Mid-market private equity investor LDC says there are signs transaction activity had started to rebound as more companies looked beyond the impact of the pandemic to long-term growth and diversification strategies.In a half-year update, the firm announced it had backed a total of 18 investments in the first half of 2020. The majority completed since the onset of the pandemic, with momentum increasing as eight deals closed in the past four weeks alone, and its pipeline for the second half of the year building quickly.
LDC, which plans to invest GBP1.2 billion of capital over the next three years, says an important area of focus had been follow-on investments for portfolio firms seeking to scale and diversify in response to new market opportunities.
Examples include cloud services technology firm Babble’s acquisition of business telecoms provider Lake Technologies and Mandata’s acquisition of Returnloads.net, the UK’s largest online haulage and freight exchange. LDC is also supporting MSQ Partners’ intention to buy the Be Heard Partnership (LSE: BHRD), subject to shareholder approval, and has backed Yorkshire letting agency Linley & Simpson’s latest acquisition – its 13th in just two years.
New investments in the year include Connect Health, the largest independent provider of integrated community musculoskeletal and physiotherapy services in the UK, Ashtons Hospital Pharmacy Services, the Brighton based provider of medicine management solutions, online retail support services firm James and James Fulfilment, and Solid Solutions, a market leading reseller of 3D design software.
The aggregate enterprise value of new deals during the period approached GBP215 million.
The firm, which is part of Lloyds Banking Group, says current conditions had created a unique opportunity to transform the scale, shape and resilience of many businesses, especially through so-called ‘buy and build’ programmes within its existing portfolio companies and new investments.
Successful divestments over the same period have included Fishawack Health, the UK-headquartered global healthcare communications agency, insurance law firm Keoghs, rental agency group Pure Cottages and the sale of shares in listed video games business Team17, each of which had grown quickly during LDC’s tenure through acquisitions as well as organic growth.
Martin Draper, Chief Executive Officer at LDC, says: “Whilst most businesses have had to prioritise their operational and financial response to the Coronavirus outbreak in recent months, those management teams who’ve successfully stabilised their businesses are now re-appraising their longer-term plans.
“For many, acquisitions of competitor or complementary firms – whether bolt-on or more transformational – provide the perfect opportunity to scale and diversify, making them more resilient in the long run. As we’ve seen in previous crises, it’s in times like these when firms can create significant shareholder value through strategic acquisitions.
“Whilst new transaction activity was understandably slower in April and May, there are signs that the M&A market is rebounding with far more discussion and activity. Despite the many real challenges posed by Coronavirus, the fact remains there are businesses out there with robust and realistic growth strategies looking for partners who are able to support their longer-term ambitions as they navigate through the current climate. Our recent investments are testament to that.
“At LDC, we’ve been backing business through economic cycles and shocks for almost 40 years, supported by one of the UK’s largest financial institutions. It’s important that the UK’s business leaders know there are firms ready to invest in the UK’s best small and mid-sized companies, providing capital for those management teams with the ambition to continue their journey.”
