Pricey debt, unloved on AIM and why European trade is the buyer of choice right now

A look below the headlines on the eye-catching deals of the last week or so

The last month has seen a number of deals that all say something about the state of the market.

This week alone has seen two businesses C4X and Byotrol, signal their intention to quit the Alternative Investment Market altogether. 

As Tolstoy said, "all happy families are alike; each unhappy family is unhappy in its own way."

Both C4X and Byotrol have seen their respective valuations shredded in their life on the junior market. They won’t be the last.

Here’s a thought though, with the main London stock market looking at cutting regulation, and fees, to compete with Amsterdam and New York, in a sweep it will bring the cost of a listing much closer to the so-called light touch and cheaper AIM.

I’ll just leave that thought there for now. 

A few other trends though, notably, once again, the appetite for European trade to buy well-run UK businesses with good management and strong market share.

Findel, an educational supplies business, was sold by northern private equity house Endless. This is significant because it represents one of those remarkable private equity exits that once the dust has settled everyone agrees is a good deal, but in the thick of the action it’s just muttered as another “undisclosed”. 

My sources told me that Endless made a very healthy return on this investment. Once you’d factored in debt repayments, including to the £18m facility with Santander, since the buyout, they will have made a four times return. 

Findel made pre-tax profits of £4.67m on total turnover of £115.8m in the last financial year to March 2023. The usual number quoted in private equity valuations is EBITDA which Findel posted £10.3m.

The company’s current leadership team undertook a management buyout (MBO) of Findel from Studio Retail Group in April 2021, valued at £30m.

A deal to sell the business for a reported £50m to the local authority backed Yorkshire Purchasing Organisation (YPO) was blocked in June 2020 by the Competition and Markets Authority (CMA).

The MBO from Studio Retail Group was supported by Leeds-based private equity firm Endless who are understood to have made a return of four times their initial investment.

Overseas trade seems to  have been the most prolific type of acquirer this year, this time with Manutan, a major Parisian player in European B2B ecommerce.

They see the deal as part of a wider strategy to expand its “Local Authorities Division” in Europe. Until now, it’s only operated in the French market, with the brands Manutan Collectivités, Papeteries Pichon and Casal Sport. With Findel’s acquisition, the Division will account for 30%* of the Group's total sales, with some 440,000 products and around 750 staff. In short they’ve bought into the UK as a new market.

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Last Friday we saw two chunky deals in the region involving North West stock market businesses.

First, let’s take a look at Accrol, the Lancashire-based paper company. Their proposed deal will almost inevitably lead to them coming off the stock market entirely.

But my sources are telling me that the recommended sale to Portuguese paper mill business Navigator might not be the end of the matter.

Navigator has signalled its intent to take over Lancashire-based Accrol valuing the business at approximately £127.5 million, at 38p a share. But that’s when the share price was 34p. Now it’s trading on the open market at 38p a share and hedge fund Samson Rock, an equity event driven investor which jumps on stocks at such critical times, has built up a 5% stake. 

For Navigator the deal appears to be the culmination of a transformation plan that started when Accrol went public in 2016, growing organically and through three acquisitions since 2020. 

But as we said on the announcement of the proposed deal last week, Accrol’s share price has been weak since late 2018, with a significant turnaround in the business not resulting in a sustained recovery in price. 

Here’s what the company said last week: “As previously announced, Accrol has experienced strong financial and operational performance throughout the recent past, delivering profit upgrades and improving margins but when coupled with broader economic and political uncertainty, the wider AIM market has suffered significant challenges and has as yet not resulted in a strong upward trend of the share price.” 

It’s worth looping back and looking at what took them there. 

Private equity investor NorthEdge backed Accrol from its maiden £225m Fund, taking a 46.25 per cent stake in July 2014 and it grew quickly.

When it floated on the AIM market in June 2016 it had an enterprise value of £116m and market capitalisation of £93m and NorthEdge retained a 15 per cent stake in the company.

Accrol then successfully raised approximately £63.5m (before expenses) by placing approximately 63.5m existing and ordinary shares with investors at a placing price of 100 pence per ordinary share.

Looking back at the kind of return the business could have generated were it a private equity backed business with a steady profits growth, then there’s probably still a fair bit more upside in the business. 

It’s a high stakes game, and the Accrol board, for now, is recommending shareholders take the deal on offer. What it has served to do is spark the interest from private equity. 

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Also last week, looking at James Fisher - here’s a sprawling group, spanning disparate sectors and share price  - profit warnings and acquisitions and longer term strategy. Selling off an oil exploration service business, RMS, to an expanding American oil exploration technology company, Champion X, that is in acquisitive mood and hungry for new business. For Fisher, it’s also enabled them to address another urgent structural economic issue - the price of debt. All businesses are facing this, and this looks to be another example of refinancing deadlines focusing minds.  

Back in April 2023 an updated strategy looked at improving operational performance and driving sustainable and profitable growth through the provision of innovative marine service solutions to the market verticals of Energy, Defence and Maritime Transport. 

They were honest enough to admit that delivering that would require a “reshaping” of the whole group to “simplify and streamline” its portfolio of businesses.

RMS was one of the businesses that was identified as “non-core” despite being a leader in its markets with a robust financial performance, but minimal synergies with the rest of the group. 

As well as RMS being a bit of an outlier in the field of oil exploration, rather than core marine services, it also gives the Fisher board an opportunity to address another key objective - “reducing financial net indebtedness”.

All in all, to date, the great Fisher sell off has seen Subtech Europe and James Fisher Nuclear go, as well as divesting non-core assets including Prolec, Mimic, Strainstall and two dive support vessels. In total, it’s generated gross proceeds in excess of £60 million in the past three years.

The debt issue is crucial here. Delving into the paperwork on this, on 6 June 2023, Fisher entered into a new £210 million revolving credit facility with a maturity date of March 2025. Its capacity as of 31 December 2023 was £193 million following a step down and amortisation of the facility and is subject to certain leverage and interest cover covenants.

So far so good, but by 31 December 2023, approximately £168 million of the revolving credit facility was drawn and Fisher had net debt for covenant purposes of about £150 million. 

While the board ‘think that’s OK for now’, operating conditions in a number of its markets remain in their words “volatile”. And in addition, dropping debt levels can only help as the company looks to refinance ahead of its maturity and on more attractive terms.

All told, the deal with Champion X has netted Fisher approximately £83 million after selling the business at a multiple of 7.4 times based on the estimated EBITDA for the 12-month period ended 31 December 2023 for RMS.

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