The past 12 months have not been easy for dealmakers. In Europe, M&A deal value slid to its lowest since 2013. According to White & Case M&A data, it dropped 27% year on year to $635.64bn (£503.88bn). Rising interest rates and a lack of visibility on future company earnings made it difficult for investors to price in risk and put appropriate deal structures in place.

However, for all the challenges that have faced dealmakers during the past year, high-quality assets have continued to trade, showing that deals can still be done. One of these deals involved Metpro, a specialist manufacturer and distributor of cable management products based in Birmingham.

In January this year, the company announced an investment led by the Business Growth Fund (BGF). The £21m package comprised a £13m equity investment from the BGF and an £8.5m finance package provided by NatWest.

“Metpro is a very attractive business with good growth and good-quality earnings. The business has delivered everything it said it would deliver and as an investor that gives you a huge amount of confidence,” BGF investor Seb Saywood says.

Anatomy of the deal

Getting the deal over the line against the backdrop of a choppy market required a patient approach and thoughtful sales process that allowed vendor and buyer the time to build a relationship and put together a bespoke deal structure to suit both parties. “This deal has had a long gestation period,” says David Neate, founding partner of Evolve Corporate Finance, who advised Metpro on the BGF investment. “Economic market conditions have been challenging, so it was important to give everyone time to get comfortable with the business dynamics through the process; this enables stronger relationships to form.”

Indeed, the deal’s origins can be traced back to the autumn of 2022, when Neate was first introduced to Metpro founder Arthur Rudge. The company was on a strong growth trajectory and ready for the next stage of its development. Rudge was looking for a solution to facilitate leadership succession, expand the senior management team and put systems and processes in place to support the business as it made the transition from a fast-growing SME to an established corporate.

“Our journey with Metpro started with an evaluation of the strategic options for the business. Do you sell to a trade buyer or do you help to transition ownership by taking on private equity investment and staying involved in the ongoing development of the business?” Neate asks. 

“Metpro was in a very good position. Profitability had grown rapidly, and the company had brought in a managing director who had become fundamental to the business. The plan was to keep the company on this track and allocate equity to the managing director, so we realised quite early on in the process that most of the objectives of the owners would be met by doing a private equity-style transaction.”

Evolve proceeded to set up an auction process for the company, but kept the process relatively narrow, handpicking select buyers to put in bids for the group and giving Metpro time to engage with interested parties to find the right fit.

Good match

The BGF’s ability to address Metpro’s requirements and take a flexible approach to deal structure, rather than imposing a fixed deal template on the company, was a key factor in the firm emerging as the successful bidder.

“We had a number of conversations with the advisers about what the owners and management wanted to achieve and how we could help to facilitate that. The company didn’t want to sell a majority stake and the management team wanted to be a part of the company’s future growth,” Saywood says. 

“One of the advantages we have is that we are always a minority investor,” he continues. “We leave the management team in control of their business, but at the same time provide the support of an institutional equity investor that can help them scale and can offer all kinds of resource and experience without giving up control. That really is a big point for owner managers.”

With alignment between the BGF and Metpro established, Neate says it was important to then allow the BGF to get to know the business better and observe trading over a period of time before agreeing a deal: “When there is wider macroeconomic volatility, private equity houses like to slow down execution, because the easiest way to assess a company is to see whether forecast earnings match up to actual trading. Processes do take longer so that investors can effectively monitor business performance.” 

Familiarisation process

Saywood adds: “Before we entered really detailed negotiations, we had a six- to seven-month period of seeing the business and getting to know the management team, while they considered their options and prepared for a transaction. As a minority investor the relationship with management is key. Often they don’t want to rush into things – and nor do we. In the case of Metpro, once we had taken the time to build that relationship, we actually moved very quickly to heads of terms and a commercial agreement.”

The Metpro sale is a strong endorsement of the value of old-fashioned dealmaking, where relationships are valued, and bidders and vendors are given space and time to build rapport.

These types of processes have come back into vogue as the M&A market has slowed, and stand in stark contrast to the truncated deal auctions that became commonplace at the peak of the market, when buyers were run hard in crowded processes and given limited face time with management.

Regional markets, however, remained relationship-driven, even at the top of the cycle. This approach has come into its own as deal activity has dropped off.

“Regional deal markets such as Birmingham are different from the London market, which is much more book-driven – an adviser will share an information memorandum with up to 40 different private equity houses that will bid off the back of that information,” Neate says. “In our market people are keener to build relationships and get to know each other. The quality of the answer doesn’t necessarily improve by bringing in more bidders. Our job as an adviser is to structure a competitive process and negotiate the best possible terms, but also to understand what our client’s objective is, identify the right investors to deliver on those plans, give them appropriate airtime and nurture the relationship.”

With capital in tighter supply, buyers can afford to be more selective. Vendors and sell-side advisers who recognise this and adapt sales strategies accordingly will find that even in a tough market, high-quality deals can still be done.