45 million consideration to “significantly reduce” its net debt – have been bought out of administration by Nelson-based Daisy Plc.
Nimans refused to comment on reports in the press that a smaller sum than that initially quoted had been paid to ATC for the Rocom business before it collapsed.
Advisors: Beachcroft, Baker Tilly, BDO Stoy Hayward
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