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ISSUE 180MARCH 2016ICAEW.COM/CFF


...BUT WHERE NEXT FOR DEBT MARKETS?

VITALITY IN THE VALLEYS: THE FUNDS BRINGING INNOVATION AND 40,000 JOBS TO WALES OUT OF AFRICA: TRUWORTHS' £256M ACQUISITION OF SHOE RETAILER OFFICE

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3CORPORATE FINANCIER MARCH 2016

Contents

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ET

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Editor’s letterMarc Mullen looks at uncertainty ahead of the EU referendum

Faculty newsThe Lord Mayor discusses cyber security in Dubai and Samena Capital joins the faculty

In numbers

No one’s infallibleJon Moulton asks if corporate governance is over-rated

Steeling the showWith a steel industry in decline, Wales is fi ghting back by investing in emerging industries

On the right footJason Sinclair considers the wider implications of the recent aquisition of Offi ce by South African retailer Truworths

Plenty of choiceGrant Murgatroyd looks at the vast array of debt options available to investors and asks: how much longer will the liquidity last?

Voices of experienceCorporate Financier gets dealmaking advice from new board members Frank Carter and Philip Robert-Tissot

Making wayQuantitative easing has been benefi cial to many, but for how long? The experts share their views

Appointments

On my CVDiane Gwilliam, RSM

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@ICAEW_CORP_FIN Join the faculty’s LinkedIn group: ICAEW Corporate Finance Faculty icaew.com/cff

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March 2016 Issue 180


ISSUE 180MARCH 2016ICAEW.COM/CFF


...BUT WHERE NEXT FOR DEBT MARKETS?

VITALITY IN THE VALLEYS: THE FUNDS BRINGING INNOVATION AND 40,000 JOBS TO WALES OUT OF AFRICA: TRUWORTHS' £256M ACQUISITION OF SHOE RETAILER OFFICE

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4 MARCH 2016 CORPORATE FINANCIER

WELCOME

THE FACULTYMark PacittiChairman

Giles Derry Vice-chairman

David PetrieHead of Corporate Finance

Katerina Joannou Manager, capital markets policy

Shaun Beaney Manager, Corporate Finance Faculty

Lorraine Sinclair Services manager+44 (0) 20 7920 8685

Veronica ZabriniOperations executive+44 (0) 20 7920 8440

[email protected]

Marc Mullen [email protected]

David Coffman, Mo Merali, Victoria ScottEditorial advisers

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Corporate Financier is distributed to members of the Corporate Finance Faculty.

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© ICAEW 2016. All rights reserved. The views expressed in this publication are those of the contributors; ICAEW does not necessarily share their views. ICAEW and the author(s) will not be liable for any reliance you place on information in this publication. If you want to reproduce or redistribute any of the material in this publication, you should first get ICAEW’s permission in writing. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by ICAEW, the publishers or the author(s). Whilst every care is taken to ensure accuracy, ICAEW, the publishers and author(s) cannot accept liability for errors or omissions. Details correct at time of going to press.

Icaew.com/cff

Marc Mullen Editor

Death, taxes and...

There are only two things certain in life, as the saying goes. And while immortality remains hard to come by, these days some taxes seem more negotiable than others. But, fear not, another certainty has now emerged – uncertainty.

Last month, the starting pistol was fired for the UK referendum on EU membership. Sterling had already fallen 4% against the dollar in 2016 – before the announcement. But when London’s mayor Boris Johnson joined the pro-Brexit camp, it fell 2.4% to its lowest value against the dollar since 2009. Attributing that to ‘BoGo’s’ typically/deliberately shambolic entry to the fray seems tenuous. When the markets opened on the Monday, they were quite simply spooked – yet more uncertainty.

Whichever way the vote goes on June 23, the backwash is unlikely to lap gently against the shores of the continent. What will happen if a majority of Brits vote to leave? Well here’s one – just one – scenario. The swing vote might hinge on immigration. If the UK leaves, its borders could be raised. Free movement of people and goods no more.

Then there are the peculiarities of the UK. The country could then face another Scottish referendum. And if Scotland decides to shun the UK in favour of the EU, Hadrian’s Wall would be rebuilt (I accept this might appeal to some people on both sides of the border).

And Wales and Northern Ireland? Both have seen significant long-term investment by Brussels. The referendum could bizarrely end up creating a united Ireland of sorts. Meanwhile, could Spexit, Itexit, Frexit and Germexit follow a Brexit?

If the UK votes to stay in, it might be because the “Europe is awful, but I cannot face life on my own” camp has won the day over the “Europe is awful, I’m orf!” party. The marriage may have been saved, but romance not rekindled. Cue revenge affairs and candlelit dinners scraped straight into the bin.

Sometimes a bit of uncertainty creates corporate finance opportunities. But total volatility tends not to. Economies need stability for businesses and investors to make big decisions. They are investors – not gamblers – who need to rationalise the risks and rewards.

One thing that is certain though: these are uncertain times. What is uncertain is whether they will get even more uncertain yet.

5

Faculty news

NEWS & EVENTS

CORPORATE FINANCIER MARCH 2016

The Lord Mayor of the City of London, Alderman the Lord

Mountevans, joined the Corporate Finance Faculty in Dubai for a discussion of cyber security threats to corporates and organisations.

While Lord Mountevans gave the keynote address, head of Corporate Finance David Petrie chaired the discussion.

Attacks, Lord Mountevans said, are becoming increasingly sophisticated; estimates suggest they affect about 90% of large organisations around the world. As a result, organisations must treat cyber security as a priority.

ICAEW members, as well as other members and guests of the Corporate Finance Faculty’s Middle East network, gathered at Jumeirah Emirates Towers on 24 January to discuss how organisations can address the threat. Panellists included Patrick MacGloin, Middle East

FACULTY TAKES CYBER SECURITY TO DUBAIcyber risk and privacy leader at PwC; Nick O’Connell, partner, TMT at Al Tamimi; Darren Mullins, director, forensic technology at Deloitte Corporate Finance; Simon Dodsworth, SVP, MENA regional head, financial and professional risks at Marsh; and Ben Downton, principal consultant at MWR InfoSecurity and Control Risks.

Lord Mountevans said: “The digital age, which brought the world ever closer in trade, innovation and accountability, has also brought new and dangerous cyber threats – these are unseen, intangible and largely unmeasured.

“Cyber attacks don’t recognise borders and cost businesses as much as £400bn every year. In order to fight cyber attacks, cyber security has to be globally ambitious and must work internationally with all parties.”

mitigate risks; and asking if they have a plan in place for cyber attacks.

Panellists encouraged advisers to keep communications simple when it comes to M&A, recommending protecting devices, and suggesting that a fresh cyber-security assessment is undertaken with each deal.

“No organisation or transaction is immune to the challenges posed by cyber security,” said Petrie. “The key to effective management is identifying and understanding the threats, level of the risks involved and putting in place security measures that are appropriate and proportionate to address them.”

The visit to Dubai also provided an opportunity for Petrie to undertake a series of back-to-back meetings with member firms in the emirate.

Visit icaew.com/cfcyber

Panellists agreed that there is no easy solution to respond to cyber attacks. Cyber risk is a business risk that must be managed within an overall information and risk management framework.

Speakers outlined simple measures businesses can take:

identifying where the value lies in what their business is doing;

knowing the weak points of the business;

understanding to whom data is given;

understanding what needs to be done to

Lord Mountevans (left) and ICAEW head of corporate finance David Petrie (above right) were in Dubai to discuss cyber security threats to global business. Main picture, L-R: Patrick MacGloin, Nick O’Connell, Simon Dodsworth, Darren Mullins and Ben Downton

Cyber attacks affect nearly 90% of large organisations around the world

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NEWS & EVENTS

MARCH 2016 CORPORATE FINANCIER

ICAEW CONTRIBUTES TO ‘ACCESS TO FINANCE’ CONSULTATION

The Corporate Finance Faculty has co-ordinated ICAEW’s formal response to the consultation about access to finance by the UK’s Business, Innovation & Skills Parliamentary Select Committee.

The committee is chaired by Labour MP and ICAEW member Iain Wright (above left). It has consulted on how the landscape for access to finance has changed since the end of the financial crisis, which government policies have proved effective and how seed, venture and growth finance could be strengthened, monitored and regulated.

The ICAEW response, co-ordinated by David Petrie, ICAEW’s head of corporate finance, and Katerina Joannou, manager, capital markets policy (above right), outlined how the picture for access to finance in the UK has brightened considerably. Better advice and information about sources of equity and debt had helped, including

The Business Finance Guide published by the Corporate Finance Faculty and the British Business Bank in June 2014.

ICAEW has also called for a degree of caution about how some high-risk forms of alternative finance are promoted to private investors and potential investee companies.

ICAEW’s Tax Faculty and its Financial Services Faculty also contributed to the response to the consultation.

Petrie said: “The deal-making environment has improved a lot in the past few years. There’s no shortage of debt for most deals, although some early-stage businesses are still struggling to find appropriate advice and funding.

“That’s particularly the case for fast-growing, capital-intensive businesses, such as those at the cutting edge of science and technology R&D.”

The deal-making environment has improved a lot. There’s no shortage of debt for most deals, though some businesses are still struggling

SAMENA CAPITAL JOINS THE FACULTYThe multinational principle investment group Samena Capital has joined the Corporate Finance Faculty. The firm has offices in London, Dubai, Hong Kong and Mumbai, with a strategic presence in Singapore. The group invests across asset classes, including private equity and corporate credit, in India, Asia, the Middle East and North Africa. It has $745m (£515m) of assets under management, committed by a shareholder and investor network, including high and ultra-high net worth individuals, corporate and institutional investors and sovereign wealth funds. In June 2014, the firm acquired a significant stake in RAK Ceramics, a $1bn-turnover Abu Dhabi-listed ceramic and sanitary ware manufacturer.

FACULTY’S LATEST CREATIVE CONNECTION

The Industry & Parliament Trust invited Shaun Beaney (left), manager of the Corporate Finance Faculty and co-author

of the ICAEW guide Creative industries – routes to finance, to take part in a breakfast forum about investing in culture at the House of Commons on 26 January. Other guests included representatives of the arts, philanthropy and corporate sponsorship, peers and MPs. Lord Inglewood ARICS DL chaired the forum and the guest speaker was Des Violaris, director of arts and culture at BP.

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NEWS & EVENTS


STANDING UP FOR EIS, SEIS AND VENTURE CAPITAL TRUSTSICAEW responded to the European Commission’s Call for evidence, EU Regulatory Framework for Financial Services, at the end of January. Katerina Joannou, manager, capital markets policy, led the response on behalf of members, which was particularly forthright on the issue of the impact of changes to the UK’s well-established tax-advantaged venture capital schemes. Changes from updates to the General Block Exemption Regulation and, in some cases, the UK’s application, significantly reduce the number and range of companies that qualify for such support. The outcome is seemingly at odds with the objective of Capital Markets Union –broadening the range and availability of finance for SMEs.

Issues highlighted related to the first commercial sale, knowledge intensive, turnover and investor independence tests. The response also drew attention to problems caused by the prohibition on using state-aided funds for business acquisitions, which fails to acknowledge the vital importance of such acquisitions, particularly for

growing technology companies. The remedies are to remove

either the age restrictions or the use of the sale or acquisition of any entity for determining the date of first commercial sale. The state aid qualifying conditions should be simplified and clear guidance provided on the grounds for approval.

The full text of the response can be found at icaew.com/cff

ICAEW FORUM FOR PRIVATE INVESTORSICAEW’s Financial Services Faculty has organised a workshop and panel discussion in London on 23 March to look at opportunities for personal investment in the UK’s Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs). EIS funds and VCTs are major sources of equity finance for UK start-ups and SMEs.

The evening forum will assess any changes that would have been announced in the Budget on 16 March. Speakers include Sarah Wadham, director general of the EIS Association (pictured); Mark Williams, head of strategic partnerships at Octopus Investments; Frank Haskew, head of the Tax Faculty, ICAEW; and Jamie Arthur, sales director, Bluefin Group.

The forum has been organised by John Gaskell, financial planning & advice manager, ICAEW. To book, visit icaew.com/fsf, email [email protected] or call +44(0)20 7920 8685.

SYNAPSE INFORMATION CONNECTS WITH CORPORATE FINANCE FACULTYSynapse Information, a fast-growing financial technology business based at Birmingham Science Park, has joined the Corporate Finance Faculty.

Founded in 2012 by a British team of experienced Silicon Valley entrepreneurs and technologists, including chief executive Brian Donnelly, Synapse has developed a Cloud CFO system to automate the month-end financial reporting process for group companies, including consolidated management, statutory reporting and budgeting, forecasting and cash flow support. Synapse’s customers include a global Swedish retailer and a leading UK Bank. Synapse has R&D funding from government agency Innovate UK, as well as support from regional and university funds.

Finance and operations manager Tineke Booth (pictured below), an ICAEW member who joined Synapse from KPMG in March 2015, has helped Synapse to secure the external investment.

“The Corporate Finance Faculty is a perfect forum for Synapse to engage with experts,” she said.

The remedies are to remove either the age restrictions or the use of the sale or acquisition of any entity for determining the date of first commercial sale

8

of all European venture capital activity in the quarter

BRIEFING


In numbersRecord number of small businesses in the UK and CEOs planning to hire in 2016, but more management training needed in SMEs

SOURCE: BRITISH BUSINESS BANK SMALL BUSINESS FINANCE MARKETS 2015/16

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5.4M a record number of small businesses in

the UK

56%

of small businessesplan to grow over

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$9.5BN

total value of UK deals by Japanese

aquirers in 2015 ($0.67bn in 2014)

43%

of bosses in UK bubusisinenesssseses ssayay

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3.5%increase in global M&A

forecast for H1 2016

raised by UK venture capital-backed companies

in Q4 2015

$1.3BN

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SOURCE: ANSARADA SURVEY OF 500 INVESTMENT BANKERS (BRITISH-BASED)

23%

of deals are held up by indecisive

sellers

$53,

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124%

on 2014, when $23.9bn was completed

the value of non-tech M&A

globally

41%of UK SMEs do not provide management training for

their employees

14%

held up by indecisive buyers

Q4

2015

Q4

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Q3

2015

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9.3xthe UK private

company price index for Q4 2015

DOWN FROM

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10.9xthe UK private

equity price index for Q4 2015

UP FROM

10.7X

SOURCE:DELOITTE


Who’s next?

MOULTON STEEL

In its early days, corporate governance was mostly about protecting shareholders

from the activities of rogue managers. Innovations on this theme then seemed like a really good idea. A remuneration committee (remco) to stop directors paying themselves ridiculous amounts? An audit committee to ensure shareholders get a clear and honest picture of business performance and position?

But what happened? Plc salaries accelerated well clear of the rest of the UK economy. Remcos decided to pay top-quartile rates. But as soon as more than 25% of companies adopt that policy, the dog begins chasing its tail.

Novel ways to enrich management, with long-term incentive plans of unknowable benefit to companies, were nonetheless increasingly adopted by many remcos. Perhaps all it did was demonstrate their intellectual prowess. But the recipe for epidemic remuneration growth had been well established. Crucially, no one knows if these massive pay rises improved corporate performance.

Audit committees probably did achieve some good, where they picked up on less than frank or honest conduct. It may just be coincidence, but since audit committees arrived, public company accounts have got progressively less understood by all but a tiny minority of readers. That minority is comprised of regulators, audit firms and audit committee members. The use of incomprehensible accounts

rendered their jobs more and more indispensable. Investors simply stopped trying to read accounts.

Based on these perceived successes, the reach of corporate governance has steadily been extended. It is now in the hands of the Financial Reporting Council (FRC), whose pronouncements on it grow ever wider and more confident. Conclusions are spouted without much, or sometimes even anything, in the way of evidence.

The latest ex-cathedra pronouncement is about succession planning. The FRC paper on succession planning is hopelessly full of dangerous assumptions: “An effective board must take the lead in shaping and developing a sustainable corporate culture.” Why is sustainable inherently good? Sometimes change is far better. Apple?

There are practical problems. Often the best CEOs simply will not tolerate succession planning for themselves. Succession planning can result in substantial costs, keeping good-quality people waiting in the organisation. Succession planning unsettles existing staff or directors. Having a designated replacement

waiting for your job is a good way to start a constructive dismissal, or age discrimination, case. In smaller quoted companies the practical issues are really quite severe. They cannot possibly afford the luxury of a CEO-in-waiting.

The FRC assiduously avoids these issues, declaring that the absence of a succession plan is an indicator of poor governance.

DEBATE OR NOT?Some of it ventures into ‘apple pie’ territory. For example: “Well-functioning boards are able to reach full agreement on strategic issues through an honest and open debate.” Maybe, but diverse boardroom views may actually be a good thing. Indeed, a few pages later the FRC makes a U-turn: “The major benefit of diversity is avoiding groupthink.”

What we should really worry about is the trend towards prescription on how companies should be run. Especially when that prescription comes from ill-qualified souls with very little evidence to support their pronouncements. Imposing good practice by an organisation not designed to generate such, must in itself be bad practice.

Really excellent innovative companies, like the large US technology stocks, often have poor corporate governance and tyrannical CEOs. Investors love many of these companies – and so they should, given the great results they deliver.

The FRC’s paper on succession planning is hopelessly full of assumptions

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No one is infallible says Jon Moulton, contrary to what the FRC would have us believe about its infallibility


POST-COAL POST-STEEL POST-HASTEThe demise of the Welsh steel industry grabbed the headlines in January. But, in February, Aston Martin announced 75 jobs. Jason Sinclair looks at how Wales is redefining its industrial credentials

When investors think M4 corridor commerce, it is more likely that the tech and communications giants

headquartered along the Thames Valley stretch of the motorway are what spring to mind. But further west, the M4 takes in 75 miles of south Wales. Some 20 miles shy of its end point in Llanelli, an elevated section of the motorway offers a vista of the heavy industry, and not only the (former) steelworks of Port Talbot.

Before that, the journey takes in more subtle images of business, largely focused on enterprise zones, including those at the universities of Cardiff and Swansea. The native corporate finance community has grown to service this local business environment, and at its heart is a Welsh Assembly initiative – Finance Wales.

Established in 2001, Finance Wales is a subsidiary of the Welsh government. It manages six funds for business, and has more than £400m assets under management. It claims to have created, or safeguarded, almost 40,000 Welsh jobs.

When it comes to the Welsh corporate finance community, Gareth Price, who manages a portfolio of equity investments at Finance Wales, says: “It is a relatively small market, in which many people know each other well. Given Finance Wales’s position in the market, we work pretty regularly with many firms.”

Price stresses that the responsibilities of Finance Wales reach far beyond the M4: “While a lot of

“Most of our investments are development

capital – covering early stage tech

university spinouts to more

established companies”

Gareth Price, equity investment portfolio

manager, Finance Wales

activity is based in and around Cardiff, we invest across the whole of Wales, up to the north coast.” For example, Price says businesses in North Wales, using Manchester for corporate finance, consider that channel rather than Cardiff for such advice.

FLEXIBLE FUNDING“We invest in a number of funds from commercial or private sources,” says Price. “But a number of funds are those the Welsh government has given us to manage. The Wales Micro-business Loans Fund and the £40m Wales SME Investment Fund are backed by government and Barclays. Because of our backing from Welsh government we don’t take over 50% stakes in businesses. Profits create a legacy for future investments.”

The service provides anything from £1,000 microloans to seven-figure tranches of debt, equity or even mezzanine finance. Finance Wales’s agility when it comes to providing working capital, and the partnerships it has with local private equity and angel investors, means it is approached by businesses regardless of stage, sector or location (as long as they are based in Wales).

Price adds: “There is a distinction between investing and M&A. Most of our investments are development capital – we cover everything from early stage tech university spinouts to investments in more established companies – and that’s across all sectors. In M&A, we’re seeing quite a few succession deals, with larger MBO deal flow. Our

£400MASSETS UNDER

MANAGEMENT AS A RESULT OF WELSH

INVESTMENT


research suggests that’s going to be a continuing trend. We help get deals going that make sure the existing owners achieve value, and that the new managers, who can move the business forward, have the capital to make the deal.”

NEW DIRECTIONGeraint Rowe, a partner at Gambit Corporate Finance, has worked with Finance Wales on a number of deals. He sees some differences with the Welsh exit market when compared to the UK norm: “Only 3.5% of companies in Wales have pursued a flotation, but 25% exit before their fifth birthday and average sizes are smaller.”

He says the explanation for this is that an entrepreneur is perhaps less ambitious in Wales than in the rest of the UK. “Put simply, the amount of money you need to achieve to become financially secure in Wales is less than in some other parts of the country”.

But this attitude is changing. Finance Wales-backed Diurnal has just floated on AIM with lofty ambitions (see case study, right). The Welsh economy was historically manufacturing-based, and the decline of manufacturing has led to a transfer to a service economy, backed by commercial and financial institutions.

Finance Wales provides an important element of backing to Wales’s transformation to a service economy. Price says: “I think Finance Wales probably has the most complete offering of the

“We are buillding a portfolio with

real strength and depth”

Melanie Goward, deputy fund manager of

technology ventures, Finance Wales

ROADSHOW: WALES

HEALTHY RETURNS In December last year, Diurnal completed a successful £30m IPO on AIM. The Cardiff-based company, which develops innovative approaches to drug delivery, is the third company in Finance Wales’s technology ventures portfolio to be listed on AIM along with MedaPhor and Q-Chip (Q-Chip listed following its acquisition by Midatech). Rich in IP, these fast-growing businesses have raised about £67m in the past 18 months, creating high-calibre jobs in the region.

Finance Wales was a cornerstone investor in Diurnal, making a seed investment in 2009. “It was our investment that first attracted this impressive company to Wales,” says Melanie Goward, deputy fund manager in Finance Wales’s technology ventures team. “It is a significant milestone for Diurnal, and another significant milestone for ourselves. I am confident it will inspire more companies in our growing technology ventures portfolio to follow Diurnal’s example and aim high.”

Diurnal’s two leading product candidates are in late-stage clinical development targeting diseases of cortisol deficiency. Dr Martin Whitaker, CEO of Diurnal, is certainly aiming high: “Our vision is to become the world’s leading endocrinology specialty pharma company, targeting under-served patient needs in chronic hormonal diseases. We have identified a number of such needs, which we estimate represent a combined market opportunity of more than $11bn (£7.6bn).”

With seed and early-stage capital in short supply since 2007, Goward says such capital has been available in Wales for some time. The European-backed JEREMIE Fund was launched in 2009, and then the Welsh government launched the Wales Technology Seed Fund. “These have had a real impact, enabling us to make seed and series A investments in over 50 innovative technology ventures,” says Goward. “We have also provided follow-on capital to help these businesses to scale up.”

Finance Wales’s capital has also boosted co-investment levels – £56.2m in the last financial year – with interest coming from investors outside the country. Pentax Medical joined in on Creo Medical’s most recent funding round, for example.

“Over the years we’ve built up a strong co-investor network,” says Goward. “But in the last year, we’ve seen interest from angel, corporate and institutional investors rise significantly. We are building a technology ventures portfolio with real strength and depth. In life sciences, for instance, the portfolio has companies working on new approaches to wound care, diagnostics and imaging, medical devices, IT systems and pharmaceuticals.”

CASE STUDY

Ty Hywel, the offices of the Welsh Assembly (left), are at the heart of new Welsh business; as the steel industry

collapses (below right) Aston Martin (below) announces 75 jobs

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UK’s regional funds, from start-up to established business investments.”

Rowe says the openness of the private sector is another element of the success: “The Welsh banking and legal communities are tight-knit, but I would say the lead advisory is not – a possible reason being that there are no barriers, with many clients domiciled in London. Going above a certain transaction size, advisory firms tend to be sector, not region, focused. Transactions in Wales aren’t usually generated by lawyers, but by lead advisory. Our referrals from lawyers are from other parts of the country.”

EXPANDING HORIZONSPrice says the advisory network is “a key channel to market for us, because they are resourced for investment-ready deals”. He highlights the IT software and service sectors, and medical technology, as sectors that are enjoying growth, while Rowe points to IT and life sciences enterprises that have often spun out of South Wales’s universities.

With the end of mining, and now steel, plus the continuing decline of manufacturing, it is essential for the Welsh Assembly, and Finance Wales, to continue to do all they can to encourage new entrepreneurship and create jobs in the region. Perhaps then thoughts of the M4 corridor will gain a new perspective.

...AND MAGGOTSBeing a ‘larval debridement specialist’ might not sound like the best elevator pitch, but Bridgend-based BioMonde has proved that. In 2014, it secured £3.5m of funding through Finance Wales and Oxford Capital Partners. Gareth Price of Finance Wales said: “Our relationships with investors such as Oxford Capital Partners pay dividends for Welsh businesses, attracting additional capital as well as valuable expertise.”

In layman’s terms, the company develops products for “maggot therapy” using the larvae of the greenbottle fly (below) to remove infected tissue from serious wounds.

Finance Wales first invested in the company in 2005, when it was spun out of the NHS; Geraint Rowe at Gambit advised on the recent fundraising.

The firm already has facilities in Hamburg and Bridgend. It will invest in a manufacturing site in Florida – the US is a large market for serious wound therapy – as it sets its eyes on US expansion.

JELLYFISH... Jellagen was founded in 2013 and is based in the Pembrokeshire Science and Technology Park. In 2014, Finance Wales and six angel investors linked to Xenos, the Wales Business Angel Network, provided £550,000 of structured funding. The company had “come up with a novel way to develop medical-grade collagen by harvesting collagen from jellyfish, which has significant potential in a range of applications”.

“Transactions in Wales aren’t usually

generated by lawyers but by lead advisory”

Geraint Rowe, partner,Gambit Corporate Finance

CASE STUDY

CASE STUDY

Extracting collagen from jellyish (left) is indicative of the swing from heavy industries like steel (above) to more nuanced scientific innovation

Creative industries – routes to financeA guide to sources of funding and investment for arts, cultural and creative organisations

A unique overview devised by the Corporate Finance Faculty with the Creative Industries Federation. Featuring 100 UK sources of public, private and philanthropic investment, information and advice. Co-authored by Shaun Beaney and John Kampfner. Get creative.

To download a free copy, visit icaew.com/creativeindustries or to request a printed copy email [email protected]

@ICAEW_CORP_FIN #RoutestoFinance

ICAEW Corporate Finance Faculty

BUSINESS WITH CONFIDENCE icaew.com/cff

‘ Creative industries – routes to finance will do much to support the ongoing success of the UK’s creative industries.’


SOLE TRADERS Is the sale of shoe shop chain Office to a South African retailer the first step in a continental invasion? Jason Sinclair looks at exit options

he strides the globalisation of the retail industry has taken was summed up pretty well

with a deal completed in December last year – South African fashion retailer Truworths’ £256m acquisition of a majority stake in British shoe retailer, Office. The deal provided an exit for Silverfleet Capital, which had acquired the business in 2010 and rolled it out across Europe.

Office has come a long way since it was set up 35 years ago as a stall at Hyper Hyper – the fashion emporium at Kensington market that offered concessions to young designers. Back then, the 1980s fashionistas would have had difficulty imagining Office becoming a 100-store operation, let alone being owned by a Johannesburg Stock Exchange-listed retailer.

The transaction followed a pattern that has seen South African retailers looking for a foothold in Europe. Truworths’ South African rival, The Foschini Group, recently bought UK-centred Phase Eight clothes retailer, giving it access to the European market. In May, South African retail mogul and billionaire Christo Wiese’s investment firm Brait paid £780m for New Look – the British fashion retailer – which has expanded its global presence with the backing of Apax and Permira.

OUT OF AFRICASo why is Truworths looking to enter the fiercely competitive retail market in the UK and Europe? The emphasis on northern hemisphere investment is

partly explained by a slowdown in profits from home operations. Truworths has 650 stores in South Africa, and a further 40 outlets elsewhere on the continent.

Consumer purchasing power in Truworths’ current markets has been hit by rapidly rising logistics costs and interest rates. It has also been hurt by increased domestic competition.

The expansion of foreign competitors such as Zara, for instance, into South Africa, has squeezed the market space. So geographic diversification has been the order of the day. Office, and for that matter Phase Eight and New Look, have shown their potential for international roll out, and frankly the northern hemisphere potential is greater than the southern.

Silverfleet had put Office up for sale more than a year ago, but plans to have it sold by early 2015 hit a roadblock. The IPO option was scuppered by market volatility, particularly around retailers, and particularly where high multiples were being sought. The sale eventually delivered Silverfleet a 3.4x return on its ownership.

Gareth Whiley, head of Silverfleet Capital’s UK investment team, explains the delay: “The year end for Office was 31 January, so you caught Christmas and the Christmas sales. It was a challenge to audit numbers as fast as possible after the end of January, when we also knew from our advisers that there was a wave of IPOs coming in January, from companies whose year

ended in December, and who could race faster for the limited number of slots for an early-2015 IPO.”

With a slew of retail IPOs, something of a mixed bag, and a level of uncertainty over the coming UK general election, Whiley says: “It became blindingly obvious to us that, despite all our best preparation, we had missed our slot in the market and we’d be better holding off.”

The delay was not all bad news. Whiley says it allowed some tidying up around tax planning, and a change of

“We’d known management for quite a long time,

and in a competitive auction were

well placed to win”Gareth Whiley, head of UK investment,

Silverfleet Capital

1981Office’s first concession launched in Hyper Hyper, Kensington Market

1984 First standalone store opened in King’s Road, Chelsea, followed by expansion over the next decade

1996Launched Offspring – sports shoe retailer

OFFICE

TRUWORTHS

1917The Alliance Trading Company opens in Cape Town

1935/6 With the opening of a second store, the company’s name is changed to Truworths


AL

AM

Y, G

ET

TY,

DE

AN

HU

TTO

N

COMPANY PROFILE

Truworths will now look to export its successful business model into Europe

Office rose from its market stall beginnings into a 100-store empire within 34 years

2004-10 Expansion across Ireland, and concessions opened in Top Shop USA 2010

Bought by Silverfleet Capital for an undisclosed sum 2010-15

Expansion from 70 to 100 stores, including launches in Germany 2015

Bought by South African retailer Truworths for £256m

2003Office acquired by Tom Hunter’s West Coast Capital and Brian McCluskey becomes CEO – it has 23 stores

2000-01Launch of footwear boutiques – Poste and Poste Mistress

2015Truworths, still headed by Michael Mark, acquires British shoe retailer Office

2010 Group becomes largest RSA fashion retailer by market cap

2005300th Truworths store opened

195050th Truworths store opened

1991Truworths International listed on the Johannesburg Stock Exchange. Michael Mark becomes MD

15


strategy to a trade sale: “There was private equity interest, but we also had American interest considering a foothold into the UK market. Then we caught the wave of a South African invasion, which is intriguing. Truworths saw a good market share in a mature market and possible tie-ins to the South African market, and we ended up doing a very good deal.”

Rothschild, which had a network in South Africa, was hired to help with the sale: “While I’d been courting US trade, Rothschilds was aware of other interest,” says Whiley. “Our relationship with Truworths came from a genuine introduction from our corporate financiers.”

SECONDARY DEALWhiley’s first introduction to Office was in 2008, when he met the retailer’s CEO, Brian McCluskey. At that time Office was owned by Tom Hunter’s family firm, West Coast Capital, and was part of a group that Hunter had put together, which included other investments, particularly property. In 2008, the world had fallen out of the property market, and the whole group had come under financial pressure. That was when Silverfleet first tried to back a secondary buy-out, but Hunter wasn’t interested.

“Two years later, pressures were still sufficient that selling off Office made

“We caught the wave of a South African invasion. Truworths saw a good market share in a mature market. We ended up doing a very good deal”

sense to help him pay off debts elsewhere,” says Whiley. “We’d known management for quite a long time, and in a competitive auction were well placed to win.”

The attraction was that Office was the number one fashion footwear business in the UK. “It’s always nice to have something that’s the industry leader,” says Whiley. There were three attractions for Silverfleet, he says. First, Office had its own recognised brand, which would share store space with exclusives from other brands, so it was not just competing on price. It was not just dependent on rented stores and had a website, perhaps not the greatest, but with potential for expansion in e-commerce. And finally it had the potential to grow beyond the UK.

“We did a reasonably small roll-out in the UK, taking it from 70 stores to 100 stores, which was a calculated roll-out on high footfall high-streets,” says Whiley. “We put a lot of money into e-commerce and warehouse systems. And we expanded into Germany.”

NEW FRONTIERSTruworths’ CEO Michael Mark had been at the helm for 23 years. Indeed, the plan was for the veteran retailer, who had overseen the growth of the business, to step down after the acquisition. Instead, CEO designate Jean-Christophe Garbino resigned and Mark remains chief executive.

The difficulty of completion with

HERE’S THE DEAL

Truworths acquired an 89% stake in Office for £256m, with management retaining a stake. The sale represented a 3.4x return for Silverfleet, which took over in 2010. The advisers were from Rothschilds, JP Morgan, PwC, Travers Smith, Goldman Sachs and Shoosmiths.

Truworths was due to the fact its team had never dealt with such a transaction. It set up a British subsidiary to administer the deal, “but it’s all about experience, so in some cases we’re handling people who’ve never done a deal in the UK”, says Whiley.

Truworths also raised local UK debt as well as South African debt – to hedge exposure to the pound. “That was new to them as they had no relationships with UK banks,” says Whiley. “I think they would admit now that they made the classic mistake – they did not splash the cash with local advisers. They were using South African advisers, who were dealing with correspondent lawyers and accountants here. That led to an education process – us telling them that how we were doing it is how it is done, and we didn’t need to compromise because we knew we had the right structure. But we got there in the end.”

There are some powerful South African businesses, but they are realising that the buying power of the rand may be in long-term decline. Hence they are looking to the UK and Australia for opportunities. When Truworths announced the Office deal, even though it was a completely new geography and pretty much a new sector, its share price rose.

Whiley is “delighted” with Silverfleet’s 3.4x return on Office. “With retail you never quite know what the exit is going to be, but we’ll always be happy with anything over three times.” And following the deals for New Look and Phase Eight, the herd of South African investors traversing the veldt could well be on the horizon for UK vendors.

Route to growth

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MARCH 2016 CORPORATE FINANCIER18

BY GRANT MURGATROYD


TUG OF WAREquity markets are usually the first to react to any crisis. Demand for some large new issues has remained – albeit nervous demand. James Roe, equity capital markets partner at legal firm Allen & Overy, says: “Notwithstanding [the backdrop], a number of issuers have been successful in coming to market, including Clydesdale Bank, CMC Markets and Ascential. The pre-summer pipeline is, however, thin and a number of deals will likely have been pushed back to after the summer following the announcement of the June referendum.”

Liquidity is being drained from the system. Traditional sources are constrained, or non-existent, at the moment. Stephen Gillespie, a partner at law firm Gibson Dunn & Crutcher, says: “There is no meaningful high-yield bond market, at least not to the extent that it supports leveraged buy-outs or M&A transactions. Investors in high-yield and leveraged loans are pulling money out because they are nervous about global liquidity conditions. The bank market is consequently incredibly nervous too, because it is very focused on distribution, on how to syndicate the debt.”

While debt capital markets are closing to new issuers, private-debt funds continue to balloon in number and size. This process started before the global financial crisis. According to Preqin, a leading data and

Two years ago Brent Crude was trading at more than $105 (£72) a barrel, and had been for some

time. Oversupply and falling demand precipitated a largely unanticipated collapse, and earlier this year oil traded below $30 a barrel.

Consumers might like low oil prices: Deloitte’s latest Consumer Confidence Survey (Q4 2015) shows consumer optimism at its highest for four years. But energy companies, revenue-hungry governments and financial markets are spooked. After opening the year at 6,093, the FTSE 100 share index fell to 5,673 on 20 January this year, dipping further below the 5,600 mark in February before making a modest recovery.

Rolling programmes of quantitative easing have kept asset prices high. In the US, the Federal Reserve bought more than $3.7trn of bonds – equivalent to 2.9% of gross world product. The Bank of England fuelled the UK system with almost $550bn of asset purchases.

The US and the UK have wound down their programmes (though they haven’t unwound them). But, in January the European Central Bank announced that its €60bn-a-month (£46bn) asset purchases, which had been going on for a year, would run until at least September 2016.

COVER STORY

Debt markets have been diversified since the global financial crisis first hit, and many borrowers have faced a bewildering array of cheap debt options. But with financial markets increasingly nervous, do companies need to get shopping while liquidity remains?

TUG OF WAREquity markets are usually the first to reactto any crisis. Demand for some large newissues has remained – albeit nervousdemand. James Roe, equity capital markets

artner at legal firm Allen & Overy, says:withstanding [the backdrop], a number

rs have been successful in coming tocluding Clydesdale Bank, CMC

Ascential. The pre-summerver, thin and a number of

e been pushed back towing the

e referendum.”from the

constrained,ephen

Dunnl

“You’ll get 7-8x from a credit fund – another turn as

they call it”Jackie Bowie, CEO,

JC Rathbone Associates

6,093TO

5,673HOW FAR THE FTSE 100

SHARE INDEX FELL BETWEEN THE START OF 2016 AND

20 JANUARY


available for investing at $191bn worldwide.“There is a significant and growing

number of debt funds focused on the UK, predominantly based in London, although some are moving into the regions,” says Nick Dodd, KPMG debt advisory partner for business outside of London. “They are all struggling with how they get their funding into lending opportunities in the UK marketplace. They are all looking for deal flow but struggling with distribution outside London.”

STEALING LUNCHThe relationship between debt funds and banks is starting to change. When debt funds started to flex their muscles in the mid-2000s, banks feared they were trying to steal their lunch. Aggressive competition on pricing and terms ensued, leverage multiples increased, and ‘cov-lite’ deals came into being. Then came the crisis and

intelligence company for the alternative assets industry, 120 private debt funds raised $84.6bn in 2015, the highest amount since 2008 (see chart on debt fundraising, page 22). Of that, $33.1bn was for direct lending funds, $23.3bn for distressed debt and $19.2bn for mezzanine, with the remainder for special situations, venture debt and fund-of-funds.

“With so much liquidity in the market, credit funds will offer leverage a little bit higher than traditional banks,” says Jackie Bowie, CEO of risk management consultancy JC Rathbone Associates and member of the Corporate Finance Faculty’s board. “Where you might achieve 5-6x EBITDA on a traditional bank lend, you’ll get 7-8x from a credit fund – another turn, as they call it. Because you’re able to get more leverage in, people feel they can justify paying the higher multiples – so far the economic environment is supportive. The concern is what happens to the deal economics when economic performance in the major countries – including the UK and the US – starts to falter.”

Debt funds, which tend to have small teams in a limited number of locations, have struggled to find effective deal funnels and to turn opportunities into credits. Preqin puts the amount of private-debt fund capital

20

“All this liquidity is chasing the

same quality of transaction,

delivering very attractive terms

for strong borrowers”

Nick Dodd, debt advisory partner, KPMG

RECUTTING: A WAY TO BOOST YIELDThe hot topic in US debt markets is arrangements among lenders (AAL), which are starting to appear in the European deal market. An AAL is a mechanism that is increasingly being used by debt funds to increase their returns by recutting facilities to boost the yield. Such arrangements are sometimes disclosed and sometimes not.

Typically, a fund will re-cut an element of its exposure and allow a higher yield to accrue on that piece of debt. It will then sell it down, either silently or on a disclosed basis, to a third party and accept a lower return for that repositioning of risk. For example, if a fund makes a $100m loan to a company, the fund may sell $30m of it to a subordinated investor at an 8% yield. The originating fund retains 70% of the loan, at a reduced yield of 5.5-6%, but the change in the capital hierarchy means its risk is significantly reduced.

“You can think of it as a synthetic, behind the scenes, mezzanine agreement,” says Fenton Burgin, head of UK debt advisory at Deloitte. “You’re beginning to see that start to happen in Europe, and it’s going to be interesting to see how that plays out in the European context over the next year.”

New players are entering the debt market, while others who previously dipped a toe in the water are re-emerging

available for investing at $191bn worldwide.“There is a significant and growing

number of debt funds focused on the UK,predominantly based in London, althoughsome are moving into the regions,” saysNick Dodd, KPMG debt advisory partner forbusiness outside of London. “They are allstruggling with how they get their funding into lending opportunities in the UKmarketplace. They are all looking for dealflow but struggling with distributionoutside London.”

STEALING LUNCHhe relationship between debt funds and

s is starting to change. When debtarted to flex their muscles in the

, banks feared they were trying unch. Aggressive competition

rms ensued, leverageand ‘cov-lite’ deals

came the crisis and

uiditythe

of


intense navel-gazing at the banks. Lending books were scrutinised, while balance sheets were rebuilt through equity rights issues and asset sales.

New players are entering the debt market, while others who had previously dipped a toe in the water are re-emerging. Bank of America and AIB, for instance, have been participating in club transactions. Competition is driving pricing down, and leverage multiples are up. “There is a disconnect,” says Dodd. “Normally, increased leverage multiples are translated into increased perception of risk, which equals increased pricing. I’m not necessarily seeing that, with the rider that these trends are the preserve of really good-quality and well-received businesses. All this liquidity is chasing the same quality of transaction, delivering very attractive terms for strong borrowers.”

But it’s not all about increased competition – banks and funds are finding they are good bedfellows. “If you’re HSBC on a £60m deal, and you want to hold £30m, and you’re in there with Lloyds, you are both competing for the ancillary business, which the debt funds couldn’t give two hoots about,” points out Giles Derry, a partner at UK mid-market buy-out firm Dunedin and Corporate Finance Faculty vice-chairman. “The banks are now happier to work with the debt funds than they are with each other.”

Debt funds have been in the market long enough to have built a pipeline of future deals. “We have just finished advising an AIM listed company on a reverse takeover” says Chris Lowe, EY debt advisory partner.

21

DEBT LESSONS FROM AMERICA US corporate lending has long been dominated by other financial institutions rather than banks, as it is in the UK and Europe. Only 20% of long-term lending to corporates in the US is from banks, with 26% from capital markets, and the bulk of the remainder being mortgage finance, according to analysis by M&G Investments.

The UK and continental Europe have seen an increasing proportion of what was a bank-dominated market being funded by alternative sources, but it is a slow transition. “We’re definitely following a US model,” says Floris Hovingh, head of alternative lender coverage at Deloitte. “In the US, 80% of business capital in the mid-cap space comes from non-bank lenders – a mix of direct lenders, private wealth funds, specialist debt funds and listed vehicles, BDCs, which raise money from the public to lend on to mid-market companies.”

The picture in the UK is different from that in the US. According to analysis by the European Investment Fund, in the UK approximately 75% of corporate debt in 2012 was held by banks.

“In Europe over the last five years bank debt has been the primary source of business capital. It’s been relatively cheap and plentiful,” says Hovigh. “We’ve started to see a rapid transition where, as a result of banks facing increased regulation, and the Basel III capital adequacy regime moving towards full implementation in 2019, we are expecting to see further withdrawal of bank funding to mid-market companies in Europe. Combined with a low interest rate environment, that creates a perfect backdrop for institutional investors who need to find yield, to allocate more capital to direct lending funds who lend on to companies neglected by the banks. As opposed to their natural habitat of funding large companies, institutional investors have to now turned to the mid-market.” Hovigh explains.

Asset-based lending (ABL) is another traditionally ‘US’ product that is becoming increasingly popular in Europe. No longer lending of last resort, and not considered that in the US, ABL lenders have made significant inroads into the mid-cap space. “Two or three years ago the relative absence of cash flow lending meant that ABL structures were the only way for many companies to secure the financing they needed,” says KPMG’s Nick Dodd. “But it’s very situation-specific. For some businesses it’s very efficient, very flexible and meets their requirements. For others it’s not appropriate.”

COVER STORY

intense navel-gazing at the banks. Lending books were scrutinised, while balancesheets were rebuilt through equity rightsissues and asset sales.

New players are entering the debtmarket, while others who had previously dipped a toe in the water are re-emerging.Bank of America and AIB, for instance, havebeen participating in club transactions.Competition is driving pricing down, andleverage multiples are up. “There is adisconnect,” says Dodd. “Normally,increased leverage multiples are translatedinto increased perception of risk, whichequals increased pricing. I’m not necessariseeing that, with the rider that these treare the preserve of really good-qualiwell-received businesses. All this chasing the same quality of tradelivering very attractive testrong borrowers.”

But it’s not all aboucompetition – banthey are good bon a £60m d£30m, anare bobus

“We have worked on a number

of PLC transactions of late with credit funds featuring. These funds are

here to stay”Chris Lowe, partner and head of

leveraged finance, EY

75%OF EUROPEAN CORPORATE DEBT WAS HELD BY BANKS

IN 2012, BUT THAT PROPORTION IS DECLINING

“It was a credit fund deal. Overall they were able to structure the right transaction with us to allow the business plan to be delivered on an optimal basis.

“We have worked on a number of PLC transactions of late with credit funds featuring. This looks like further validation of our view that these funds are here to stay and will increasingly dominate the lending market for smaller listed corporates.”

SHOPPING AROUNDDespite all this liquidity, conventional, plain-vanilla leveraged buy-outs are becoming less common. Generally, private equity is in sale mode, given where they are in their fundraising cycle. Multi-strand investors, such as Apollo, Oaktree or Blackstone, that are able to adopt a more flexible approach to capital structure and returns, are the buyers. They have their own sources of liquidity, and then go to the debt markets to optimise the capital structure. Speed and certainty of execution can make all the difference for a private equity firm or corporate when competing for a quality asset.

Finding the most competitive package is tricky, however. Conventional theories – for example, that the most competitive terms come from the biggest funds – are breaking down. “There is a large number of direct lenders operating in the market, each with different strategies and niches to play in, which has led to a competitive market,” says Fenton Burgin, head of UK debt advisory at Deloitte. “The larger funds, people like Ardian, Ares, Bluebay, Alcentra, Sankaty, Hayfin and ICG, have scale and diversity in their portfolios, and will increasingly become mainstream lenders, and compete with banks head-on on leverage finance transactions. They will be quite happy to underwrite facilities themselves and then syndicate or sell down a super-senior tranche of their exposure to a bank. It’s a 180-degree reversal from where the market was pre-Lehmans.”

Credit funds are increasingly reaching down into the mid-market. This has freed up the banks to do different types of deal, and increase capacity and flexibility. “That

surge of liquidity could ultimately create a bubble, but that is not happening yet,” says Andrew Shellard, head of debt capital markets at Catalyst Corporate Finance. “Credit funds have created a significant increase in liquidity, enabling a whole host of deals to be done in the mid-market that weren’t possible five years ago.”

The past decade has seen huge changes in the structure and mechanics of debt markets, particularly in Europe. They are slowly moving towards the US institutional model that has prevailed for most of the post-war period. But is that for the better?

“In terms of the range of tools available to get money into entities, there is certainly a new normal of funding options,” says Phil Smith, debt capital markets partner at


“Credit funds have created a

significant increase in

liquidity, which has enabled a whole host of

deals to be done in the mid-market

that weren’t possible five years ago”

Andrew Shellard, head of debt capital markets, Catalyst

“There is a large number of direct lenders in the market, each with different strategies and niches to play in”

Debt markets are slowly moving towards the US institutional model that has prevailed for most of the post-war period. But is that for the better?

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Allen & Overy. “Over the past 18 months, for example, we have seen a diversification of options, in addition to traditional leveraged lending from banks. A fair portion of that lending is now coming from alternative providers. You will continue to see developments in how the debt is packaged, and in the sources of the debt.”

TRYING TO BE SELECTIVEThere is a sense of déjà vu about many aspects of the debt markets. It looks and sounds like the mid-2000s. Normally, if it looks like a duck, swims like a duck and quacks like a duck, it probably is a duck. But, this time, it is different and more restrained – at least for the time being.

In the mid-2000s, institutional debt enabled transactions to get very large. It created significant liquidity, but eventually that bubble burst. Historically, leveraged finance has been a fixed-price commodity. What changes is leverage. The level of risk investors are willing to take is adjusted in order to develop the same return.

So what is happening now? “While there is a significant amount of liquidity, there is an appropriate amount of caution,” says Shellard. “Credit committees at both banks and funds are trying to be selective. Different people have a different view of

“Over the past 18 months we have seen a

diversification of options, in addition

to traditional leveraged lending from banks... a fair

portion from alternative providers”

Phil Smith, debt capital markets partner,

Allen & Overy

COVER STORY

er the past 18 months,seen a diversification

traditionalks. A fair

coming fromntinue to

t.”

$30A BARREL FOR BRENT

CRUDE THIS YEAR

$191BNWORLDWIDE PRIVATE-DEBT FUND CAPITAL AVAILABLE

FOR INVESTMENT

£550BNASSET PURCHASES BY THE

BANK OF ENGLAND

$84.6BNRAISED BY 120 PRIVATE EQUITY FUNDS IN 2015

$105A BARREL FOR BRENT

CRUDE TWO YEARS AGO

$3.7TRNBONDS BOUGHT BY THE US FEDERAL RESERVE

what selective means, but people are at least trying to apply the lessons of the last financial crisis. They’re looking to stretch themselves only where they believe something is 100% defendable.

“There was a sense in 2007 that almost any deal could get done, and maybe there was a lack of appropriate diligence. Today, really good deals are really competitively sought after. An average deal may get a better audience than in 2010, but a not-so-good deal is still a not-so-good deal. People are not falling over themselves to do silly things.”

DIVERSITY IN THE DEBT MARKETDebt markets have become more diverse, particularly for mid-market businesses. That’s great news for advisers who have built practices to help companies assess the options. Deloitte, for example, has increased its debt advisory corporate finance team from four to more than 140 members over the past decade.

There are options for corporate borrowers, but they do not all need to be used. When global private equity firm Carlyle Group bought Dutch lingerie designer Hunkemoller from French buy-out group PAI Partners in December 2015 for an undisclosed total estimated at about €440m (£340m). A traditional loan package, with a club of banks, was the preferred route.

According to Standard & Poor’s LCD, Hunkemoller priced its €225m seven-year term loan B at E+475 when the arrangement closed in January 2016. ABN Amro, ING, Natixis, Rabobank and Societe Generale CIB led the transaction. LCD reported that leverage on the deal was 4x.

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PROFILE

25

WISDOM MULTIPLIEDLast year two more experienced dealmakers joined the board of the Corporate Finance Faculty. Philip Robert-Tissot and Frank Carter give us their views on the current market for M&A

Philip Robert-Tissot last year completed more than two years as director-general of

the Takeover Panel. On his watch, Pfizer made its very high profile bid for London Stock Exchange-listed AstraZeneca. In the wake of the failed deal, the Panel revised the City Code on Takeovers and Mergers (the Code), as regards statements made during an offer, and created a two-tier regime that differentiated between those that were statements of intention, and those that were firm undertakings.

Robert-Tissot was previously managing director and chairman of Citi’s EMEA M&A business, and prior to that was head of UK banking & broking. His career in the City started when he joined Schroders in 1989, following four years at Rio Tinto Zinc, where he was on the graduate commercial management training scheme, and completed an MBA at Cranfield. He became a director at Schroders in 1996, and managing director when Citi acquired Schroders’ investment banking business in 2000.

WHERE DO YOU SEE THE BROAD ECONOMIC ENVIRONMENT AT PRESENT?“At the start of the financial crisis, there were people saying the economic impact would be a lost decade. Many commentators thought that was extreme, but it is amazing how fast time goes by – it is now eight years since the events of 2007/08. For the broader banking world and the global economy, we are still dealing

with the consequences today – the crisis has moved from one phase to another, from banks being in big trouble to the sovereign debt crisis in Europe, and now to more recent concerns regarding emerging markets and slowing growth in China. These concerns have resulted in very unsettled market conditions over the last three months, with equity indices falling into bear market territory.”

AND M&A?“I think there is still a good deal of caution in the corporate world, which will only be exacerbated by recent economic events. There is plenty of capital globally, but to raise capital you have to do it on the right terms, and investors are rightly more cautious about funding companies than they used to be.

“Some sectors are in very robust shape, but others are still struggling. We have seen something of a resurgence in M&A over the last two years. Companies reacted well to the downturn – cutting costs, and getting their cash flow and balance sheets in good shape.

“Despite this improving backdrop, during the first of my two years at the Takeover Panel – from April 2013 to March 2014 – the level of bid activity was pretty low; there were only about 10 companies on the Panel’s disclosure table in the summer of 2013. When I left in June 2015, this measure of activity had increased to about 30.

“In spring 2014, M&A activity noticeably picked up, which

Philip Robert-TissotFormer director-general of the Takeover Panel

(coincidentally) was when Pfizer made its possible offer for AstraZeneca. This led to our review of how the Code dealt with statements made in public takeovers. There are clearly still issues with the world economy, but we are now some two years into a pretty healthy M&A market in the UK.”

WHAT IS THE CURRENT LANDSCAPE FOR DEALMAKING?“Over the past few years it has certainly been a lot more difficult to get deals to completion. That is due to a number of things, including competing bidders, pricing issues, activist shareholders and antitrust regulators. Bankers see many potential transactions they work on not get as far as announcement. Then there are the deals that are announced but not completed – including some high-profile ones, like Pfizer/AstraZeneca. It is definitely harder work getting these deals done than it was pre-2007. Some might say it is a better environment.”

WHAT HAS THE IMPACT OF THE LATEST TAKEOVER CODE CHANGES BEEN?“Since the new rules came into effect in January 2015, I don’t think any offeror or offeree company has given a firm undertaking. When we put in place the new two-tier regime, we recognised that the firm undertaking option would be used only rarely. Really, in most circumstances the

party making the statement should be making it as a statement of intention, but there will occasionally be circumstances where someone wants a statement effectively to be a firm commitment.

“The Pfizer experience showed that the one-rule-fits-all approach we had was simply not nuanced enough. Most statements people make in takeover offers can only be statements of intention. You really must think very hard about it before you make a statement that is effectively a legally binding undertaking.”

WHAT IS THE IMPORTANCE OF THE CORPORATE FINANCE FACULTY?“The Corporate Finance Faculty plays a very important role in many different ways. The publications it has produced are extremely useful – for example, The Business Finance Guide – particularly for smaller and mid-sized private companies – and Private Equity Demystified. Both of these are extremely useful resources.

“ICAEW has a representative on the Takeover Panel that plays an important role – its technical group is one of the most regular contributors whenever there is a consultation on revising the Code.

“The Corporate Finance Faculty certainly plays its part as a valued stakeholder.”

Frank Carter is senior adviser and chairman of KPMG’s UK M&A business. He has had a

32-year career in business, which started at RBS in London, having graduated from Heriot-Watt University in Edinburgh with a degree in accounting and finance. In 1984 he joined Peat Marwick (now KPMG). Having qualified as an ACA, he joined the fledgling acquisitions advisory department in 1987 and in 1997 became a corporate finance partner. His previous roles have included president of KPMG’s corporate finance business in France, leading the establishment of the firm’s corporate finance business in East Anglia, and head of M&A. Last year he joined the Corporate Finance Faculty’s board.

FOR THOSE BEGINNING THEIR CAREER, WHAT ARE THE LESSONS TO LEARN FROM HOW YOU GOT INTO CORPORATE FINANCE?“I came to corporate finance through a very traditional route. Firstly, I qualified as an ACA with a big firm and trained as an auditor. That training gives you real discipline, and teaches you to be enquiring, to ask the questions that need to be asked and to challenge things that are presented to you. Good training, be it as an ACA, via an MBA or as a lawyer, gives you a very important foundation. Beyond that it is important that you give of yourself, and give good advice.”


Frank Carterchairman of UK M&A business at KPMG

“There are clearly still issues with the world economy, but we are now some two years into a pretty healthy M&A market in the UK”

HOW IMPORTANT IS NURTURING RELATIONSHIPS?“The vast majority of the deals in my portfolio have come through forging and maintaining very strong relationships with clients, often over a very long period. Clients need to know and trust their advisers, and that requires a significant and long-term investment of time and effort on the part of the adviser.”

HOW IMPORTANT IS VARIETY OF EXPERIENCE TO CAREER DEVELOPMENT?“As we have all become more regulated, and more rigidly specialised, it is more difficult to cross from discipline to discipline. But in terms of developing yourself and your career, taking opportunities (if you can get them) to work in different disciplines certainly enhances your CV.

“I benefitted hugely from managing different parts of our business in a career that has spanned north of 30 years. Personally, I would strongly encourage people to gain as wide a range of experience as they can, including a stint in an overseas territory.”

WHAT WERE THE LANDMARK TRANSACTIONS IN YOUR CAREER?“Early on in my corporate finance career I advised the two shareholders of English Country Cottages on the sale of the business to Thomson Travel Group. I led the transaction

and it taught me a lot about negotiation and maximising value.

“Another transaction of note at that stage of my career was the privatisation of the train-operating companies, which was a different challenge altogether. More recent landmarks include acting for Swissair in the sales of Swissport [$2.8bn] and Gate Gourmet, and advising CBPE on the sale of their global testing and inspection business, Moody International.”

HOW DO YOU VIEW THE CURRENT M&A MARKET?“Last year, we had our best year in terms of transactions since 2007. There are enormous amounts of capital looking for investment opportunities globally. Corporate balance sheets are strong. Private equity is well funded and looking for investment opportunities, as are investment funds and other investors. There is, however, a significant investment supply issue, making the market even more competitive. Capital is seeking return all across the globe. In the UK particularly,

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notwithstanding the effects of current stock market volatility, especially in relation to China.”

WHAT ARE THE CURRENT DYNAMICS OF PRICING AND VALUATIONS?“For a vendor, the shortage of investment opportunities means it is a great market, but to buyers prices can seem high. The right business, one that is a good strategic acquisition, will still be a good buy even if the pricing is at the higher end. All buyers, be they corporates, private equity or other investors, have to pay up for good businesses in the current market. Latterly, initial public offering has been a real viable alternative exit route, but of course markets go through cycles and the present volatility may deter activity, at least for the short term.”

HOW IMPORTANT IS THE ROLE OF THE CORPORATE FINANCE FACULTY?“The faculty has developed so that it now acts as a forum for the many advisers, law firms, private equity investors, banks, businesses and brokers it represents. Its influence is increasing with the growth in the size and breadth of its membership, giving the faculty a stronger voice in the dialogue with government and regulators. It is important that we continue to develop and grow, so that we continue to have a unified voice representing the corporate finance community.”

PROFILE

27

“All buyers, be they corporates, private equity or other investors, have to pay up for good business in the current market”

“Clients need to know and trust their advisers, and that requires a significant and long-term investment of time and effort”


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INSIGHT

MAKING AN EXIT

Buoyant is also the word used by the Centre for Management Buy-out Research at Imperial College (CMBOR). The €82bn (£63.2bn) recorded in exit value in Europe in the first half of last year put the market on track for a record value by the year-end. And indeed the year ended at a new record for exits – €153.2bn. IPO value got off to a flyer with €31bn in the first half, but slowed down, ending the year at €48.7bn. Trade sales were €31.6bn in the first half of 2015, and continued strongly into the second half, ending the year at €63.8bn (compared with €40.9bn in 2014).

HITTING THE TARGETThe mechanics of company sales have changed, with widespread auctions increasingly rare. “The element of targeting has definitely increased,” says Ian Smart, partner at Grant Thornton and a former chairman of the Corporate Finance Faculty. “Owners are pretty smart these days around where they think the interest is going to be. As an adviser what you used to do for the pitch was put together a buyers list. Now you’ve got to the stage where information is more widespread, more readily available, therefore the owners probably know who the two or three interested parties are going to be when they start the sale process.”

That is not to say that unexpected bidders are entirely absent, particularly international buyers. Smart cites the example of a UK engineering business that received an incredibly high offer from a Chinese corporate, which then pulled out of the deal during due diligence when it realised the true nature of the target. “Advisers would say that they’ve got a good role to play earlier in the whole process in terms of float or sale preparation and subsequently in terms of integration,” says Smart.

“Debt financing is incredibly cheap, which is helpful for secondary buy-outs”

Helen Steers, partner

and head of European

primary investment,

Pantheon

Despite increasing uncertainty about the world economy and the continuation of quantitative easing, practitioners remain confident, finds Grant Murgatroyd


Extraordinary times call for extraordinary measures. Back in 2008 the global financial system was on the brink of collapse, and it was saved by the Herculean efforts of governments and central banks. Quantitative easing (QE) saw trillions pumped into the financial system. Its effectiveness, in the medium to long term, may well be a matter of some debate – particularly given more recent turmoil in the world’s financial markets – but one beneficiary has been the private equity industry. It has been able to sell investments and return capital to investors like never before.

“It’s partly driven by QE, which means there’s a lot of liquidity in the markets. This is having an effect in various ways,” says Helen Steers, partner and head of European primary investment at global private equity investor Pantheon. “Debt financing is incredibly cheap, which is helpful for secondary buy-outs. Pantheon has traditionally favoured investments in mid-market buy-out funds, and this segment has seen a lot of exits through secondary buy-outs. On the other hand, corporates are

cash-rich and looking for ways to drive growth. We are seeing examples of them doing that by buying faster-growing, smaller companies, which are often private-equity owned.”

Distributions – the money handed back to limited partners by private equity general partners – have been running at record levels for several years now. “Buoyant is a very good

word for it,” says Steers. “And it’s sustained buoyancy in my view. We’ve had three record years of distributions across our business; that’s driven by some fantastic exits and some good refinancings.”


The IPO window is a barometer for wider economic confidence, if only because it opens and closes with greater rapidity than the markets for trade sales, secondary buyouts or refinancings. “In the macro context we’re in a low inflation, low interest rate environment,” says Smart. “People have factored that in. In the very short term the relative attractiveness of different exit routes fluctuates, but on the whole the market’s been fairly steady and fairly supportive of assets being realised and ownership passing on.”

Wilson says that overall the forecast for the private equity industry is good, despite the inevitable clouds on the horizon. “Equity markets can be more volatile than trade and private equity because there are other factors at play,” he says. “But what would cause the wider exit market to become less favourable? Significant macro shocks could certainly make people reflect a bit harder.”

Steers shares concerns about the macro picture. “QE has been a catalyst, and I think everybody would agree with that,” she says, warning too that interest rate rises and the large macro shocks we may well be witnessing now, ‘could shut down IPO markets and knock confidence around exit markets in general’.

Prof Mike Wright,

the Centre for Management Buy-out Research

“Owners are pretty smart these days around where they think the interest is going to be”Ian Smart, partner,

Grant Thornton

“I think many of the advisory firms are trying to offer a more integrated service right across the timescale.”

Pete Wilson, a partner at international private equity firm 3i, says that buyers are still being selective. “Demand is being stimulated by the amount of dry powder in the market and by what’s still being raised. When you combine this with the leverage available, that creates a lot of competition for assets which is increasing valuations,” he says. “I don’t think it’s the case that there is an abundance of poor-quality businesses being sold at high prices, but inevitably there is some flow through of that type of asset.”

According to analysis by Preqin, the private equity industry has an estimated $40bn (£27.7bn) of dry powder at its disposal, magnified by readily available debt finance. A similar amount will be raised over the coming year. “The market is incredibly busy with new fund raisings,” says Rhonda Ryan, partner and head of EMEA at investment adviser Altius Associates. “There has been a bit of a rush, as while we knew that some general partners were ready to come back to market, others appear to have decided that this is a good time to fundraise. There are some groups I hadn’t anticipated would be back at the end of the year.”

Almost all general partners are finding substantial support from their limited partners, where Ryan urges caution. “To me it’s felt toppy for two years,” she says. “Prices have gone up, debt availability has gone up. Exits are wonderful – very, very strong, good multiples of cost. I continue to say to limited partners, just because you’re getting money back doesn’t mean that you should be going down the quality scale to redeploy it. Stick with your top managers, those that can make top quartile returns and can manage a downturn as well as an upturn.”

CHANGING FORTUNESThe opportunity for private equity firms to sell the companies is often described as a window, for the simple

reason that it is sometimes open and other times closed.

“The window for corporate trade sales seems to be half open, half shut and it keeps changing,” says professor Mike Wright of CMBOR. “It seems to have taken quite a while for corporates to come back into the market and even now numbers are not running that

high. Although we’ve seen some chunky deals, the actual numbers are perhaps not as high as we might have expected. A year or so ago the trend seemed to be rather more positive, but more recently the China slowdown and other things may be affecting sentiment.”


“Although there have been chunky deals, the numbers are perhaps not as high as we might

have expected”


INSIGHT

€82BNEXIT VALUE IN EUROPE

IN THE FIRST HALF

OF 2015

€63.8BNTRADE SALES IN EUROPE

AT THE END OF 2015

$40BNESTIMATED AMOUNT

OF DRY POWDER IN

PRIVATE EQUITY

SEIZE THE DAY

General partners (GPs) have been focused on selling assets, but not at the expense of new deals. “We want to take advantage of what is an attractive market to sell our investments if it is the right time for those investments, but we still see opportunities for new deals,” says Pete Wilson at 3i. “We are very focused on our strategy, which is around helping companies grow internationally. We believe that is a differentiator for us in the mid-market for private equity through a combination of our office network, the capabilities and international nature of our teams and, of course, our track record.”

The market for new deals is incredibly competitive, with supply of capital far exceeding the population of available opportunities, with the inevitable effect of pushing up prices. According to accountancy firm BDO’s latest Private Company Price Index, the average price-earnings multiple on private equity deals in the UK has risen from 9.5 times at the end of of 2014 to 10.9 times. Over the same time period, multiples on private company transactions have fallen from 11.7 to 9.3. But multiples on both counts are likely to fall, given the bearish state of the major equity markets.

Practitioners say the alarm bells are not ringing just yet. “In general GPs are being relatively disciplined in my view,” says Helen Steers of Pantheon. “We have seen prices pick up in certain sectors, such as companies with defensive characteristics, where prices have been slowly increasing. Pricing is generally better in the mid-market though and where you’ve got some sort of complexity around a transaction.”

Rhonda Ryan, partner and head of

EMEA, Altius Associates

Pete Wilson, partner, 3i

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“To me it’s felt toppy for two years. Prices have gone up, debt availability has gone up. Exits are wonderful”

“Significant macro shocks could certainly make people reflect a bit harder”


32

Appointments


Neil Meredith has joined EY as a partner to head up the firm’s corporate finance business in the Midlands. He has more

than 20 years’ experience in the M&A market in both the East and West Midlands, and has joined from KPMG’s Birmingham office, where he spent the last 12 years.

Meredith (pictured) has joined to grow M&A business in the Midlands. He says: “We can advise clients on the full range of transactions, from divestments to acquisitions, fundraisings and buy-outs. With HSBC and Deutsche Bank moving here, and the recent Grand Central Station development along with the HS2

Project, Birmingham has shown that it can attract major corporates and investors. The past couple of years have seen increased levels of M&A nationally and the Midlands, with its diverse range of businesses from the manufacturing sector to services, should benefit from enhanced M&A activity as the UK economy grows.”

EY’s recruitment of Meredith is part of a drive to grow its transactions business in the Midlands. Last year Dougal Baxter joined the transaction services team from BDO, and Mark Day was promoted to director in the corporate finance team. Barry Moss is also joining the Midlands practice in February from Grant Thornton at assistant director level.

NEWSIN BRIEF

and acquisition finance for east England at Yorkshire Bank. Prior to that, he was at PwC. Barron has joined from Deloitte.

August Equity has hired Tim Thomas to its investment team as director. He will

source new opportunities in the technology, healthcare and education, and business services sectors. He has joined from Bridgepoint Development Capital, having previously worked for RJD Partners and Hermes Private Equity. Prior to that, he trained as an ACA at PwC before working in KPMG’s corporate finance team.

PwC has recruited Issy Corbett as a partner to lead its healthcare M&A

team. He had covered healthcare in the UK and continental Europe for 10 years at investment bank Rothschild.

Dan Rosinke (top) and Martin Barron have joined Grant Thornton’s Yorkshire team, as partners in transaction advisory services and

recovery and reorganisation, respectively. Rosinke was previously head of specialist

David Evans has joined Alvarez & Marsal’s transaction

advisory group from Deloitte, where he was a partner for 13 years. He trained as an ACA with Arthur Andersen.

Simon Williams has joined HSBC as relationship director within the

Welsh corporate team, from Gambit Corporate Finance.

Andy Ratcliffe has been appointed CEO of Impetus – The Private Equity

EY GROWS MIDLANDS CORPORATE FINANCE

HOPE SPRINGS INTO ACTION AT MOBEUS

Catalyst Corporate Finance has recruited two new dealmakers to its London office – Jack Atkins and Oliver Norman. Atkins has joined from PwC where he was a senior associate in the corporate finance team. He is an ACA and a graduate from the

University of Nottingham.Also a graduate from University of

Nottingham, Norman has joined from EY, where he qualified as an ACA before joining their transaction advisory services team.

“Having moved into new offices in June last year, we have expanded rapidly, recruiting five new dealmakers in the past six months in order to service our increasing workflow,” explained Catalyst partner Steve Currie, who said that it was part of a concerted policy by the company which plans to “originate and generate more deals in London and across the South East”.

CATALYST EXPANDS IN LONDON

Trevor Hope has joined small-cap investor Mobeus Equity Partners to lead its growth capital investment team. He has 20 years’ experience, most recently as chief investment officer of Beringea’s ProVen VCTs. Prior to that he worked at 3i.

Mobeus Partner Ashley Broomberg says: “Trevor has strong relationships with business owners in the UK lower mid-market. This contact base will make him an incredibly powerful asset to the Mobeus team, and underlines our dedication to pursuing growth opportunities in the UK.”


COMPANY NEWS

joined Exponent in January 2005 having previously worked for Apax and the Boston Consulting Group.

Rupert Brown has joined Palatine Private Equity as investment

manager from NBGI. He started his career at PwC.

Daniel Zilberman has been appointed head of European investment activity

at Warburg Pincus. He has been at the global private equity firm since 2005, and leads its European financial

Foundation. He has joined from the Africa Governance Initiative where he was deputy CEO. Previously he was senior policy adviser for education in the prime minister’s strategy unit until 2009.

Close Brothers Asset Finance has expanded its UK offering with the acquisition of Finance for Industry, the Kings Langley-headquartered specialist finance broker.

UK GP Exponent Private Equity has appointed Richard Lenane as

managing partner. Lenane

services and special situations divisions. He is a member of its executive management group.

Keensight Capital has recruited David Piccoli as senior analyst from

3i where he was analyst for the ArchiMed investment fund.

Isabelle Seillier has been promoted to vice-chairman of JP Morgan’s EMEA investment banking practice. She was head of financial institutions and France. Laurence Hollingworth has become vice-chairman of EMEA equity capital markets, and Charles Harman rejoins the

bank as vice-chairman from private equity firm BXR Partners, where he was CEO.

Dale Raine has joined Lazard as managing director to lead its UK healthcare team, from Deutsche Bank.

Albion Ventures is to manage the recently launched UCL Technology Fund, which has raised £50m to commercialise University College London’s world-class research output.

Tom Fox has joined alternative lender Boost Capital as business development manager, from MarketInvoice.

LEGAL BRIEFS

Steve Cooke has been elected senior partner at international law firm Slaughter and May. The

former head of M&A will succeed Chris Saul in the role from the beginning of May. Saul had been senior partner since 2008.

Cooke joined the firm as a trainee solicitor in 1982 and was promoted to partner in 1991. As well as heading the M&A practice he has been on the partnership board since 2001. He acts for a number of listed clients including Aggreko, ARM Holdings, Barratt Developments, Centrica, Diageo, Hikma Pharmaceuticals, International Airlines Group and Rolls-Royce.

Orrick has recruited Ed Batts to its Silicon Valley office as global co-head of its M&A and private equity

practice, from DLA Piper, where he co-chaired the Northern California corporate group.

Daniel O’Gorman has joined Walker Morris’s corporate group in London from DWF where

he was head of the equity capital markets group.

Dorsey & Whitney has recruited leverage finance lawyer Paul Denham as partner in

London from the banking and financing group of Orrick.

Anthony Van der Hauwaert has joined King & Wood Mallesons as partner in its European corporate team

from Squire Patton Boggs, where he worked for 14 years.

Taylor Wessing has recruited Jeremy Landau as an equity capital markets partner in its

corporate finance team from K&L Gates, where he was a partner in its corporate finance practice.

Jon Coker (left) has been appointed joint managing partner at MMC Ventures alongside founder Bruce Macfarlane. Coker joined

MMC in 2007 from JP Morgan.The venture capital fund has also

recruited David Kelnar as investment director and head of research. He previously co-managed European software research at Goldman Sachs in London, and at New York hedge fund Calypso Capital. He was also founder and CEO of Greatvine.com.

Of Kelnar’s appointment Coker said: “At MMC, we believe that a deep understanding of the technologies and markets in which we invest is core to our decision-making and to supporting the companies in which we invest.”

In adition, Dan Bailey and Margaret Perchik have joined the investment team as associates.

Bailey spent two years as an analyst in the UK corporate finance team at Deutsche Bank. Perchik has been promoted to the new role, having joined MMC in 2013. Furthermore, Cameron Grant has joined as an analyst.

COKER TO CO-HEAD MMC VENTURES


Balancing act

MA

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ON MY CV

WHAT WAS THE DEAL?In October 2015 Regional REIT, the real estate company, was admitted to the premium listing of the Official List. In conjunction 80 million existing shares were placed at £1 per share. On admission, the group’s market cap was £274.2m.

WHO WERE THE ADVISERS?Peel Hunt acted as sponsor, broker and financial adviser. The company’s legal advisers were MacFarlanes (for UK law), and Carey Olsen (for Guernsey law). Jones Day provided legal advice to Peel Hunt. We were reporting accountants, reporting on the historical financials, financial due diligence, working capital review and the group’s financial systems and controls. The deal was underpinned by

Toscafund, as investment manager, and London & Scottish Investments as asset manager.

WHAT WAS THE TIMESCALE?We started around Easter 2015, and completed in late October, with the prospectus issued in early November. Our work was principally carried out from July/August onwards. Initially, we focused on the structuring of the flotation. As a large group with many SPVs, and UK and US investors, getting the structure right was key. The REIT status, for instance, had to be covered off early, as it was critical to the whole transaction.

WHAT MADE THIS LISTING ATTRACTIVE?The group invests in UK commercial property, predominantly in the office

and industrial sector in the major regional centres of the UK, outside London. It has a strong focus on income and value-add opportunities. Pre-listing, the property portfolio was £386m, with a combined rent role of £37.2m reflecting a yield of 9.1%. This offered investors an attractive total return, and a target dividend yield of 7-8%, in a tax efficient REIT structure.

WHAT WERE THE KEY CHALLENGES?The main challenge was the number of entities that needed to be reported on. More than 225 pages – almost half – of the prospectus, related to the historical financial information of the group. So, we had to agree with the sponsor how we presented the financial information, while providing the information required by the regulations. Potential investors had to be able to digest the quantum of information presented to readily identify the key financial indicators. We included all the required detail

in appendices for investors, but drew out the key points up front. We had to take a pragmatic approach to balance the FCA requirements with the summary information provided.

WHAT WERE THE LESSONS LEARNED?With the company pursuing considerable ongoing investments in multiple jurisdictions, there were lots of moving parts. Experienced advisers, who have done similar deals regularly, really decide whether it gets done or not – or at very least, on time – and the costs involved. The key advisers had significant experience on listings, as well as specific real estate experience, which was essential to resolve issues as they arose.

When you’re a reporting accountant on a Main Market listing, it’s vital to present requirements in a digestible way, says Diane Gwilliam

Diane leads the capital markets team within corporate finance at RSM in the UK. She trained as a CA with PKF in Glasgow before joining RSM. She has more than 15 years’ dedicated capital markets experience, having advised companies on AIM and Main Market listings, as well as acquisitions and further fundraising, including bond issues, many with international companies in Europe, North America and Asia.

Recent deals

Reverse takeover of Selection Services Limited by Castle Street Investments Plc, readmission to AIM and £30m placing

Listing of GLI Alternative Finance Plc on the Specialist Fund Market

Financial due diligence on acquisition of Envirogen Group SA

THE CV

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