Corporate Finance LunchWednesday, 19th February 2020
Review by Ilona Alcock, Sector Group Manager at pro-manchester
On Friday 14th February, pro-manchester welcomed over 300 business leaders to the annual Corporate Finance Lunch at The Midland Hotel. Jenn Hazlehurst, Chair of pro-manchester and Partner at EY, opened the event by thanking the sponsors – Thincats, Eversheds Sutherland and The International Stock Exchange – and Experian for producing and sharing their Corporate Finance Review.
Jenn handed over to Lisa Bardsley – EY, who in turn introduced the first panel:
• Daniel Gallagher – PwC
• Adrian Reed – GCA Altium
• Jonathan Boyers – KPMG
• Jodi Birkett – Deloitte
Lisa commented that the IPO market was very quiet in 2019 (with a few notable exceptions), and asked panellists if they thought it will pick up in 2020.
Jodi agrees it was a poor year by volume and believes this was due to the political uncertainty. There has been in change in sentiment post-election, and she expects to see further uptake later in the year. Jonathan agrees and expects to see more deals being run on dual processes, partly due to the massive amount of PE available.
Lisa asked what the most important factors are in a successful in an auction process – is it all about price? Daniel states that price is obviously important but there is more to it than that. Relationships matter and hearts and minds will come first. Adrian agrees that the cliché that people buy from people is very true. Honesty, transparency and the ability to build confidence in the business are key.
Jonathan advises sellers to retain control over process as far as possible. This includes preparing the business thoroughly, conducting due diligence and warming the buyers up. Sellers should enter an IPO knowing there are buyers and investors interested and the competitive process will drive out best value.
Next, the panel considered the multiples on offer and whether this varied between sectors. All agreed that tech enabled businesses are still very popular and seeing higher multiples. Jonathan noted that one of the hottest sectors is energy (especially renewable and alternative) with high growth in healthcare. As may be expected, the retail sector is struggling.
Adrian warns that there a lot of buzzwords in way tech is presented. What does it really mean? What benefit does it bring to the business? Gaming in particular has been a huge success: rising from £270m to £500m. There is an additional rush for content on multiple platforms and he sees a great opportunity in Manchester to bring those elements together.
There has been a lot of discussion around the changes to the audit rules, but how much impact will this have on the Big Four? The panellists agreed it will not have a huge impact, with Jodi noting it actually gives clarity to the internal split already in place. Dan believes it may force conversations with clients which can be very helpful.
Taking questions from the audience, the panel were asked to consider what drives larger IPOs. As noted earlier, the rise in IPO value is partially due to the availability of PE funds in the mid-market. These funds also tend to come with a simpler process, more certainty and more innovative deals.
After a delicious lunch, Tremayne Ducker – Zeus Capital, welcomed the second panel to the stage:
• Lizzy Tindall – Eversheds Sutherland LLP
• James Hales – Northedge Capital LLP
• Jess Jackson – GC Angels
• Xavier Woodward – Livingbridge
Tremayne opened with a discussion on the favourite deals of 2019. These included Sykes Cottages, a local business which Livingbridge invested in in 2015 and have seen increase from £5m to £25m and grow their tech team from 5 people to 50. In an interesting twist, Livingbridge decided to reinvest during the sale process.
Jess shared details of two deals, both from female founder businesses: Dr Fertility and Supply Education. GC Angels will be investing 40% of their portfolio in female founder businesses by end of the year: 20% above the national average.
The panel were then asked to consider trends and developments in the PE market. Lizzie noted that Manchester bucked the national trend with deals rising in value. She expects to see an increase in portfolio work, bolt-ons and disposals of non-core businesses. James adds there is lot of PE chasing a finite number of assets so they must be creative in how to add value, through the team, sector, tech and specialist expertise.
Jess works in the early stage market which has fallen to 2014 levels due to political and economic uncertainty. Fintech and AI are both on the rise, and gaming remains underinvested at the early stage. Whilst there is increased support for female founders, we are still operating in the dark for BAME founders. Just from looking round the room, it is clear we need to do much better. Jess argues that public money needs to be there to take the risk so private money can follow.
Tremayne moved on to discuss what are the three things the panellists look for in a business to invest in. Lizzie joked that investors are after profit, cash, and profit! More seriously, she looks for a strong management team, record of growth and sector credentials.
The importance of the management team was echoed by James and Jess, along with networking, alignment of values, traction and strength of the brand. Xavier looks to the size of the market – it doesn’t need to be a high growth market but it is essential to demonstrate a large potential customer base. He adds that while Livingbridge specialises on particular sectors, the same principles apply across the market.
There has been increase in London PE houses working in the Manchester market which appears to have driven up value. Jess sees the benefit here – not just in terms of deals but in the funding of incubators in the region – but also has concerns over inflated values and an overly gung-ho attitude. She would like to see an increase of angel capacity within the region.
James expects any successful business to attract interest from local, London and potentially international investors. However, he believes a regional touch point and proximity to the client is very important. Xavier agrees, having worked in both London and Manchester, he expects the competition but the Manchester office allows him to get closer to the businesses and entrepreneurs.
Asked about dedicated ESG funds the panel was split between a sense that this will become a component of all funds (with even Black Rick, the biggest investors in the world talking about it) and seeing the success of dedicated funds such as Palatine’s Impact Fund. At an angel level, Jess is seeing an increase in ethical deals.
Switching to consider deals from the entrepreneur’s perspective, aligned values become even more important. The panellists agreed that the early questions should aid the entrepreneur in establish the level of involvement they want from the investor. Some businesses need the contacts and expertise of the investor on a day to day basis, whereas others are keen to retain full control. Xavier summaries the key three considerations to be commitment, capability and relationships.
Sam Booth, CEO of pro-manchester, closed the event, again thanking the sponsors, venue, speakers and all delegates.