North West England accounts for 10% of the UK’s GDP. Jason Sinclair looks at how the region is reshaping its economy, with activity in technology, media and telecom and cyber security, and the role of corporate financiers and investors in its modernisation

There are three specific areas picked for growth in Manchester’s city strategy, says Richard Bell, managing partner for UK financial advisory at Deloitte: healthcare innovation, advanced materials innovation and ensuring it’s a digital city. “And the M&A markets reflect those three things that local government is focused on. There’s a mirroring of where the investment is going at a government and private level.”

Bell has spent more than three decades in corporate finance in his native North West and, like others in the region, he is reporting a busy time for deals. Private equity pockets – local, national and international – are deep, corporates are active and the IPO market has been an attractive option. On the other side of the coin, some owners are either selling up after the double delay to existing plans caused by the political uncertainty of 2018/19 and the unprecedented pandemic upheaval of 2020/21. Other companies that have emerged from successive lockdowns with strong balance sheets and models are proving attractive targets for deals.

As we start to bounce back from the COVID-19 pandemic, Bell’s colleague, Oliver Tebbutt, a corporate finance advisory partner in Deloitte’s Manchester office, says that growth-driven businesses are leading M&A activity, particularly technology-led or consumer-facing firms leading disruption or responding well to shifting consumer appetites. “That’s led to growth and the need for capital, or to them becoming targets,” he adds.

Pump it up

M&A and deals are not necessarily features of the well-trailed ‘levelling up’ agenda for the ‘red wall’ seats surrounding the regional hubs of Liverpool and Manchester, but that could add extra impetus beyond the major cities. “Levelling up has been around for a while,” says Bell. “But, in my opinion, there does seem to be some political motivation to deliver. In the North West, for example, the Ribble Valley and Burnley are vastly different and they sit next door to each other, so there are some really nuanced issues.”

Tebbutt says the firm is adding four more members to its North West M&A team, showing where they “see the market going over the next 12 months and the pipeline that has been built”.

Another person scouring the local market for deals is Jon Pickering, head of new business at Manchester-based private equity house NorthEdge Capital. “It’s been all hands to the pump since summer last year. We’ve actually completed five deals in five months, so it’s been an incredibly busy period.

“There are some great local businesses that are doing really well,” Pickering says. “So, as an investment firm, it’s our job to find those businesses and to invest in them and help them continue to grow.”

Location, location

Pickering sees a lot of activity regionally in technology, media and telecom (TMT) and cyber security, as well as for business services and outsourcing firms. “From an investor’s point of view, there are hot markets in anything where you’ve got contracted revenue or the ability to predict the future earnings of a business because you’ve got good revenue visibility.”

Listing his local competitors – such as Inflexion, ECI Partners, Livingbridge and LDC – Pickering says all, including NorthEdge, have made investments in TMT in recent months, adding that “the local market being buoyant is brilliant for all concerned who work and live in the North West”.

“The big differentiator for all those competitors is their local presence,” he adds. “Don’t get me wrong, London competitors have invested, but they’re very much in the minority. We just happen to be a North West-based fund with two other regional offices. I think that regional approach to doing business, where we’re on the doorstep and putting quite a lot back into the local economy, bodes well when you’re having big conversations with entrepreneurs.”

Lockdown made the local presence more important than ever. “Life finds a way,” Pickering says of kickstarting deals during the pandemic. “We’d meet in local parks or CEOs’ gardens, or I’d be taking the chief exec’s dog for a walk with them. That also showed that we don’t have two heads in the ‘big, bad private equity world’ and we’re normal individuals who can build good relationships with business owners in informal environments.”

Any time, any place

For Jonathan Boyers, who leads KPMG’s corporate finance practice in the UK and oversees the firm’s deal advisory business across the North, working virtually has had some advantages: “It’s been much easier for deals in the local community to access support from people all over the place. Almost every deal we’ve done in the region in the past 12 months has included people joining calls from California, East Asia or the Middle East, and certainly from London. Geography is no longer a restriction.”

Boyers, a member of the Corporate Finance Faculty’s board, adds: “We’ve probably had the busiest period from December to March that we’ve ever had in the region.”

He reports the presence of “so much UK private equity money as well as global. The buyers absorbed the number of deals in the market, so prices were maintained. And this year, the IPO market is open. We’re still pitching to sell businesses. There are still a lot of people thinking of exiting, having experienced strong performance through COVID-19 and looking to exit on the back of their new momentum.”

Boyers says: “Around about half of the deals that we’ve done this year have been either technology businesses or in tech-enabled business services.” Other sectors attracting attention include sustainable energy, financial services and healthcare.

“The regional North West private equity firms have been very busy,” Boyers continues. “About half of the deals we’ve done in this year will have been bought by private equity houses. Quite a few of those have been local ones, but we’ve also sold businesses internationally, such as logistics company InXpress to US private equity house Hudson Hill Capital. And then we’ve also sold businesses to London houses. There’s been lots of activity across the spectrum of private equity – local, national and international.”

Tight-knit communities

Boyers says that trade buyers are still in the picture, as some larger corporates chase growth through acquisition to justify high stock-market valuations. Brexit has also driven some activity, with some corporates needing to acquire in the UK to hedge the effects of Brexit. “In the same way, there are a number of local UK businesses buying in Europe at the moment,” he adds.

“Over the past five or six years, there’s been a real maturing of the North West corporate finance community, with the deal sizes and complexity increasing significantly.”

That complexity hasn’t stripped the local community of its collegiate benefits, suggests Bell. “I think we’ve found our own ways to keep going. The region’s communities are really powerful. You don’t really lose that, so everybody’s been finding a way to keep in touch with each other. That’s the thing that’s always appealed to me in the regional market. It’s very easy to get things done and to get access – we’ve done well as a business out of that, over many years,” he says.

Tebbutt agrees: “It’s a strongly connected community, where we’re blessed with having the breadth of professionals that can help our clients, all having worked in the region for a long time. It’s been a challenging period of time and there’s been a lot of change. That means the importance of trusted local relationships when selecting an adviser remains as strong as ever.”

About the article

Read the full article in the Corporate Financier May 2020 edition. Access this magazine as well as our extensive archive brought to you by the ICAEW Corporate Finance Faculty.