Don’t call it a champagne moment
Why some deals aren’t what they first seem
Creating and building value in a business is what drives a lot of business owners.
But it’s actually pretty rare to see an owner manager cash out and sail off into the sunset.
More likely is a stepped process of earn outs, staged payments, and often a long sequence of continued involvement in a company, and working capital investment to get the business into a stronger position.
A few of the deals we’ve covered this week cover all the angles of this wider strategic thinking.
One in particular that caught the eye was the management buyout of Stockport pipe and building supplies business, Boole’s Tools & Pipe Fitting, which is under new leadership following the acquisition by the firm’s senior management team in a deal backed by its existing bank HSBC.
A team consisting of Vicky Grimley, finance director, operations director Ryan Seville and the managing director Michael Whitehead, acquired the business from Terry and Tracy Seville, the son-in-law and daughter of the founder.
Based on Whitehill Trading Estate in Heaton Chapel in Stockport, the importer and stockholder of steel tubes and pipe fittings was established in 1961 by Ron Boole and his father Cyril, and has grown from a small fledgling company into a multi-million-pound organisation which made pre-tax profits of £1.9m on turnover of £16.6m, according to the last set of accounts available (year ending December 2022).
In 2018 theBusinessDesk.com reported on how the company was purchased back into the Boole’s family by Terry and Tracy Seville, daughter and son-in-law of the original founder Ron Boole and his father Cyril, from listed building products company Grafton Group (UK) plc, who had owned the business since 2003.
I struggled to find any reference to its disposal by Grafton. It’s one of those businesses that gets lost in the mass of numbers and assets of a huge conglomerate, but when it’s neither a cash drain, nor at the sharp end of a spectacular strategic pivot, it just ticks along until it’s time to let someone else own it.
But there it was. One solitary reference, at the back end of the 2018 annual numbers, where it just said:
“The Group completed the disposal of a number of businesses which were no longer considered to be a strategic fit within the portfolio of the Group's businesses. These included Boole's Tools & Piping Fittings Limited and Online Home Retail Limited in the UK and Saint-Vith in Belgium.”
It confirmed that Boole's Tools was disposed of on 31 August 2018, but given it was all wrapped up with the other disposals it’s hard to see what value they had against it, just that as a result of the disposals the net assets of the Group decreased by £1.9 million representing an overall loss on disposal and “the loss on disposal reflects the cash consideration of £13.5 million offset by the net book value of the assets disposed of £15.4 million.”
Adding for good measure: “The net assets disposed of include the write off of the carrying value of the allocated goodwill of £3.6 million.”
Just as they were then, the retiring Seville’s were advised by Jeremy Cole (below right, in 2018, with Tracy and Terry, their son Ryan and Dave Matkin).
He’s one of those advisers in the regions of the UK, who knows how to play a long game and thrives on long term relationships like these.
As the lawyer on the deal, Christian Mancier of Gorvins, said, “It’s a hidden gem.”
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Not too far across Stockport, and up the hill tucked behind Goyt Mill in Hawk Green, the industrial end of leafy Marple, the Arden Group have got busy.
Cementing its position as the largest die-maker in the UK by acquiring Lasercomb Dies, which has a die-making and engraving arm, which has a manufacturing site in Redditch in the West Midlands.
Martin Poynter, Managing Director of the Arden Group, which made £590,836 in pre tax profit last year on turnover of £14.1million, has spotted a market share opportunity.
“We’re excited about the opportunities it presents for our customers and our combined workforce.
“With Arden located in the North and Lasercomb in the Midlands, this acquisition will support our ambitions to expand our operations and better meet the needs of our customers across the UK and beyond, as we consolidate our efforts and share our combined knowledge of the industry.”
He also said ensuring certainty in the supply chain is his paramount issue. He says the acquisition makes the business much better positioned to mitigate risks and guarantee continuity.
The family-owned Arden Group of companies comprises Arden Dies, Arden Engraving and Arden Software. Founded as a die-makers in 1964, this year the Arden Group celebrates 60 years in business. In total, Arden Group employs 165 people around the world.
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But the deal that really caught the eye this week was the acquisition of The Lakes Distillery by London-based Nyetimber Wines and Spirits Group, which has a vineyard in West Chiltington, West Sussex, and should complete before the summer’s out.
Reading the annual report and the history of the business, it’s been a hard slog since it was established close to Bassenthwaite Lake in 2011 under the leadership of Nigel Mills and Paul Currie.
Auditors KPMG flagged up some serious risks as to whether it was a going concern, and bluntly it was running out of money.
The specialist news site The Spirits Business reminded us that the English whisky maker has raised and invested more than £30m (US$40.2m) since it was founded, including £1.7m from a Crowdcube fundraise in 2017 and a £3.5m asset-based loan.
The annual report shows that The Lakes has struggled financially in recent years, reporting a loss of £1.3m (EBITDA) on revenues of £5.8m up to the end of June 2023.
Enter James Pennefather, The Lakes CEO, and a veteran of the luxury drinks market. He arrived with strong family ties to the Lake District and commercial, operational, and leadership experience building brands for Diageo and, more recently, William Grant & Sons, where he spent the last nine years as the managing director of operations in India and regional director of the Middle East, Africa, and the Indian subcontinent.
Since he joined the business in 2023 his tough love seems to have led to him crafting a new and ambitious 10-year plan to achieve a one per cent share of the global luxury dark spirits market by 2030, and ultimately to the vineyards of southern England and the country estate of Nyetimber in Sussex.
Definitely don’t mention champagne around them, it’s “world renowned English sparkling wine”.
In the seven months to 31 January 2024, the business showed a year-on-year net revenue growth of 35%, according to unaudited numbers.
As Pennefather described this week, the plan entails an additional funding requirement of £10m over the next three years to provide the necessary growth capital to increase production capacity.
A headline number of “£71m sale” might be stretching the point a bit, because no-one’s taking much money off the table at this stage, but it is further investment in maturing spirit stocks and to a push to grow the brand’s footprint in international markets.
“The offer by Nyetimber offers the prospect of an owner with the same shared strategic vision and, crucially, certainty of funding.”
He added: “By joining the Nyetimber family of companies, The Lakes will benefit, in particular in terms of quality of production, brand marketing and routes to market.”
How they got to the enterprise value of £71m for the business, is based on The Lakes directors’ expectation for net financial debt as at May 31, 2024, which comprises £25.8m of financial debt and associated make whole payments, less £900,000 of cash and cash equivalents.
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We’ll have a closer look next week at some of the trends in the ever changing corporate finance advisory market.
I'm open to thoughts and comments from people today, having enjoyed a few insightful chats to James Edge over the last week in the lead up to his leadership of a buyout of Convex Capital from the listed professional services entity RBG plc. The buyout has been backed by Knights plc, but Convex is to be run separately.
I’m interested in the debate around whether advisers need to develop a sector specialism to be taken seriously and execute ever more complex mandates? What the prospects are for a public float after the recent carnage and, clearly, why some multi-disciplinary professional services groups just don't seem to work?
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Here’s now this is going to work going forward.
There will be a longish read piece on Tuesday and Thursday, for subscribers only.
Typically, one will focus on happenings going on in the advisory and funding market - what it means and where things are going.
The other will look at deals from a market perspective. How much was paid? what the vendor wants, who the management team are, an interview with a CEO on the buy or sell side.
On Friday, free to everyone, we’ll pull out a few of the completed deals from that week and look under the hood a bit more. I might even have an educated guess at some of the prices paid on all of the undisclosed deals we get to hear about.
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