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Doing deals in Yorkshire

There’s been a long and varied tradition of industry across Yorkshire, but what’s the modern deal environment? From traditional manufacturing to healthcare, telecoms and tech industries, the area is attracting international investment. Jason Sinclair reports

Remember the Monty Python sketch in which four Yorkshiremen hold forth on the state of the world? Over a bottle of wine, they try to one-up each other with childhood stories about their tough Yorkshire upbringings.

“We had half a handful of freezing cold gravel, worked 24 hours a day at mill for fourpence every six years, and when we got home our dad would slice us in two with a bread knife,” remembered one, not even the most hard done by.

Fifty years later, the fact that their ‘descendants’ would be tempted to take on US corporate investment or – worse still – Mancunian private equity would be enough to make the stereotypical son or daughter of the Ridings of Yorkshire choke on their breakfast gravel. But today’s stories are about opportunity and growth in corporate finance.

Broad church

‘God’s Country’ has always contained multitudes, from the hardy but tourist-friendly farming land of the Yorkshire Dales to the wool heartlands of the Pennine foothills; from the pithead towns of the South Yorkshire coalfield to the industrial and mercantile cities of Sheffield, Bradford and Leeds; and from the docks of Hull to the spa of Harrogate.

Today’s advisory and private equity community is somewhat less insular. The five members of Yorkshire’s deal community who spoke to Corporate Financier told a story of a fertile business environment, with assets attracting competitive investment from both corporate and private equity (PE) buyers.

“Yorkshire is arguably three or four different sub-regions combined,” explains Dan Smith, who leads LDC’s Yorkshire team from the Leeds office. “We’re quite fortunate that we touch all parts of the economy, and there are good opportunities wherever you look.”

Smith points to tech successes, from York-based payroll software company Mitrefinch to Wakefield video game developer Team17 – “a £10m turnover business when we invested in 2016 that’s now a billion-pound listed business on AIM. It’s a firmly Yorkshire-based business that had a great level of expertise in that particular sector.”

However, Smith adds that “at its heart, Yorkshire has always been a traditional manufacturing region as well” and that across sectors “good owners will always attract interest and be looking at ways to grow their businesses”.

Desire for growth

Coming out of the pandemic, Smith sees a few motivations for local firms seeking capital. “There are going to be those businesses that are privately owned where the shareholders are reassessing personal objectives and want to de-risk, while bringing in an investor to share in the next phase of the business growth. You have the businesses that have proved their resilience during the pandemic, which are wanting to double down and find support for a buy-and-build strategy. Then there are fundamentally good businesses looking to shore up balance sheets because they just need a bit of extra capital to see them through this next phase, as they start to go back into growth mode.”

Capital options come from the Leeds teams at LDC, as well as the likes of BGF, NorthEdge Capital and Key Capital Partners, among others.

“For good assets, of course there’s competition from London and Manchester, but having proximity to the management teams in our investment has helped the relationship side of things – both on the way in and during the life of that investment as well,” he says.

Making an M&A hub
Yorkshire’s deal landscape isn’t just being sculpted by private equity, confirms Oliver Hoffman, the Leeds-born head of M&A at Mazars, who advises on transactions across a range of sectors. “Most of what we have on at the moment are privately owned companies, family-owned businesses looking to sell, and many of those transactions are already in train with larger corporate buyers – often international,” he says.

“There’s certainly a lot of money in private equity seeking a home, but I think the bigger market dynamic at the moment is the corporate activity, either entering new markets or enhancing and building.”

Hoffman says PE has maintained a strong focus on software and healthcare, while the corporate appetite is much broader, encompassing all sectors.
Mazars has seen its Leeds office grow to 200 people, with more new hires in the M&A team planned for this autumn.

Expansion is a common theme in the Leeds community, Hoffman explains, with the city being “large enough to have a gravity that attracts people, clients and deals, but also small enough for people to know others in the marketplace. I think that works really well.”

Jason Whitworth, an M&A partner at BDO, also reports being “phenomenally busy” in a “confident marketplace”. Whitworth – born in York, living in Huddersfield, working in Leeds and who has worked with businesses in the corporate finance market across the region for 20 years – has a pipeline that reflects the region’s variety, covering e-commerce, food and drink, and industrial services, but he says that particularly strong areas are tech, telecoms and healthcare.

In the UK, those sectors tended to perform well even at the height of the pandemic, but now there are a number of other businesses that are starting to see their earnings grow, and actions they took during the COVID-19 pandemic are proving beneficial. “Whether that’s accessing new customers or new markets, or becoming operationally more efficient, it’s all now coming back in the quality of earnings and growth they’re seeing,” says Whitworth.

And, of course, many deals will have an international angle to them. Rebecca Rennison, who joined EY as a corporate finance partner in August from PwC in Leeds, says being part of a big firm but having a local presence is key to doing deals that have an international element with businesses from the region. Although now based in Manchester, she will be serving the north of England, including her stomping ground of Yorkshire, where she has advised businesses for 20 years.

“Over that time, I have completed transactions with strategic buyers in Japan, India, China, South Africa, Switzerland, Canada and the US. Now, being part of EY’s collaborative global network in more than 150 countries will be key to providing ready access to potential buyers, and important insight into changing market dynamics on the international stage,” she says.

Dealing with debt

Another current dynamic is pointed out by Owen Malton, head of acquisition finance (north) at Virgin Money (which incorporated legacy local institution Yorkshire Bank). Much of Malton’s current work is in refinancing fully equitised deals that, in part, came to market in anticipation of changes to capital gains tax. “You see the publicity in terms of the deal when it happens,” says Malton. “When you put in the senior debt structures subsequently, it doesn’t really get the same amount of publicity. But that’s what’s coming through right now,
so effectively the adviser community is still very busy as we are.”
Malton has been working remotely from his Cumbrian home, but he says the Leeds market is like a village, where relationships matter. Even so, he says: “Parochialism doesn’t exist anymore, but if you do a deal with someone here, the relationship remains very important, established through mutual trust and respect. Chances are, if you do a deal in the South East, it’s more transient and you possibly won’t see that adviser again. In Yorkshire, business is recurring, so it’s very personable.”

From a PE perspective, LDC’s Smith says: “There’s a feeling – without being parochial – of trying to keep opportunities in the region where it makes sense and you’ve already got that expertise, whether that’s sector, advisory or legal. You don’t necessarily need to go outside, although you might want to use somebody locally but also leverage some of their national skill sets.”

Let’s stick together

Post-pandemic, Smith says, “there’s been a real push to try not to lose that sense of community. Generally, as an advisory and investor community, we’ve all tried to maintain disciplines about connectivity and keeping in touch. There’s a real sense of business community. I was at lunch with a competitor yesterday – we’re up against each other for the same assets, but we also want to share what we see in the market. I think there’s a genuine sense of ‘we’re in this thing together, so we should all be supportive’.”

As the region opens up for business and investment, the stereotypical insularity of Yorkshire is not in question – and you can understand why they don’t need to leave.

About the article

Read the full article in the Corporate Financier October 2021 edition. Access this magazine as well as our extensive archive brought to you by the ICAEW Corporate Finance Faculty.