Reviewing 2020, Looking forward to 2021

Reviewing 2020, Looking forward to 2021

11 February 2021

2020 was undoubtedly an extraordinary year in every sense of the word.

Whilst M&A activity was understandably impacted during H1 as a result of the pandemic, H2 saw numerous deals re-engage and a number of live projects cross the line with 12 deal completions in Q4. We closed the year having completed 25 transactions, with a total aggregate value of over £900m.

The Spectrum Debt Advisory team have had another busy year supporting the private equity community with acquisition finance, capital raising and refinancing projects whilst also offering guidance throughout the pandemic to owner managers on how best to manage short-term liquidity needs, approach the debt markets for additional funding, and navigate / access the various government schemes such as CBILS and CLBILS.

We achieved a significant milestone in the year, and in October we celebrated 10 years in business. Whilst we were disappointed that we couldn’t celebrate in person with everyone who has supported us on our journey, we took the chance to look back at some of the amazing things with have achieved over the years.

Key highlights from 2020:

  • 25 Deal Completions with an aggregate value of over £900m; including 12 which closed in the last quarter.
  • £440m of debt raised for business owners, investors and management teams looking to complete a transaction or to support future growth.
  • 20 PE deals completed with an aggregate value of more than £800m.
  • Despite the pandemic 6 new recruits have joined the team in 2020/21 adding strength to our M&A, debt advisory, research and support teams.
  • We celebrated our 10th year in business.
  • Six award wins, including ‘Corporate Finance Team of the Year’ for the fourth year running at the Thames Valley Deal Awards 2020; ‘Dealmaker of the Year’ awarded to Ian Milne and ‘Corporate Finance Adviser of the Year’ awarded to Simon Davies at the Insider South East Dealmaker Awards 2020.
  • Finalist in the ‘UK Corporate Finance House of the Year’ category at the Real Deals Private Equity Awards 2020; and Shortlisted in the ‘Debt Adviser of the Year’ category at the Unquote British Private Equity Awards 2020.

Looking forward to 2021

We start 2021 with a full pipeline of transactions and 32 staff across three offices. We anticipate adding to the team throughout the year ahead and plan to recruit further senior resource in our London office to support the growing pipeline of Private Equity transactions.

The government’s decision to scrap the Autumn Statement in September presented a window of opportunity for business owners to profit from one of the lowest tax regimes in Europe for those prepared to act promptly. The Spectrum team are currently working on a significant number of transactions all set to close in Q1, but in addition have a strong pipeline stretching into H2 and beyond.

Our Technology Sector specialism has been firmly established under the leadership of Director James Mines, and recently closed Sprout IT, Babble and VIPR, and is currently expecting to complete a number of further interesting technology transactions during this quarter. Businesses in this sector continue to show strong performance and resilience, and this is an area we expect to continue to deliver strong M&A throughout 2021.

We are pleased to say that our international network continues to grow, and in the last year we have welcomed new member firms in Japan and Chicago – further broadening our access to global potential acquirers and adding local intelligence on market and sector M&A trends in their home countries.

As predicted at the beginning of last year, whilst we continue to see strong interest from overseas acquirers, 2020 saw a slight move back to more PE buyers and UK-based trade interest with 22% of disposals to overseas buyers compared to 38% in 2019 and 60% in 2018. The current pipeline for 2020 reflects a similar trend to last year, with a 50:50 split of anticipated company sales to PE versus trade, and approximately one third of the trade sales expected to complete with potential overseas parties.

Technology (35%) Business Services (22%), and Financial Services (17%) transactions dominated our completions in 2020 and the 2021 pipeline looks broadly similar, with Technology sector mandates leading the way along with Business Services as well as some exciting Consumer, Industrials and Healthcare deals in the mix.

A Selection of 2020 Lead Advisory Deals

1. MBO of GHG Limited, backed by YFM Capital Partners
2. Sale of Porterhouse Medical to imc group, backed by Waterland Private Equity
3. Acquisition of VIPR by Tenzing Private Equity
4. Disposal of Ingenie on behalf of Watchstone Group PLC to A-Plan
5. Management advisory to BIMM through the exit of Sovereign Capital Partners
6.Sale of Babble on behalf of LDC to Graphite Capital
7. Sale of Sprout IT to CTS
8. Secondary buy-out of Vectair systems, supported by a consortium of US funds including Oxbow Industries and Arcspring, providing an exit for Mobeus

Spectrum Debt Advisory Activity

Over the course of 2020 our debt advisory team remained very active despite the market disruption created by Covid-19, completing 14 debt deals and raising £440m for owner managers and private equity investors completing acquisition transactions, raising working capital or refinancing and extending existing facilities. The business is led by a team of highly experienced individuals with many years of frontline debt market experience which, even in unprecedented market conditions, enables them to offer a clearly differentiated approach to the delivery and execution of debt advisory services.

A Selection of Debt Advisory Deals:

2020 Debt Market Review, and Outlook for 2021

Debt market activity proved somewhat varied throughout the year with strong momentum in new deal flow during Q1 temporarily drying up in late March and throughout most of Q2 as the first national lockdown commenced. At that time, we had four existing debt processes in completion stages, all of which we were still able to close; testament to both the quality of the underlying transactions and the commitment and supportive approach of the lenders involved. There was, though, an undoubted hiatus in new deal flow in the early months of lockdown as lenders generally retrenched to focus on their existing portfolios and managing liquidity.

The overall reaction of lenders to initial liquidity challenges and requests for support was, by and large, supportive with repayment holidays provided, tenor extensions offered, and in some cases, temporary covenant waivers agreed. Where requested, several private debt funds also provided assistance through the conversion of all, or a portion of cash pay interest into PIK to preserve liquidity.

By the beginning of Q3, portfolio triaging had been completed and lender focus turned to both support for new lending deals in Covid-19 resilient sectors (e.g. technology, healthcare and e-commerce) or the provision of funding under Government schemes (e.g. CBILS). Throughout the remainder of 2020 a combination of significant CBILS related funding requests and a preference to prioritise existing customer requests has seen, in our view, a higher proportion of new debt deal activity in the lower mid-market undertaken by private debt funds and challenger/specialist banks at the expense of the traditional clearing banks - not least due to their smaller and younger portfolios that has largely insulated these institutions to date. This is a trend that we expect to see continue as we head into 2021 perhaps signifying a significant structural change in UK debt markets.

The Spectrum Team

In 2020, Spectrum was named ‘Corporate Finance Team of the Year’ at the Thames Valley Deal Awards for the fourth year running, including adding to the tally of individual awards at the South East Insider Dealmakers Awards.

We start 2021 having made the shortlist in 4 categories at the Insider South East Dealmakers Awards 2021 including Corporate Finance Team of the Year, Dealmaker of the Year, Corporate Finance Adviser of the year and PE Deal of the Year – the winners will be announced in June.

In the last year we have welcomed six new members to the team, adding strength to our Debt Advisory, Lead Advisory, Research and Deal Origination teams.

Alex Patey joined in June 2020 as a Lead Advisory Director based in London. Alex joined the team from BDO and is an experienced corporate finance professional with particular expertise in consumer, leisure and lifestyle & wellbeing sectors.

Stuart Sweeney joined Spectrum in March 2020 as an Associate Director in Debt Advisory. With a background in banking at Lloyds and CIT Bank, Stuart works on all areas of debt advisory projects, including transaction management, document negotiation, management and lender presentations and financial modelling.

Leonard Cripps is our latest recruit, having joined the team in January as a Manager in the Lead Advisory team based in London. Leonard is an experienced Corporate Finance professional, having previously held roles at Alvarez and Marsal and EY in the UK and in the United States. Leonard works alongside the Director team on all aspect of project management and delivery of transactions.

Jonathan Gonzor joined Spectrum as a Research Analyst at the start of the year. Jonathan began his professional career with KPMG where he qualified as a Chartered Accountant. In his role at Spectrum Jonathan undertakes research-based activities in support of Spectrum’s current and prospective client base.

Keith Davies joined Spectrum in September last year as a Business Development Director. Keith’s experience includes business development and research roles at Capita, Grant Thornton, Sovereign Capital and Alantra. Keith works with the Spectrum team to identify and develop new client relationships.

Melissa Wilson joined Spectrum in October last year to develop new business opportunities. With a background in new business in the financial services sector, Melissa researches and approaches the business owners and management teams within specific sectors to raise awareness of Spectrum. She also arranges mutually beneficial appointments to assist companies in achieving their business goals.

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