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Who's buying UK SMEs and why?

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Cash-rich major acquirers are fuelling increased activity in the sub-£50m deal-space.

In sectors as diverse as manufacturing, media, telecoms, healthcare, transport and food, UK SME's are attracting significant interest from acquirers both here and overseas. But the range of acquirer types, and how they fund these deals, may surprise you.

So how are SME deals funded?

Cash is king in this space. Nearly 60% of deals completed by BCMS in 2014 were funded by cash drawn directly from the balance sheet of the acquirer, compared to only 13% where funding came from an institutional lender.

One ongoing trend is the purchase of UK SMEs by multinationals, many of whom already have a footprint in the UK. Take the acquisition of Nottingham-based TEW Engineering by NASDAQ-listed LB Foster Inc. As Michael Spencer, former owner of TEW told me recently: “If we could have outlined who our perfect acquirer was going to be, it would have been someone many times our size. Worldwide, LB Foster turns over $750m, has approximately 40 offices and manufacturing plants, and employs 800 people. We share many customers but we don’t compete on any projects – so LB Foster was an absolute perfect fit.”

Successful deal-making requires more than a favourable market.

At BCMS we often profile hundreds of potential acquirers for our clients, and generate a genuinely competitive environment. We look beyond the obvious, and in many cases, the identity of the eventual acquirer is a surprise to our clients. As Michael Spencer notes: “The BCMS approach was proven. We had people that we thought might be interested, but none of the meetings or eventual bids we received were from them. In fact all of the people were new to us.”

As a specialist advisor to shareholders of privately owned companies, with more than 500 deals completed in the past decade alone, BCMS is uniquely placed to track SME acquisition trends. The first quarter of 2015 was one of the strongest in BCMS’ 26-year history – with deals up 92% on the same period in 2014.

And it’s not that 2014 was slow...

The BCMS group of companies (which numbers 26 offices internationally) was ranked as the world’s No 1 sell-side advisor to privately owned companies by deal volume last year, according to deal data registered with Bureau van Dijk’s Zephyr database. BCMS’ international footprint is reflective of the fact that 30% of acquirers for UK-based SMEs are located overseas.

In 2015 to date, BCMS has managed the successful sale of clients to a huge range of acquirer types. Larger strategic trade acquirers remain the key component, often acquiring non-competing companies to accelerate growth plans. We are also selling to high net worth individuals, and investment-backed management teams – as well as to large, listed organisations including Iron Mountain and Mitie. The big boys do buy smaller players, if it’s the right target. As one client remarked: “We couldn’t believe it. They have 23,000 employees, and we have 16!”

The value of the BCMS approach 

The value of our approach is also the reason behind our continued success: We don’t make any assumptions about what buyers look like, whatever the sector, whatever the size of business.

Jonathan Dunn's picture
Posted Jun 2015
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