The impact of the pandemic saw the number and value of business exit deals in Wales in 2020 drop on 2019 levels, but activity has rebounded so far this year, shows new research from Gambit Corporate Finance.
Using published deal value data, as well as its own market intelligence on non-disclosed values, Gambit’s fifth annual survey of Welsh company exits - which includes management buy-outs, buy-ins, leveraged buy-outs and flotations - shows some of the biggest deals, although at the time subject to regulatory approvals, were Admiral’s sale of its global price comparison firms, that includes Cardiff-based Confused.com, to RVU in £508m deal and the sale of Newport-based Gocompare to Future for £594m.
In terms of deals below £100m, which represents the lion’s share of exit deals in Wales, there were 67 completed in 2020, compared to 102 in 2019. However, while down significantly the number mirrored the average number of deals in Wales from 2010-19.
The 67 deals had a total value of £170m, compared to £333m in 2019. However, the collective value was not far off the £180m achieved in 2018.
South East Wales continues to dominate with 67% of deals last year followed by North Wales at 21% and South West Wales and Mid Wales 7% respectively.
Whilst companies of all ages were exited during 2020, 48% were incorporated between 1995-2010.
The average age of shareholders exiting via trade sale was 58 whereas via MBOs the age was slightly higher at 60. Overall, the average age of shareholders exiting was 59, relatively unchanged from 2019.
Partner with Cardiff-based Gambit Frank Holmes said: "Trade sales continued to be the most favoured route to exit accounting for 79% of deals with an average consideration of £6.8m in 2020.
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"The largest trade sale to feature during the year was the completion of Bidvest Group’s acquisition of PHS Group for a £495m. For disclosed deal values under £100m, Icosa Water was acquired by Last Mile Water for £22m.”
The second most prevalent route to exit was via MBOs, with the largest disclosed deal being the £115m Iceland Foods buy-out.
For deals under £100m the average consideration for an MBO was £16.2m .The MBO of TST Cardiff achieved the highest disclosed value with a consideration of £22m.
Mr Holmes said: “Historically low interest rates and heightened levels of available investment capital enabled private equity leveraged buy-outs (LBO) to be the third most popular exit route for Welsh companies. Peak Rock Capital’s £35m LBO of Halo Foods was the largest disclosed deal to take place in Wales in 2020.”
Only one flotation occurred, with Penarth headquartered EKF Diagnostics spin-out, Verici DX listing on the Alternative Investment Market raising £14.5m . There were no de-listings.
Despite the imposed travel restrictions, 16% of exits were cross border transactions. Over half of the foreign acquirers were domiciled in the United States, and European acquirers ranked second.
A significant number of cross border deals occurred in Q1 2020 before the pandemic took hold.
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The largest disclosed cross border transaction was the £10m institutional buy-out of Wrexham-based Chetwood Financial by US-based Elliott Management Corporation.
海角视频 bidders accounted for 84% of acquirers whilst Welsh purchasers represented 48% of this cohort.
The services sector accounted for over 80% of exits and within this sector 22% of the deals were in the business and IT sub-sectors. Notable deals included the trade sale of Pinnacle Office Equipment to Ethos Group and Onecom’s acquisition of Glamorgan Telecom.
Mr Holmes said the rollout of the vaccine and an improving economic outlook had increased deal activity this year.
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He added: "The rapid roll-out and take-up of the vaccine will be a key driver in the relaxation of restrictions and subsequently spur private sector confidence, valuations and in turn encourage shareholders to contemplate their exit options.
“During Q1 2021, 18 reported Welsh exits have taken place, notably the completion of Future Plc’s acquisition of GoCo Group for £594m. A significant proportion of Q1 transactions included private equity backed buyers who continue to deploy their record levels of capital firepower.
"As an indication of these M&A market trends, Gambit has completed five exit deals during Q1 2021 which includes Heathpak’s sale to Dutch private equity backed Solidus Solutions and the MBO of Learna with funding from Harwood Capital.
“A notable driver for shareholders was the rumoured potential increase in capital gains tax which was given a reprieve in Rishi Sunak’s Budget in March.
"However, this perceived threat remains on the horizon and will motivate owners to explore exit options including a notable increase in flotations whilst capital markets remain buoyant.”