In an acquisitive mood
Johnny Webb, head of corporate finance at BDO in Belfast, looks at the local mergers and acquisition market, a good barometer of the economy
Growth through acquisition has become one of the main ways that companies are increasing revenue and reach in a business environment characterised by tighter lending and flatter demand. An increasing number of companies from Northern Ireland are seeing growth and success through this type of expansion in Britain as a key way of stimulating growth.
BDO’s 2011 M&A survey of firms across the UK showed that 85% of companies now see acquisitions as an important driver for growth. Differences of pricing in recent times meant that more than half of companies surveyed in that same period failed to complete a transaction.
The latest Private Companies Price Index survey from BDO showed that the price/earnings multiple paid for by trade buyers has stabilised in recent quarters, providing an opportunity for those companies who wish to expand.
Stabilising prices means that buyers and sellers are finding deals easier to complete, and those involved in financing such deals can take comfort that the price being paid is the right one.
Here in Northern Ireland the mid-market sector is characterised by a high portion of family-owned companies, many of which operate in niche markets. For companies such as this, expansion through acquisition is becoming an increasingly effective way of stimulating growth.
Many companies in Northern Ireland operating with solid export bases are finding such opportunities for expansion in Britain and further afield.
The wider UK market is one which has huge potential for firms of this size.
While the effects of the downturn continue to be felt in more peripheral areas, the Midlands and south east of England continue to act as the engine of the UK economy. Their proximity to large national and international markets, highly developed transport infrastructure and strong R&D capability ensure that they continue to weather the storm.
Acquisition in this area is a natural step for any Northern Ireland company seeking to expand beyond local markets. For many companies, the challenge is to grow market share in what can be flat or possibly even contracting markets. The only effective way to do this is to increase export capacity.
The Republic of Ireland is a clear demonstration that the only way out of the recession is through an export-led recovery. While there are ongoing difficulties south of the border, that region’s June export surplus was the highest ever recorded at some €4bn. Total exports for the first five months of this year were €38.6bn, with more than half of those going to the US, UK and Belgium.
Northern Ireland can build the same path to recovery and a number of recent acquisitions of firms based in Britain show that we have the same potential for the expansion of manufacturing and service exports which will in turn increase our levels of private-sector employment.
A recent acquisition by Comber-based TG Eakin demonstrates this potential. Founded in 1974, the company originally specialised in ostomy and wound-care products. In 2007 they purchased a specialist feminine healthcare business, Pelican Healthcare, based in North Wales. In February of this year TG Eakin completed the purchase of Clinical Innovations Europe, an England-based firm which also specialises in obstetrics and gynaecological products.
The deal, which was originated by BDO, places TG Eakin right at the heart of the global healthcare products market. The company’s revenue has increased significantly over the past decade and it now employs 220 people across three sites.
With some £6m of planned investment in the near future, TG Eakin continues to enjoy strong growth and profitability. Entry into Britain means the company has now expanded through acquisition and diversification and the future looks promising.
The economic climate remains one of the most challenging in history, and acquisition is becoming one of the only ways to survive and flourish. Companies in Northern Ireland with strong cash assets have the opportunity to expand across the water — examples such as TG Eakin show that such a move can mean increased growth, revenue and employment for Northern Ireland enterprises. As we face increasing competition nationally and internationally, and a tightening of trading circumstances at home, treading water may no longer be an option.