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    KBS special report – deal activity in the North West

    Manchester

    Since 2013, the UK’s Chancellor George Osborne has made no secret of his plan to create a ‘Northern powerhouse’, rebalancing the economy and driving growth by attracting investment beyond the capital.

    According to Centre for Cities, the Northern Powerhouse accounts for 13.3% of all the UK’s Gross Value Added, compared to the 24.5% that is contributed by London.

    To shift the balance, Osborne plans to improve transport connections between Northern cities including Leeds, Liverpool, Sheffield and Hull, and will unveil new housing, regeneration and education deals.

    The recent visit to Manchester by Chinese Premier Xi Jinping underlined this ambition, and was marked by the new deal offering tax breaks for Chinese firms to relocate to specially reserved offices in Airport City. Manchester Airport will also offer direct flights to Beijing for the first time, which is expected to provide a £50m boost to the city.

    All these initiatives should prove very supportive of the companies powering the economy in the North, and may increase their attractiveness as M&A targets.

    M&A activity in the UK as a whole has been gaining momentum as companies have taken advantage of the record low interest rate environment in the UK to pay down debt and build up the cash on their balance sheets.

    A Deloitte UK CFO Survey for Q3 released in October 2015 suggested that 46% of CFOs believe now is a good time to add risk to their balance sheets, and they view expansion by acquisition as a strong priority for their businesses in the next 12 months.

    Private equity firms in particular are showing a strong appetite for high quality Northern businesses against a favourable backdrop for corporate financing.

    KBS Corporate works with a wide range of clients across the UK, and the North West in particular has proven to be an active region in recent years with many successful company sales. The group works with small and medium-sized enterprises (SMEs) with typical deal values of up to £50m.

    The firm’s Head of Marketing, Gary Edwards, agrees there has been a broad trend towards growing confidence levels among potential acquirers, despite recent tricky market conditions. Improved funding conditions have also helped contribute towards rising M&A activity and dealmaking at higher valuations.

    For example, this backdrop was beneficial to two of KBS’s clients in particular – a husband and wife team running a business in Preston – when they came to sell their company.

    “These clients had been building up their well-managed and cash generative manufacturing business over the last 40 years and were ready to plan their exit strategy ahead of retirement. The food manufacturing sector in which the firm operates has been performing well as demand within the sector has soared in recent years, so there were plenty of interested parties when it came time to sell.  We were able to negotiate a sale of the company quickly and at a premium price. The opportunity attracted 30 expressions of interest and three offers, providing our clients with choice over their exit structure,” said Edwards.

    “On the other side of the fence, we have been seeing a lot more enquiries from companies who have taken advantage of the low interest rate environment to turbo-charge their growth, and are ready to take their business to the next stage with a suitable acquisition. Our job is to help match these potential buyers with the right seller.”

    The Chancellor’s plan could be the catalyst for an even more dynamic environment for SMEs in the North in the future. His intention is clear: “We need a Northern Powerhouse too. Not one city, but a collection of Northern cities – sufficiently close to each other that, combined, they can take on the world.”

     

     

     

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