The number of high value buy-out deals in Wales doubled last year, as MBO activity has rebounded to pre-credit crunch levels, according to an analysis by Hugh James solicitors and PwC.
According to Hugh James and PwC, there were six buy-out deals with an enterprise value of more than GBP3million in Wales in 2014 – up from just three in 2013.
The last time there was this number was in 2007. At the height of the recession in 2009 and 2010, no MBO deals of this size were recorded in Wales at all, with only one in 2011.
Hugh James say that increased availability of funding and more attractive valuations are key factors behind this sharp rise, as banks and institutional investors’ appetite for backing MBOs grows too.
Gerallt Jones (pictured), Partner at Hugh James, says: "Activity in the Welsh buy-out market has been largely stalled since the 2008 downturn. However, now it seems that we may have reached a tipping point. As the economy has recovered, both on a local and national level, there is a much greater sense of optimism.”
Marc Davies at PwC says: “Our experience, which is borne out by our analysis, is that earnings have improved and capital has started to return to the market with bank funding now easier to find. This has resulted in a marked increase in Welsh MBO activity as management teams, backed by external funders, are seizing the opportunity to acquire their businesses at attractive multiples."
Hugh James say that since the Welsh economy is dominated by private businesses, many of which are owner-managed, there is a unique opportunity for dealflow to accelerate in Wales.
Gerallt Jones says, “In Wales a particularly large proportion of high quality companies that have consolidated and grown during the last few years still remain in the hands of their original owners. Many of them could now be looking to realise a profit from their businesses after years of hard work to build and protect value.
“Across technology, industrials, financial services, media, life sciences and business services, Wales has a wealth of strong companies that are ripe for investment. There are many backable management teams hungry for the chance take their businesses to the next level, and would be ideal candidates for the buy-out journey.”
PwC works with many of the Private Equity firms with their eyes upon the Welsh marketplace, and Marc Davies highlighted that, "these firms are looking to invest some of the substantial cash reserves they have been building up since the recession in this region.
“Wales has a unique market landscape and offers a different proposition to the rest of the UK, with more grants available to companies and Welsh Government investment in infrastructure projects such as the Cardiff Metro which could deliver significant advantages to business.
“Identifying exciting opportunities here that are under the radar of other investors could prove to be very rewarding.”
