Partner and Head of Corporate Finance at RGCF, Carl Swansbury hails debt funds and PE investors as having been “instrumental” in driving M&A activity during 2020

  • What impact has this unprecedented year had on the deals market?

It has been a challenging year, which has created a degree of nervousness and anxiety in the market; all of which has delivered a more subdued level of transactions and the ones that have been completed have taken longer as shareholders have remained cautious. 

However, what with the likelihood of increases in Capital Gains Tax (CGT) and the significant amount of liquidity in the market, as a result of schemes like CBILS, the ‘dry powder’ that exists in the Private Equity sector and the many debt funds that have been raised and are poised to deploy funding, there has been some interesting and dynamic activity in the M&A market in the past 12 months, which has delivered scale-up opportunities for growing businesses.

The expected CGT increases have accelerated some shareholders’ decisions to de-risk and sell their businesses while PE-backed businesses have seen this year as the ideal opportunity to make bolt-on acquisitions to strengthen market position and create new income streams.

Private Equity has been instrumental in the past 12 months in driving transactions, particularly through Management Buy Outs (MBO) and to a lesser extent, Management Buy Ins (MBI).  I predicted this would be the case at the end of 2019, largely as a result of Brexit and the withdrawal of many international corporates from the UK, leaving the UK management teams with an opportunity to acquire or carve out the businesses/units they run, but the pandemic has accelerated this trend.  The number of trade buyers has reduced as they have had other issues to deal with, which has opened the door for management teams to pursue MBOs and MBIs, backed by PE and debt funds.

  • How has your firm traded? Any achievements to shout about?

It has been a very positive year for RGCF as we have continued to strengthen our position as one of the most active corporate finance advisory firms in the North East – based on Experian’s M&A deal tables during the nine months to 30 Sept 2020 – for not only advising on a growing number of significant regional and national M&A transactions, but also in the provision of strategic advice to clients to help them with their long term growth plans.  We are also extremely proud to have been shortlisted in six categories at the upcoming Insider Media’s 2020 North East Dealmakers Awards.

We established a Covid-19 team to help clients understand the funding options open to them, whilst assisting many clients as they changed their strategies to overcome this challenging period.  This included entering into an innovative partnership with RTC North to enable companies to secure part-funded advice from RG. 

It was essential that the support didn’t end there as it has been important to help clients plan beyond the current period and not just react to the situation they faced.

We identified early in the year that we had to focus on the sectors that would continue to see M&A activity during the pandemic, such as technology, healthcare, food & beverage and transport & logistics, alongside effective deal origination and business development strategies, whilst continuing to work very closely with our network of chairmen and non-executive directors.

We have recently recruited Senior Manager Rhiannon Nightingale and Executive Tom Cosby, to expand our team, and we have advised on a number of transactions during 2020, including the VIMBO of Venturi Ltd, the sale of North East based Nice Network to LDC-backed Onecom, the MBI of port services company JST Services (Scotland) Ltd, which was backed by London-based Shard Credit Partners, the MBO of Nigel Wright, the sale of Austin Newport to Artelia and Comhar Capital’s investment in Teesside-based roof design and insulation company TaperedPlus.

  • Have you noticed any trends in particular sectors in the North East and beyond?

It has definitely been a year of extremes in the M&A market.  As a consequence of the pandemic there have been a number of distressed transactions and sectors such as leisure, high street retail and hospitality have, understandably, seen activity drop off.  At the other end of the spectrum, there are sectors that have performed well.  These include industries such as IT, as evidenced by the sale of Sunderland-based Nice Network to LDC backed Onecom, which RGCF advised on as well as healthcare, food & beverage and transport & logistics.  

  • With the pandemic, Brexit and a new US president, what do you think 2021 could hold for the M&A market?

Activity in the first quarter of 2021 will continue at pace with a notable increase in disposal mandates as shareholders and business owners look to realise value before any CGT changes. Assuming that CGT changes do go ahead, we expect Q2 will be subdued, with the likely increased tax cost of transacting putting potential sellers off.  The influence of Brexit will also play a part next year as there will be fewer international acquirers looking to buy businesses in the UK, while the UK finds its feet after leaving the EU.  On the positive side, there will continue to be strong levels of MBO and MBI activity due to the liquidity in the debt fund market and from Private Equity.

We are already starting to see this by the number of MBO and MBI transactions on which we have advised and in the pipeline we have in place for 2021.

There will be some interesting sectors to watch in 2021 that have come to the fore in the past 12 months, many as a result of the pandemic.  For example, with remote working becoming more common, any business that provides software and hardware solutions for this market will perform well.  Mental health and wellbeing businesses have the potential for further growth as we, as a society, place a greater sense of priority on these areas of our lives.

We will also continue to see M&A activity in the support and professional services sectors, including training and Ed Tech, facilities management, accountancy and legal.

As a result of the pandemic, there are firms that have had to rely on the furlough scheme and CBILS, which may not be able to return to previous activity levels and not be as viable. This will, unfortunately, lead to a number of business failures in 2021 and an increase in the number of distressed acquisitions and opportunities for well capitalised buyers.

  • Have you set any targets for 2021?

We currently have a team of 19, which includes four partners, at RGCF, and we are confident we can continue to grow that number in 2021 as we continue to support our growing client base and those businesses that are yet to join our client cohort.  We are 100% committed to supporting North East businesses with strategic advice to help shareholders develop better, scalable and more valuable businesses.  I believe that fortune favours the brave and that includes both our team and the clients we advise.  As a result, going into 2021, we have a more significant pipeline of projects than this time last year on the back of completing multiple transactions in the last quarter of 2020.

We are optimistic and excited for what 2021 will bring as we have the mindset that every cloud has a silver lining and we have certainly focused on the silver lining, which has helped a large number of businesses grow and embark on new scale-up strategies, which will continue throughout the next 12 months.

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