Difficult M&A market conditions limit Convex Capital deals
Manchester-based corporate finance boutique, Convex Capital, has experienced difficulty in closing deals and will fail to meet annual targets.
Its parent company, London-based professional services group RBG Holdings, issued a trading update for the year to December 31, 2023, in which the AIM-listed group updated the market on its specialist sell-side corporate finance advisory business, Convex Capital.
It revealed that it continues to have a strong pipeline of 18 deals.
A number are in advanced stages of negotiations and had been forecast to complete in the fourth quarter, but RBG said transactions are taking significantly longer to complete in 2023 as a consequence of the current economic environment and weakness in the M&A market.
Convex Capital completed three transactions this year, delivering total fee income of £2.19m versus a previous board expectation of £4.5m.
The board said, until recently, it had confidence over its expectation, but it has now become clear that no more transactions will complete this side of the financial year end.
It said the pipeline is positioned to deliver the delayed transactions in 2024.
RBG said it expects Convex to deliver £2.2m of revenues in the year, which compares with £5.3m the previous year. Its legal services division has also underperformed against the prior year, with revenues of £39.7m down on the 2022 figure of £44.5m.
Consequently, RBG said it expects total revenues of approximately £42m, which will be slightly lower than market expectations, and adjusted EBITDA is expected to be approximately £4m, after adjusting for £11.4m of litigation write-offs, £1.4m of legal and professional fees, £2.8m of costs in its Lionfish business, and £0.9m of other non-underlying costs.
Non-executive chair, Marianne Ismail, said: “The board recognises that FY 2023 has been a year of significant transition and a disappointing one for shareholders. Nonetheless, the board is confident that the business is moving into FY 2024 on a significantly stronger footing than at the start of this year.”
She added: “There are early signs of recovery in some of the key areas of legal services that were badly impacted in 2023, but we will be presenting a more conservative budget for 2024, with revenue and profit expected to be slightly higher than 2023, that is designed to demonstrate both clarity and profitability to investors and other key stakeholders.”
