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Business matters: Reflecting on where next for dealmakers

Andy Gregory, head of investments at BGF, reflects on where next for dealmakers.

Our previous articles have focused on the impact the current crisis will have on entrepreneurial businesses across the UK. Now we’re reflecting on what it all means for the investors that back these companies – the community which BGF is part of.

With renewed political certainty and a boost to business optimism, 2020 got off to a strong start for dealmakers. The UK saw 300 transactions with a record first-quarter deal value of €51.0 billion. Not surprisingly, the latest Pitchbook data – released last week – showed UK and Ireland deal activity nearly ground to a halt in April, with just eight announced deals last month – many of which will have been in the pipeline pre-lockdown.

Given the disruptive nature of the pandemic, a period of adjustment was inevitable and the drop off in deal flow is not surprising. However, operationally, investors and professional and corporate advisers have adapted quickly to the challenges of lockdown. The critical question now is how long it will take for investor appetite to rebound.

BGF has completed five  deals in the past six weeks, demonstrating that where deals are rooted in genuine value, it’s possible to get the transactions across the line. During this period, we have very much remained open for business, continuing to make new investments that help build resilient and sustainable businesses, alongside supporting our portfolio.

During lockdown, we’ve also completed two highly successful exits, which have delivered strong results for all shareholders. The first was North West-based coachbuilding business, Woodall Nicholson and the second in Gloucester-based Direct Online Services, which is the UK’s leading ecommerce retailer of kitchen worktops. Since our £3m investment in 2016, the kitchen worktops business has grown from £22m turnover to £37m turnover, with the sale to Broadview Holding delivering a strong return for all shareholders.

These deals follow a strong run of successful exits in Q1, which included IT services firm, Vysiion, Leamington Spa-based Solid Solutions and web hosting company Miss Group, which delivered an IRR of more than 100%.

BGF backs business with strong management teams and healthy fundamentals. As companies emerge from the current lockdown, we believe that equity investment has a key part to play in the recovery. Working capital is being stretched, debt will build up and need refinancing, and business will require growth capital to make the most of the opportunities that present themselves.

With considerable capital to invest and having backed over 300 businesses in the past nine years, we are well placed to work alongside management teams to grow their business and shareholder value.

Predictions from Pitchbook suggest it will be Q4 of 2020 before broader deal activity rebounds, but, as we’ve seen throughout lockdown, entrepreneurs continue to demonstrate determination and decisive action. For BGF, this is driving very encouraging levels of activity and we will be announcing more new investments in the coming weeks.

Our investment teams are continuing to work hard across the regions and even at a time when it can feel that everything has turned upside down, business owners are looking towards funding to help them achieve their goals. It is vital they have options.

BGF Insights 07.02.2020