As an M&A partner in Deloitte’s financial advisory practice in Leeds, Dan Renton is adamant: “We’re not a subsidiary of Manchester or Birmingham or anywhere else. There’s a very strong, independent Yorkshire and North East deal community, serving clients well, often on large, difficult transactions.” 

That independence, he thinks, is a function of the people in the region – notorious northern grit, entrepreneurial determination and a sense of place that sees companies and dealmakers “want to achieve good outcomes, but also do good work in our community”. 

With many private equity houses consolidating their ‘northern’ operations in Manchester, Renton thinks this has counterintuitively benefited Yorkshire because companies can spread their net wide for funding options: “Indigenously, private equity is quite limited. A decade ago, there were a lot of firms with offices in both Leeds and Manchester. You would think the movement of many operations to Manchester would be difficult for our region, but we’ve adapted by building great relationships with investors not just from west of the Pennines, but from London, too. We gained really good access to a private equity market that can take the time to understand and invest in the fabric of this community.” 

As elsewhere, private equity (PE) – particularly at BGF, LDC and LivingBridge – has been active over the post-pandemic period, but dealmakers in the region are also reporting significant corporate trade activity, with Renton’s pipeline “probably split quite evenly between the two”. 

In Newcastle, partner and head of Ryecroft Glenton Corporate Finance Carl Swansbury, who runs a 22-strong lead advisory team, says: “In 2020, private equity investors were cautious and many transactions were funded with debt. This has resulted in a noticeable increase in the number of debt providers who have, and are able to, support regional M&A transactions.”  

These players have remained, Swansbury says, citing the example of ThinCats backing the management buyout of recruitment firm Nigel Wright Group (see box ‘New signings’). 

“We’ve also seen debt providers like Shard Credit Partners,” he adds. “It’s London-based, but has been investing in the North East and has supported many businesses who were either going through a change in ownership transaction or required growth capital to scale.” 

LDC, Perwyn, Livingbridge, BGF, Mercia and Maven are among the private equity investors active in the region now. “In 2020 many investors were observing the market and supporting their current portfolio companies with bolt-on acquisitions rather than investing in new businesses,” Swansbury says.  

“But private equity is now looking to deploy dry powder and in the past 12 months we’ve seen lots of active debt providers and motivated vendors, given the on-going risk of increases in capital gains tax,” he continues. “That makes for a very buoyant M&A market, despite the obvious economic and political headwinds.” 

Innovation hubs 

University incubators and science parks are also a fertile ground for new businesses in the North East, as they are in Yorkshire, too. Newcastle University’s Helix science and tech centre is emblematic of the endurance and industry of the city. The 24-acre development is built on the site of the old Scottish and Newcastle brewery – which was itself constructed over an old shallow-seam mine. 

Swansbury says his is “a North East firm with a national focus”. The sectors where he has seen the most activity include technology, healthcare, professional services, human capital and engineering. Those sectors have been the subject of increasing interest from overseas trade buyers, in part due to the weakness of sterling. “During COVID-19, businesses in these sectors were insulated from the macroeconomic downturn, and are likely to be largely insulated from what we anticipate to be a short, sharp recession,” he adds. 

Swansbury also thinks the current headwinds are the harbinger of a ‘reset’ rather than a full-blown recession: “Because the current economic environment, in particular inflation, cannot continue, there needs to be a reset. I’m somewhat optimistic about what that reset will look like. By late spring next year we’ll hopefully be able to look back at the contraction and look forward positively.”  

Deloitte’s Renton says that as a corporate financier you have to be “cautiously optimistic”, to seek out opportunities: “But there are definite headwinds to navigate and nobody is under any illusion of their potential ferocity. However, there’s a degree of resilience and maturity in our economy that’s been built up over a long period of time. Many of these businesses have navigated the financial crisis and Brexit, so frankly this is another challenge they’re probably reasonably well prepared for.” 

Also, investment opportunities in the region are complemented by younger businesses, particularly in the digital space. “Business technology is not really a discretionary spend because clients or contacts will struggle without the help it can provide,” says Renton. 

Beyond financial centres 

Leeds-based Grant Thornton transaction advisory services partner Dan Rosinke has worked on transactions in the region for more than 20 years and says mid-market deal activity feels as busy as at any time he can remember: “We’ve always had a strong market in Yorkshire and the North East. We are increasingly seeing more corporate buyer interest, including investment from overseas. My workflow was weighted towards private equity for the past two years or so, but we’re increasingly seeing a pick-up in corporate activity.” 

Originally from Hull, Rosinke emphasises that while the corporate finance specialists have mainly assembled in Leeds and Newcastle, many of the best opportunities are in the wider region. “There are some incredibly successful businesses in Sheffield, Hull, Bradford and the North East, and if you’ve developed innovative manufacturing with clear growth opportunities, you’ll be attractive to investment,” he says. 

Renton says South Yorkshire, which has previously been characterised by manufacturing and industry, “has done a great job moving from the old economy into advanced manufacturing and industry 2.0. About 20 years ago, there was a strong manufacturing industrial base that was under significant pressure and many of those businesses have reinvented themselves as advanced manufacturing. It’s easy to jump on that technology bandwagon as being the only driver of growth, but it’s just not true. There’s high-quality advanced manufacturing, with high IP and good value-added all across the Yorkshire and North East region.” 

Rosinke agrees and says these areas have seen investment. As an example, he cites digital risk management company Crisp Thinking, which was set up in Leeds and received several series of angel, venture capital and private equity investment before being sold to the US multinational Kroll. “It developed world-class AI and now works with some of the biggest tech companies in the world,” says Rosinke. “If you looked at Leeds 20 years ago, that was unimaginable, but it feels normal now.” 

Healthy competition 

Leeds has always had a strong financial services presence, centred around Park Row, East Parade and Park Square, but Rosinke says that “the quality and breadth of local advisors has just got better and better, whether lawyers, accountants or boutiques”. 

He describes a “northern market” cross-over between Manchester and Leeds, as well as a “North East market” that straddles Leeds and Newcastle. “There’s healthy competition,” he says, “but I think healthy competition and more firms doing deals in the region actually builds opportunity for all of us because it creates more activity. You might be in competition with some firms on one transaction, but you’re working with them on the next deal, which creates a positive culture and collaboration in the local market.” 

Local knowledge 

Feet on the ground are vital, particularly when offering ideas to owner-managed businesses that may not have considered their investment options. “If people aren’t giving you the ideas – the opportunity to expand your business or to exit, then deal-flow halts,” Rosinke explains. “It’s that sort of intellectual capital you need to put out there, as well as financial capital. 

“We’re all embracing remote working, and utilising sector knowledge in wider teams is becoming increasingly important on transactions. But if you have people on the ground with local offices, that’s what drives deal volumes. It’s no coincidence that where you have private equity offices, you get more deal activity, and we’ve seen a recent increase in the opening of offices both in the North East and Yorkshire with BGF, LDC and Foresight all expanding their regional footprint.” 

A growth in corporate finance talent has also been key in and around Newcastle, says Ryecroft Glenton’s Swansbury. “The North East, with the talent we have, our skills base in the region and the lifestyle we can offer, has seen funders look positively at the area, and we’re seen as a geography for outside funders where there are great high-growth businesses in sectors such as technology, engineering and manufacturing and professional services, to name just a few.” 

With hubs in leafy Jesmond and on elegant Grey Street, Newcastle today has a more mature M&A community, and more competition. “That creates deal flow, which in turn attracts private equity and debt funds to the region. It becomes a self-fulfilling prophecy.” 

Notes of caution 

Head of corporate finance, Ryecroft Glenton, newcastle 

“The only thing I would be cautious about is how interest rates could affect businesses’ ability to service debt. Coronavirus business interruption loan scheme-type funding will now not only have to be repaid, but the interest serviced. So forecasting has never been more important. I think businesses need to look at their balance sheet and ask whether refinancing or restructuring the business debt facilities can yield the needed headroom during a contraction.” 

Dan Rosinke 

Grant Thornton transaction advisory services partner, Leeds 

“We’ve had a record two years of deal activity, but it’s harder than usual to predict what’s to come next year. But we came into this year half expecting a fall in the level of transactions, yet our volumes have held up – testament to the quality of businesses and advisers in the region and the appetite of investors for quality assets even when the wider picture is problematic. 

“Restructuring lawyers and accountants feel they’ll be increasingly busy in 2023 with distressed transactions, which have reduced recently due in part to government intervention and supportive funders. With the breadth of companies, sectors and specialist advisers across the region, I believe we can be confident that the corporate finance community will remain active and drive deal flow.” 

Dan Renton 

M&A Partner, Deloitte, Leeds 

“The note of caution in the market is understandable, but it’s not turning the market off. There are elements of the market that remain open for the right reasons, where we’ve got good businesses representing opportunity.  

“What will characterise 2023 will still be a good level of activity, but with more process and preparation. Private equity continues to invest in primary deals – the first time a business takes investment. But increasingly in 2023 I think we’ll see more follow-on investments, including opportunistic bolt-ons where perhaps a business has some financial challenge and is looking for an answer.”  

New signings 

In February this year, the largest specialist recruitment firm in the North East, Nigel Wright Group, completed a successful MBO. Management acquired all outstanding equity from Baird Capital Partners Europe and Beechbrook Capital, with the backing of a loan from alternative lender ThinCats. The process took around six months and saw management move on from the private equity backing that had been the ownership structure for 10 years. The transaction was advised by Ryecroft Glenton and Womble Bond Dickinson. 

Aiming to expand across the UK and Europe, 2021 was the company’s most successful year – expanding into Yorkshire from its Newcastle base, with an office in Leeds. It also moved into the German market, opening its sixth overseas office.  

Further acquisitions are in the offing. Ryecroft Glenton’s Nick Johnson says: “It’s very rewarding to have advised and supported the management team on this final phase of the MBO. I have no doubt that, with ThinCats’ support, we will see further continued growth in Nigel Wright’s operations and strengthening of its position in key markets.”