Yorkshire deals market review in association with Grant Thornton

Duncan Morpeth.

Despite several major retailer collapses recently, billion-pound deals and a flurry of MBO’s helped make March a healthy month for dealmakers, says Duncan Morpeth, Associate Director at Grant Thornton in Yorkshire.

There have been several billion-pound deals recently – March saw regulatory approvals and CMA clearances leading to French-tyre giant Michelin acquiring Hessle-based, Fenner (£1.3bn). This trend has continued with the recent Call Credit and Sky Bet transactions.

The completion of two similar transactions opened and closed the Yorkshire deals market in March; both showcase that success can still be had from servicing retailers and that solving complex solutions efficiently for customers delivers significant value-add.

March saw Styles and Wood officially join forces with Leeds’ Southerns Group to form Central Square Holdings, creating a combined entity to source, manufacture and manage goods not for resale (‘GNFR’), as well as provide installation services direct to the end-market. Similarly, Sigma Retail Solutions, which sources, manages and installs GNFR on behalf of retailers, was boosted by an investment from Three Hills Capital Partners (‘THCP’) to support its future organic and inorganic growth initiatives.

Managing GNFR is consistently considered a headache for retailers. GNFR creates complex logistical requirements due to transporting non-uniform fixtures and fittings – this is hard to manage, often inefficiently sourced and logistically challenging to install as store concept changes are delivered outside of trading hours.

In recent times, having a retail-focused customer base is often considered challenging for investors, compounded by the fact that 2018 represents yet another year that has seen many companies fall into administration, including Toys R Us this month. But for GNFR providers, a competitive retail landscape is an opportunity.

Retailers recognise that increasingly fickle customers require continuing concept change – ‘keeping things fresh’ – and this means that GNFR and product presentation are considered fundamental to providing an in-store experience that will drive footfall and capture spending.

Combine this with an ever-increasing number of trading interventions, which now extend far beyond Christmas to cover all occasions and seasons, and an increasing number of in-store concept changes, (like the Sainsbury’s and Argos integration), both Sigma and Styles and Wood are ideally placed to capitalise on this changing retail landscape. What’s more, both businesses are continuing to diversify into other end-markets, such as leisure and hotels, providing downside risk through a more diverse customer base.

These were both inherently complex transactions. The Southerns/Styles merger saw a listed entity being acquired by a privately-owned Group with debt funding being provided by two separate parties (HSBC and Tosca). Sigma, which operates through five intertwined divisions, each with separate working capital profiles, were provided with a tailored financing solution by THCP.

Both businesses have delivered strong growth over the last few years on the back of horizontal and vertical integration, capturing additional margin along the way. Further organic growth from cross-selling services across a more diversified group, and increased M&A activity using the financial weight of capital provided by supportive investors suggests this positive trend will only continue.

In other complex deals, GMI Energy split from GMI Construction, following a pair of MBOs which saw the creation of two new companies. Furthermore, Pharmacy2U, which was originally established through the intricate merger of Pharmacy2U and Chemist Direct, received secondary investment from G Square Capital.

Finally, we wish the best of luck to all the other businesses that received new funding this month, including: Checkmate Fire Solutions; Independent Forgings and Alloys; Swift Caravans and Primal Bars.

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