It’s been five years since Azets was founded with the backing of Hg Capital, developing out of Cogital. Marc Mullen speaks to the leaders of its corporate finance team across the country about what’s next.

Five years ago, Hg Capital, a buy-out house that specialises in software and business services deals, backed the creation of Cogital. It was set up to acquire mid-tier accountancy practices and was led by John Connolly, former global chair of Deloitte.

Cogital’s first acquisitions were Blick Rothenberg and Baldwins in the UK, as well as the business process outsourcing services of Visma in the Nordics. Connolly, who had also spent 12 years as CEO of the UK arm of Deloitte, took on the role of executive chair and embarked on what he described as a “five-year plan to build a leading, technology-driven, international business services group”.

By 2018, Cogital had made 20 acquisitions and, with the purchase of Wilkins Kennedy (and its corporate finance arm WKCF), the business leapt forward in terms of its M&A advisory offering. Client numbers are now more than 70,000, employees have increased to more than 6,000 and annualised turnover to around £500m.

Last year, there was a refresh as Connolly stepped down as chair and Cogital (Blick Rothenberg aside) was rebranded as Azets. Dawn Marriott, ex-Capita COO and Hg Capital partner, took on the role of CEO just prior to the rebrand. Now, just half a decade on from its inception, where does corporate finance advisory fit into the next phase of growth for Azets?

“We’ve now got a genuine national offering and a good client base to grow,” says Andy Coghlan, the London-based partner in charge of private equity and international transactions, who was previously WKCF’s managing partner. “We do have specialisms across the regions that we can tap into, but having local presence is crucial for growth in the segment of the market we work in.

“So, for instance, early-stage tech funding comes in to [corporate finance director] Daniel Jonas, or if it’s private equity, it’s usually referred to me. Then in the Midlands, we’ve got people who specialise in the waste management sector, for example.”

Industry specialism

Mark Selby, the national head of corporate finance, is based in the Midlands. Back in March 2020, he led a team that advised the shareholders of recycling business Tom White Waste, on its £14.5m sale to Coventry City Council.

Selby says: “This was fairly typical of the kind of deals we advise on – an owner-managed SME being sold to a corporate buyer, if you regard the council as a corporate buyer. We spoke to many of the big blue-chip corporates in the waste sector in that process, and we have a real specialism in that industry in our team.”

While Azets has grown to the size of a BDO in terms of staff numbers, it’s operating in a different segment of the corporate finance market: smaller deals, in the £1m-£60m range. Alongside lead advisory, Azets is also building up its transaction services arm to provide clients with financial due diligence. It is led by Dan Nixon.

Typically, the firm advises on deals with enterprise values up to £60m. The corporate finance team across the UK now numbers around 50 staff. In the 10 weeks prior to the March Budget, this team had completed 50 transactions across the UK, worth an aggregate value of £350m.

Selby says the breadth of those 50 deals demonstrated the firm’s capabilities, across several industries, nationally. The M&A included MAC Waste Management’s acquisition of WCL Quarries and Drygon 8; six strategic investments by Boost&Co, including r10 Consulting, Liquorice Marketing and Foodhub; and BGF’s investment in energy data business Stark.

Construction work

“We also have a lot going on in the builders’ merchant and building materials space, and if you’re in the right part of it, also in logistics,” says Selby. “If you’re in the Amazon or supermarket supply chains, then you’ve likely had a cracking 12 months.”

In February 2021, the sale of Coventry-based bi-fold door specialist Slide and Fold to Orchestra Group, the consolidator, was completed. That had been a long time coming. Selby was engaged by the husband-and-wife owners Darron and Eve Cooke in 2019, and Orchestra was identified as a potential buyer in March 2020. The entire process was managed through various lockdowns.

“It was a £5m-turnover business but highly profitable, in a good niche space,” adds Selby. “Around 85% of its sales were online, so it proved a fairly resilient business through the pandemic.”

A standout deal for Coghlan in the first quarter was advising Bamboo Distribution on its investment from Rubicon Partners, which was at the top of the size range Azets typically advises on. Bamboo is a mobile-phone recycling business based in Essex. Having met Bamboo management last summer, Rubicon emerged from a competitive auction process and the deal was struck in October 2020. It was then completed pre-Budget.

Coghlan says: “It repairs, recycles and puts phones back in the system, and saves insurance companies money because it doesn’t replace old phones with the latest phones. Rubicon could see that as a growing market and it could apply its expertise to expand further through Europe.”

Nationally, all of the corporate finance teams are recruiting, especially at executive level. “We usually recruit newly qualified accountants,” explains Coghlan. “We prefer them not to have had any real corporate finance experience so we can teach them our approach.” The team also prefers not to recruit from the Big Four: “We want them to have seen the whole of a smaller client, rather than just one part of a large multinational.”

Azets has teams across the UK – in the North East, North West, London and the South East, the south of England, Wales, the Midlands and Scotland.

New beginnings

Debt advisory hasn’t been a significant offering yet, possibly because there isn’t the demand for it in the segment the company operates in. In April, Azets acquired the restructuring and insolvency division of Moore South, which was led by partners Duncan Swift and Chris Tate. Last October, Matthew Richards joined the Azets London division from Grant Thornton.

Coghlan says: “We’re looking more at the debt advisory side of things and will potentially recruit someone into that area. I think there are going to be a lot of refinancings and recapitalisations in the autumn. Once businesses start trading again, they’ll need working capital and debt options to stay afloat.

“The aim is to build out a full-service model, with the opportunity to cross-fertilise ideas across the regions and our service lines.” Coghlan claims that Azets is the UK’s most active adviser among the top 10 accountancy firms of ‘managed entrepreneurial’ businesses.

Selby sees the deal outlook for deals as positive. “I think, politically, CGT is a soft target, and it’s inevitable that it will come under further scrutiny in the next budget. That’s an underlying driving factor for business owners to explore an exit, or partial exit, in the near term. Another reason for being optimistic about deal volumes is that borrowing remains at historically cheap levels and banks are starting to look again at new-to-bank business in a way they weren’t so keen on last year. We know they were inward and CBILs-focused. There is also a lot of dry powder at independent, small private equity funds and family offices.
“And finally, I think the past year has been a bit of a wake-up call and a reality check for a number of business owners and their business value aspirations and expectations.”

All points west
Developing services in South Wales and the South West

Katherine Broadhurst leads corporate finance across the region. She joined as associate director in September 2019, from Broomfield & Alexander, where she trained as an ACA. She was made partner at the start of this year.

Broadhurst says the nature of the market and the concentration of SMEs mean that the deal size in the region is smaller than average for the country. There are also some differences in the nature of the deals, with a greater proportion of management buy-outs. The team completed nine deals in the first quarter of 2021, with a total value of £21.6m.

Broadhurst and her team advised the owners of Carters Packaging, based in Redruth, Cornwall, on its £4.5m sale to the London-listed Macfarlane Group, which completed in March. The deal had started around a year earlier, but it stalled with COVID-19 and lockdown. However, when the process restarted, the pandemic presented both parties with opportunities that the transaction enabled them to better exploit.

Broadhurst explains: “The entire transaction was done virtually. We were able to get quality face-to-face time, which is important in any transaction, but especially when developing relationships between an SME client and a listed entity, albeit online.

“Doing a transaction in that way has its challenges, particularly understanding the nuances of a discussion, but in terms of dealing with specific queries and with legal questions it worked, and the response times are important. In my view, video calls are so much better than the conference facilities we would have used before. It’s certainly more time efficient and environmentally friendly than travelling between Scotland – where Macfarlane is based – Wales and Cornwall. We cover a big area and being able to build relationships and service clients in a responsive way is key.”

Broadhurst is now looking for a new senior team member, to focus particularly on the West Country.

In February, the management team at Customised Sheet Metal based in Bridgend, South Wales, completed a buy-out from the metal fabrication company’s founders. Broadhurst led the Azets team advising on the deal.

“The process started in September last year. Luckily, we could have meetings with management and the owners around an actual table, to find mutually acceptable solutions. So we’d already dealt with those initial tricky questions – evaluating projections, working capital, establishing how it was going to be funded and what everyone’s role would be going forward – when restrictions came back in.”

Despite the efficiency of the virtual process, Broadhurst is looking forward to the opportunity to network again: “Forging new relationships over this period has been hard. The deals we’ve done have very much been based on previous relationships and connections. So, I’m really looking forward to building on our networks to make new contacts across our wider region and generate our pipeline of deals.”

North of the border
Bringing together expertise in Scotland

Graham Cunning leads a large corporate finance team consisting of 10 people. He joined Campbell Dallas (which was taken over in 2017 by Azets) in 2015, from Clydesdale Bank, where he had been UK head of acquisition finance. Before that, he spent 14 years at PwC in the UK and the US, having trained as a chartered accountant at KPMG in Glasgow.

His team has been really busy in the past six months, he says. “There have been two drivers for that. First, there’s a fear that CGT will rise. It proved to be a false dawn in this year’s Budget, but there’s a strong expectation that rates will rise in the March Budget next year. Last year was also mentally tough for some business owner-managers, and they just want to get out and do something else. Events have brought forward their exit plans.

“On the other side of the deal table, many corporates in strong sectors have built up large cash reserves and/or have PE backing. They’re now actively approaching target businesses to implement their M&A strategy”.

Cunning says he also has a strong pipeline of employee ownership trust (EOT) deals – because some business owners don’t want to go through a trade sale process, or they’ve had a bad experience of one in the past. They want to realise capital, but on their own terms, in private, and they also see the business and its culture continuing, so a sale to a trust that owns the business on behalf of its employees is the route they want to follow.
When it comes to looking at EOTs, money is only one consideration. “Other questions are key,” observes Cunning. “How will employees react? How will the running of the business and key decisions be made after the EOT buy-out? What’s the role of the trustee and the board?

“EOTs are pretty common and have been around for a while now. There are around 100 employee-owned businesses in Scotland, so there’s a wealth of experience and advice available to those wanting to find out more.

“Businesses are either flat on their back or doing incredibly well, doubling their profits and full of confidence, in a position to make acquisitions as they see competitors struggling.”

He has also seen far more unsolicited approaches and, if they get as far as an auction, a larger number of bids too. “Buyers are generally prepared to pay a premium price to avoid going to auction,” he says. “Unsolicited approaches have definitely increased in the past six to 12 months, as buyers seek to put their acquisition strategies into action. Acquirers have cash, are prepared and often experienced, and so can do deals quickly.”