Hello Rainmakers,
The Secret Investor is back, and he’s not only been playing padel, but has also been letting slip a few inside secrets on what has been keeping investors awake at night.
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Well… where do I start? Last time out I promised to steer clear of the political minefield, and I stand by that as a general rule. But when the former Mayor of Greater Manchester is now sitting in Number 10, I think even a deals column is allowed to make an exception!
For those who have been hiding under a rock (or on a sun lounger) all summer, Andy Burnham won the Makerfield by-election in June, was the only name on the ballot for the Labour leadership, and now feels like he’s had a month or two to get his feet under the desk at Number 10 (or is that Number 10 of the North?). Back home, Bev Craig has taken over as Mayor, and one of her first moves was a £20m fund for our high streets.
Having one of our own at the top table is a genuinely unusual position for the North to be in, and there’s definitely a decent number of deal doers who think that “Andy gets it”.
Whether “getting it” turns into anything we can actually bank is another matter, and he has more than his fair share of cynics and critics at this point!
The date everyone in my world has circled is 28 October. Income tax, NI and VAT are off the table, which means everyone is looking nervously at capital gains. Talk of lining CGT up with income tax rates, or taking another swipe at Business Asset Disposal Relief, is doing exactly what you’d expect. I’m aware of double-digit deal numbers being pushed hard to complete before Budget day. There’s nothing like the threat of a tax hike to focus a seller’s mind! And believe me, I have my fair share of deal scars from the Covid / 2020 / 2021 budgets when similar rumours were flying around. Add in inflation creeping back up and a Bank of England that looks ever more hawkish than expected with each meeting and you can see why nobody is expecting cheap money to rescue valuations in the deal community any time soon.
On a brighter note, there has been some good news for those of us who rely on public money to plug the gap in the regional funding market. The British Business Bank has announced a new £150m Northern scale-up fund, writing £5m–£15m cheques alongside NPIF II. That's precisely the gap I’ve moaned about in this column before, where businesses outgrow the regional funds but are still too small for the London crowd. And PXN’s NPIF II equity fund has been topped up by £80m, taking it from £100m to £180m. That’s a fair old vote of confidence in the team. It’s great to see the PXN team getting some success with a couple of recent exits, but a couple of the more eagle-eyed operators in the VC community have asked me recently if I have any inside knowledge of how the track record / carrying values they presented at the time of winning the first £100m has panned out…
Speaking of PXN, the deal that made me smile most this month was their £3m follow-on into The Padel Club. It started in Wilmslow, and was the first NPIF II investment PXN made.
I’ll admit I was a padel sceptic not so long ago, but I’ve played more over the last year and it really is a great game. I was having a debate recently with a few other members of the CF / PE community, around who the best player is in the Northern deal community. Jim Darlington, the main man at Henbury, got my vote – he’s about as talented and sensible on a padel court as he is when working on deals.
The numbers in the sport of padel suggest I’m not alone with this newfound enthusiasm, with the number of regular participants more than doubling last year, and there’s a real question now about who consolidates this space first. I assume that is the investment thesis behind the latest NPIF investment; however, I do think we have now reached the point where you will start to see success and failures emerging on a site-by-site basis, so personally I would tread relatively cautiously around an aggressive land grab.
Elsewhere in venture, Manchester cyber business Cytix closed a $7m Series A led by Northern Gritstone, with PXN alongside. And the Street Group result was a cracker, with a 4.4x return for NPIF II as Hg came in at a valuation north of £200m. Although that business has clearly grown into the PE world, it's a great reminder that northern tech doesn’t have to relocate to Shoreditch to get a proper valuation!
On the PE side, NorthEdge have had a very tidy few weeks. They sold Stockport-based Distology to Foresight (the third exit from their SME fund, which is averaging 4.3x), then followed up a week later with the sale of Correla at 4.7x, the first realisation from Fund III. Two exits announced in a fortnight, in this market, deserves a nod.
On the public markets, THG posted decent half-year numbers (EBITDA roughly doubled) but still saw the shares slide, something which I’ve seen become a real feature of listed stocks since Covid. I put it down to investor confidence, something which remains extremely fragile. Simplistic investor mentality is “good news, must be good time to sell”. All this while Mike Ashley’s Frasers has crept above 11% on the THG register… Across town, Debenhams Group (the artist formerly known as boohoo) has offloaded Nasty Gal for $16m as the aggressive tidy-up continues.
As for IPOs, it remains very quiet. There are no northern listings to speak of, and The Beauty Tech Group’s interims today were very well received, with the share price shooting up to over £4 by lunchtime. Quite rightly, it was probably the most anticipated public markets moment for the North. After July’s upgrade, they have kept the momentum going. I think the market needs a few stories like this one to stem the outflows, which is why their continued success was so well received, I feel.
On an even more positive note though, it was nice to see the market accommodating a management team taking a substantial sum of cash off the table. Well played to the exec team of Applied Nutrition for placing an almost 3% stake into the market and not destroying shareholder confidence – hopefully a sign of things to come!
Until next time!
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