Within the high-profile world of football, the south coast is overperforming in the Premier League. Brighton and Hove Albion, Southampton and Bournemouth are all in the lucrative top flight. The coastline covering Dorset, Hampshire and Sussex has – in one area at least – a reach disproportionate to its population. And while local advisers and investors can’t compete for megadeals with the big London ‘clubs’, they’re finding there’s plenty of business on their own patch.
“The south coast lifestyle has always attracted successful entrepreneurs,” says Philippa Robinson, a Southampton-based director for Quantuma, “and as a result they have founded and grown businesses all along the coast.”
Like many Premier League clubs, two of those on the south coast are foreign owned: Southampton by Swiss-based Balkan media billionaire Dragan Solak; Bournemouth by the (unsanctioned) Russian-British pharmaceuticals mogul Maxim Demin. But currently the most successful – Brighton & Hove – is owned by Tony Bloom, an entrepreneur who leveraged the success of his sports betting company to buy his home team and grow it into a secure, top-tier club.
Adrian Alexander, Brighton-based corporate finance partner at FRP Advisory, has had a long career in M&A on the south coast. He is a judge on the Sussex Business Awards panel and says: “You see young companies that have seen extraordinary growth, going from a small start-up with a handful of employees to a highly successful mid-size company turning over more than £20m within a few years.
“Brighton is a great place for innovation, with a high retention rate of students-turned-entrepreneurs who stay in the city after university and start up their own business. Successful business owners will always require corporate finance services throughout the course of the business life cycle.”
Changing perspective
The region’s advisers report a pipeline of deals – a combination of those hung over from the COVID-19 period together with new business. The uptick in 2021 continued into the first half of 2022, but the emerging picture for 2023 is, as everywhere, less certain and the nature of the pipeline is changing, says Alexander. There are more requests from businesses looking for fundraising rather than M&A: “There are some good businesses that are financially stretched, although you wouldn’t consider them ‘stressed’. They may be looking to improve their balance sheets or bring in development capital to allow them to move their business forward.”
This view is echoed by Grant Thornton corporate finance director Nigel Le Bas, based in Southampton: “A few businesses might have survived the credit crunch, Brexit and COVID-19, but now they’ve hit the end of that road and want to move on and de-risk as much as possible. And rather than roll the dice again with private equity, they’re happy to cash in and walk away into the sunset with a trade sale.”
This might be what is driving the M&A market in the area, says Le Bas, particularly given the favourable currency markets for US trade buyers, but the huge amount of private equity money still available is underpinning valuations. “Despite that, a lot of vendors we’re working with appear to favour a trade exit.” He says there are increasingly sectors people simply won’t invest in, adding: “That means even more money for the sectors where they will invest, in technology-led or people-led businesses and consultancies, where we’ve seen a fair bit of interest.”
Overseas trade buyers are definitely still interested in coming on-shore, insists Quantuma’s Robinson, who says while private equity funds remain keen to look at both platform and bolt-on investments, “they’re certainly looking much deeper into the pipelines and sustainable profitability of their targets”.
The general uncertainty in the economy is having an impact on the way investors are assessing deals, she adds. “This can result in a structure that reflects actual performance. So far this year, we have advised on three deals where loss-making activities as a result of the pandemic have caused investors to seek exits where we’ve advised on best value and structures.”
People premium
B2B businesses are currently most attractive to investors, says Robinson, with consumer-focused companies seeing minimal market interest. “Services, B2B, anything that doesn’t have huge energy costs” are the companies attracting buyout interest.
However, as possibly expected, Alexander’s restructuring colleagues are busy. “The earthquake has happened in the ocean; the tsunami is potentially on its way. It’s a bit of a question of how big that big wave is going to be. I don’t like to be a pessimist because corporate financiers are born to be optimists, but there’s got to be problems next year.”
Jamie Lane, Bournemouth-based advisory partner at Saffery Champness, says: “There’s a lot of concern around what the economy is going to be doing and where we’re heading; it feels like we are on a precipice. Businesses have lots of upward salary pressure, combined with continued supply-chain issues and excess demand, but are looking ahead thinking we are heading into a recession, so it’s a very strange time.”
Post-Brexit and post-COVID-19, many clients are looking to de-risk with a trade sale. Lane warns that sometimes, because of the way in which a business is run, the acquirer can only come from a limited pool. “Some entrepreneurs haven’t put in other tiers of management that can help with that transition. They’ve limited their audience to trade buyers when going to market.”
There is a lack of a private equity presence in Bournemouth, he notes, which may well be tied up with ‘nervousness’ from local business owners as to how to deal with PE – it’s definitely a chicken and egg situation.
By contrast, Alexander sees Brighton as more of a growing market attracting interest from PE, citing the presence of ex-Hg Capital boss Matthew Rourke’s Cow Corner in the city – its focus has been on buying up independent financial advisers, accountancy firms and B2B services. “Having a fully fledged private equity fund in Brighton is pretty significant for our industry,” he says.
He also speaks highly of the Brighton corporate finance community. Although many firms have moved out of the area over the years to cover the south coast from Reading or Gatwick, FRP, EMC and SRC still have dedicated corporate finance teams in the city.
“There’s two sides to every deal, so we have to help each other,” he says. Having set up a corporate finance forum in the lockdowns, he has kept this going with a monthly online event with speakers from the region’s banks, PE houses and advisers, lawyers, or sector specialists. “We got closer to each other, in a way, when we were stuck at home.”
Local focus
Further west, Le Bas says, “there’s a general acceptance that if we can get local advisers and local lawyers on local deals, that’s better for everyone. There are good lawyers, bankers and private equity firms that spend time getting to know us. One of the beauties of the south is that there’s a vast array of businesses across all sectors. There are tech hubs building up around Bournemouth and Southampton, but the region is quite sector-agnostic with deals of all shapes and sizes.”
Having a broad base of business is something Lane also identifies as the region’s strength. “The area has probably fared better than other parts of the UK in previous recessions. There is a highly skilled workforce across many different industries, which has helped.”
And as the energy crisis hits, the advisers will be hoping that the region’s businesses, like its football clubs, can continue to punch above their weight.
Reef Environmental Solutions
“I can’t really tell whether it’s because more deals are happening or that I just see more of them because I’m known for that sector, but there is a lot of activity in waste and renewable energy,” says FRP’s Brighton-based corporate finance partner Adrian Alexander (above).
One such deal was the sale of Hastings-based Reef Environmental Solutions to London-based waste management company BPR, also known as Paper Round (but changing its name to Recorra in November). FRP advised Reef on the sale for an undisclosed sum, with legal advice from DMH Stallard.
Reef’s core business is confidential waste disposal and sustainable recycling for trade clients. Operating across Sussex, Surrey and Kent, the company has grown every year since its 2015 foundation. Co-managing director Richard Taylor proclaims himself “pleased to have found new custodians for the business who will drive further growth in coming years”.
Alexander says of the process: “We resolved a number of significant issues during the negotiation and completion phase, with Reef’s owners valuing the team’s input into the deal process.”
Paper Round, founded by Friends of the Earth in 1988, also works in commercial recycling and won a competitive process that Alexander says included “high levels of interest in the company from trade buyers”, which was a “testament to the quality of the business”.
Quercus Corporate Finance worked for the buyer. Mark Whelan, the Quercus partner who led the deal, says: “The enlarged business will offer greater opportunities for the management and staff of both businesses in Sussex and beyond.”
First published in Coporate Financier, Issue 246, October 2022