ISSUE 172 MAY 2015 ICAEW.COM/CFF GROWTH ! OPPORTUNITIES ! EXPERTISE

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04 Uncertainty ahead Marc Mullen writes about the general election for the last time 05 Faculty news Business breakfast in the north, Gibson Dunn comes on board, and faculty heads to Shoreditch 09 In numbers A mixed picture for M&A, 12 while economies recover slowly 11 Moulton Steel Jon Moulton questions de! ation

FEATURES

12 Wild ambition Albion’s Craig Wildman on growing an innovative start-up 14 Europe unlocked? Four experts share their view on the potential of the proposed 14 Capital Markets Union 18 Turn of the wheel What does it take to rescue a brand? David Prosser speaks to the turnaround specialists 24 A solid start Jonathan Scudder on the impressive rise of ForgeRock 26 World of venture Jason Sinclair explores whether 18 last year’s record boom for venture capital will continue 30 Strong and free Brian Bollen looks at the M&A landscape of Canada

REGULARS

32 Appointments 34 On my CV Anthony Foster, Travers Smith 26

CORPORATE FINANCIER MAY 2015 3 WELCOME An uncertain chapter

OK – this is the last time I will start an editorial THE FACULTY Giles Derry mentioning the UK general election. For the next Chairman four years and nine months, at least, and then, Jim Keeling, Mark Pacitti Vice-chairmen like buses, my next three election-related David Petrie editorials will come along at once. Head of Corporate Finance Katerina Joannou This issue of Corporate Financier should land on your desk on the Manager, capital markets policy eve of the vote. You might be reading it before. If you’re a British Shaun Beaney reader, you may be taking the cellophane off, as you return from Manager, the polling booth. You might even know the outcome by the time Corporate Finance Faculty you read this. The odds on no overall majority are 1/8 – at time of Lorraine Sinclair writing. I always trust odds more than opinion polls. So, you may Services manager know the result, but not exactly who will run the country for the +44 (0) 20 7920 8685 next five years. fi[email protected] To borrow from a politician from across the Pond, former US Marc Mullen secretary of defence Donald Rumsfeld, there are certain certainties, certain Editor uncertainties and uncertainties we were even uncertain enough about to know they [email protected] might be uncertainties we should at some point consider. David Co!man, Nigel Crockford, M&A works on all of the following – some basic business fundamentals, some Victoria Scott opportunities and threats, and an innovative management team that can be trusted to Editorial advisers deal with that last category. A good blend of these is required. In this month’s cover story (pages 18-23), we look at the tough world of turnaround Corporate Financier deals. Last month, wine retailer Majestic announced a £70m ‘takeover’ of online wine is produced by Progressive Customer Publishing merchant Naked Wines. The deal could be described as a ‘reverse mutual turnaround’. John Carpenter House AIM-listed Majestic has been struggling. Majestic’s CEO Steve Lewis stepped down in John Carpenter Street February, apparently after poor festive sales. It is a bricks-and-mortar retailer, with little London international presence. EC4Y 0AN Naked has a strong online presence. Its sales had grown 40% to £74m last year, but Advertising enquiries it reported a loss of £3.4m. In September 2013 it raised £3m, largely from customers, [email protected] through a bond issue. Naked Wines founder and CEO Rowan Gormley has taken over as head of the enlarged group. ISSN 1367-4544 TECPLM13401 Turnaround investing is demanding in many ways for management. Majestic’s share Printed in the UK by Sterling price has not led to champagne corks popping since the announcement of the deal. Solutions Time will tell how the businesses integrate and management deals with the certain Corporate Financier is distributed certainties, the certain uncertainties and the stuff that comes from the left field. Or in to members of the Corporate the interests of political impartiality, right field, too. Finance Faculty.

For details about corporate and individual membership, please visit icaew.com/c" or contact the faculty on +44 (0) 20 7920 8685

Marc Mullen To comment on your magazine, please Editor email [email protected]

© ICAEW 2015. All rights reserved. The views expressed in this publication are those of the contributors; ICAEW does not necessarily share their views. ICAEW and the author(s) will not be liable for any reliance you place on information in this publication. If you want to reproduce or redistribute any of the material in this publication, you should first get ICAEW’s permission in writing. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by ICAEW, the publishers or the author(s). Whilst every care is taken to ensure accuracy, ICAEW, the publishers and author(s) cannot accept liability for errors or omissions. Details correct at time of going to press.

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4 MAY 2015 CORPORATE FINANCIER NEWS & EVENTS Faculty news

BOOSTING FINANCE FOR NORTH-WEST BUSINESSES

Ron Emerson Cliff Maylor Andy Ball Louise Beaumont Jonathan Boyers chairman, chief executive, North chief investment officer, head of public affairs, corporate finance British Business Bank West Business Finance NorthEdge Capital GLI Finance partner, KPMG

The Corporate Finance Faculty, Access to finance is vital if the supports more than 11,000 ICAEW’s North West region and members. Melanie Christie, the British Business Bank have North West is going to drive the ICAEW’s regional director, said together organised an ‘Northern Powerhouse’ it was very important that important breakfast forum in businesses can get access to the Manchester next month. established mid-sized NorthEdge Capital; Louise right sort of affordable "inance ‘Boosting Finance for companies. Businesses, Beaumont, head of public at the right time when they Business Expansion’ will be advisers and investors from affairs, GLI Finance; and want to invest in expansion. hosted by KPMG on Thursday across the north are invited. David Petrie, head of corporate “It’s vital in the North West if 4 June. A panel of high-pro"ile Ron Emerson, chairman of "inance, ICAEW. the region is going to help drive investors and advisers will look the British Business Bank, Jonathan Boyers, KPMG’s the ‘Northern Powerhouse’ with at how companies and will take part in a panel head of corporate "inance in innovation and skilled entrepreneurs in the north of discussion and Q&A that will the North of England and a employment.” England can access the "inance also include: Cliff Maylor, chief faculty board member, is For further information they need to invest in executive, North West Business hosting the forum at the "irm’s visit icaew.com/cff or email expansion – whether they Finance; Andy Ball, chief new St Peter’s Square of"ices. [email protected] are start-ups, early-stage or investment of"icer at ICAEW’s North West region or [email protected]

GIBSON DUNN JOINS THE FACULTY

International law firm Gibson “The initiatives of the a perfect complement to Gibson Dunn & Crutcher has joined the Corporate Finance Faculty, and Dunn’s world-class transaction “The initiatives Corporate Finance Faculty. its thought leadership on a approach. I am delighted that the of the faculty The firm’s global transactional range of issues impacting public firm is now a member of the practice works for a wide range M&A, private equity and capital faculty and excited about are in the sweet of clients, from multinational markets, are in the sweet spot of developing the relationship spot of our listed corporations to start-up our transactional practice. We’re between our two organisations.” ventures, in all major sectors. looking forward to contributing Geffen recently joined Gibson transactional Charlie Geffen, chairman of to the work of the faculty.” Dunn from Ashurst, where he practice. We’re London corporate at Gibson Selina Sagayam, an served as its senior partner. Prior Dunn, said: “Our London- international corporate finance to that he was head of its private looking forward based transactional practice partner at Gibson Dunn and equity practice. to contributing” is at the forefront of dual US member of the Corporate and English law capability Finance Faculty’s board, added: cross-border transactions. “I have worked closely with the We have particular strength faculty for almost 10 years now. Charlie Geffen, Selina Sagayam, chairman of international in M&A, private equity, finance The high-quality technical output London corporate finance and US and UK regulatory of the faculty and its cutting- corporate, partner, systems. edge focus on industry issues is Gibson Dunn Gibson Dunn

CORPORATE FINANCIER MAY 2015 5 NEWS & EVENTS

ICAEW HELPS ENTREPRENEURS FAST FORWARD

A 10-strong team from ICAEW, including Corporate Finance Faculty NEW RULES staff, set off for the trendiest reaches of London’s Brick Lane on 17 March FOR ISDX to mentor 20 young start-up ‘accelerator’ schemes from across the The ICAP Securities & Derivatives entrepreneurs. UK, including programmes managed Exchange (ISDX), a London-based ICAEW was invited by Fast Forward by BBC Worldwide, Microsoft Ventures stock exchange, has revised its London to provide an afternoon of and several regional and local Growth Market rules for issuers. strategic and "inancial advice to the new-business projects. The new rules include simplified new ventures. Ian Merricks, co-founder of Fast eligibility criteria for companies The Fast Forward programme is Forward, thanked ICAEW’s team for that want to join its Growth Market, supported by City University and its expert mentoring and constructive an amendment about Corporate backed by the European Regional advice to the start-ups. Adviser’s regulatory obligations, Development Fund, Capital Enterprise Shaun Beaney, who organised and a less prescriptive approach and the UK government’s Start Up ICAEW’s contribution to the to due diligence. Loans programme. The event took programme, said: “It was a very Geno Luchmun, ICAP’s general place in the Shoreditch HQ of Unruly, worthwhile event, giving us the counsel and managing director a fast-growing media tech business. opportunity to help 20 fascinating of regulation (below), thanked Companies are put forward by start-up businesses and to support ICAEW for responding to the a government-backed scheme. We consultation about the rule also learned more about the big changes. More information can challenges faced by young, would-be be found at isdx.com entrepreneurs from diverse backgrounds.” The ICAEW mentors were: David Petrie; Iain Coke; Jo Iwasaki; Katerina Joannou; Philippa Kelly; Clive Lewis; Sarah Dunn; Shaun Beaney; Zsuzanna Schiff; and Marc Mullen.

6 MAY 2015 CORPORATE FINANCIER Cyber security in corporate finance

Cyber security is vital for the UK’s reputation as a global hub for corporate finance and to ensure confidence in corporate transactions – for companies, their advisers, investors and stakeholders. Visit icaew.com/cfcyber to download the Cyber-Security in Corporate Finance guide, developed in partnership with 12 leading UK organisations and supported by the Cabinet Office and Department for Business, Innovation & Skills.

twitter.com/icaew_corp_fin

linkedin.com – find ICAEW Corporate Finance Faculty

BUSINESS WITH CONFIDENCE icaew.com/cfcyber The business finance guide A JOURNEY FROM START-UP TO GROWTH

The Corporate Finance Faculty and the British Business Bank, supported by 17 other major professional, representative and membership organisations, have produced the Business Finance Guide to outline the main things to consider and sources of finance available to businesses – ranging from start-ups to SMEs and to growing mid-sized companies.

Visit icaew.com/bfg ICAEW Twitter.com/@icaew_corp_fin linkedin.com - find ‘ICAEW Corporate Finance Faculty’

BUSINESS WITH CONFIDENCE icaew.com/bfg BRIEFING In numbers Mixed messages about M&A and capital raising while many economies see a slow recovery

+33%

forecast increase for global M&A volumes for $ bn H1 2015 31.2 versus H1 2014, M&A syndicated loan £55bn £75bn driven by VALUE OF UK M&A VALUE OF UK M&A cross-border values for Q1 2015, M&A volumes for the EMEA region Q1 2014 Q1 2015 SOURCE: DELOITTE SOURCE: THOMSON REUTERS SOURCE: EY AND DEALOGIC

Percentage of advisers predicting an increase in demand among clients for VCTs as a result of the cut in the UK’s 9/10 Main Market floats so far this year were lifetime pensions allowance from £1.25m to £1m of PE-backed companies

SOURCE: EY £1.25m £1m 8.1% the average return generated by the 10 Main Market IPOs that 32% have completed this year, outperforming the FTSE 100 by 10 percentage points SOURCE: DELOITTE 8.1% SOURCE: ALBION VENTURES The increase in the number of non-banknk lenderleen dealsde in the UK

and continentaltinental EurEuropeo in 2014 E TE T T (from 136 to 195) IT O

The fall in the LO L EL number of UK D M O R

The value of private equity funds mid-market M&A FR F R F ER

raised globally in Q1 2015 transactions, K C AC A RA

(£10m-100m) TR T L A

in Q1 2015 EA E % DE

51 R ER D N EN

of non-bank lender LE E

+ % V 43 deals that were IV T AT A

driven by NA RN R

The lowest quarter E TE since Q3 2003, 136 1951199955 M&A LT as fundraising seems deals in dealseeaalsa s inin 2013 2014220010144 SOURCE: EXPERIAN SOURCE: PREQIN SOURCE: ALTERNATIVE LENDER DEAL TRACKER FROM DELOITTE LENDER DEAL TRACKER SOURCE: ALTERNATIVE to have slowed down 28.9% SO S

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ABN AMRO Commercial Finance, Sheencroft House, 10-12 Church Road, Haywards Heath, West Sussex RH16 3SN MOULTON STEEL Deflation nation

With inflation heading towards deflation, Jon Moulton asks is it really ‘good news’? What does negligible inflation mean for investors?

ll of my life, inflation has inflation. With interest rates pretty forced to look outside bonds by dominated the "inancial much as low as possible, its main tool buying equities, property and gold. A scene. Indeed, when I is useless. Quantitative easing also If deflation does get hold then moved back to the UK from the seems not to do much. consumers will tend to spend less, US in 1980, it was running at 18% Interest rates are at previously because goods will be cheaper next per annum. This was wonderful for unimaginable levels – a lot of month – a very ugly vicious cycle, leveraged buy-outs. As debt rapidly government bonds have a negative if it develops. declined in value, equity harvested yield, which seems bonkers. Neither The other big consumer effect is that loss. However, Retail Price Index the length of this article, nor my that the friend of the indebted inflation has only once been over 5% macro-economic knowledge, can household, inflation, will not operate. in the last 20 years. That was in 2011. possibly extend to a full account of Households will stay indebted longer. Now inflation is barely present in this weird economic phenomenon. Wages do not drop easily, but if they Britain; oil prices and weak demand Try reading the Bank’s Inflation do, debt could become a real have buried it. The Bank of England’s Report. It is a well-written problem, leading to reduced latest Inflation Report forecasts commentary on the mixture consumer demand. There are far inflation has almost as much chance of science and opinion that more effects, I am sure. of being below zero as above it this is economics. year. At the end of March, Consumer It is really worth thinking about THE M&A EFFECT Price Index inflation hit zero – for the what this new world can do to us. As for those doing deals, deflation "irst time since 1960. VAT and tax revenues drop, but most is bad for returns in leveraged In the days of the ‘Gold Standard’, government costs are resilient, so the structures, as covenants may more deflation was as common as inflation. de"icit will be higher. If the Budget in easily be breached. And some The relatively "ixed amount of gold, March had used a zero-inflation industries will have particular more often than not, grew slower assumption, then the de"icit would concerns, such as agriculture, than demand for it, generating a very not reduce over the next "ive years. where persistent deflation will benign economic effect. Those days Big holders of very low yielding really impact fundamentals. are long gone. bonds, (insurance companies and the For private equity, the typical David Cameron said this zero was like), could suffer catastrophic losses hurdle rate of 8%, becomes more good news, but actually it probably if rates rise noticeably. Investors of a mountain to climb. Pro"its and is not. Modern history in the UK trying to "ind returns are being revenues under deflationary shows that a rate of something nearer pressures will need a lot of help to 4% is associated with optimal increase enough in nominal terms. economic growth. The Monetary But on a more cheerful note, Policy Committee (MPC) at the David Cameron said this prevailing negligible interest Bank of England in theory has a zero was good news, but rates force investors to move away target of 2%, but it doesn’t set the from holding debt. One of the target – the UK chancellor does. actually it is probably not. places they will go to is equities. There has been precious little A rate of something nearer Price/earnings ratios may rise, explanation of that target. bene"iting asset sellers. Of course, The MPC is pretty short of weapons 4% is associated with buyers will have to worry about the to deal with very low, or negative, optimal economic growth future though – be thoughtful! RICHARD ANSETT/DAN MURRELL RICHARD ANSETT/DAN

CORPORATE FINANCIER MAY 2015 11 OF

Craig Wildman of strategy and marketing consultancy Albion tells Marc Mullen that understanding the nuts and bolts of business is key to delivering M&A with impact

he of"ices may be typically ‘Shoreditch’, but Albion Senecal & Partners) acquire a majority stake in Albion, is looking way beyond the hipster bubble in this reportedly for between £20m and £30m. KBS has trendy corner of East London. ‘Inventing’ and of"ices in New York, Los Angeles, Toronto and Montreal. ‘reinventing’ market positioning is what Albion Albion founder Jason Goodman retained his role as offers. With a roster of blue-chip clients and some CEO of Albion. Goodman, Wildman and 13 other of the most innovative start-ups of the past decade, shareholders divided the proceeds, and between them global expansion seems certain. retained a 25% stake in Albion. To achieve both Two years ago, Craig Wildman joined Albion as counterparties’ growth ambitions it was important that CFO. It was a mid-sized agency with a long-term growth Albion management retained skin in the game. plan. Working with clients which had aggressive “The two businesses were a perfect complementary approaches to innovation, driven by the markets they "it,” says Wildman. KBS had won a contract with BMW, operated in, meant that the trajectory of Albion’s own headquartered in Munich, but had no European plan was similarly steep.“The business had been presence. Albion did. Albion had some US clients, but healthy and stable for the previous two to three years, its lack of US footprint was hindering development of but was not growing signi"icantly,” he says. “But in the those accounts. In March this year, KBS and Albion past two years we have seen double-digit growth – new "inalised their "irst joint strategic three-year plan – a talent, new clients and new markets – we have grown plan that came directly out of the acquisition process. our market proposition in all areas through invention “There is a big difference between acquisition and and innovation. We have gone very far in two years.” partnership,” says Wildman. “From the word go we Indeed 2014 saw its greatest year-on-year growth in top used partnership-type trust in our negotiations – we and bottom line – turnover for 2014 was £9.2m. met, we established that our cultures were compatible and we discussed our post-deal strategies. I have been THE DEAL in negotiating situations, which have been aggressive, A big part of that growth was the deal last August that but by the end this felt like a working team. The saw US-based brand agency KBS (Kirschenbaum Bond negotiations really were more about how we would

12 MAY 2015 CORPORATE FINANCIER PROFILE

and because he knew her modus operandi, there was THE CAREER morphed into that of COO – “trust from day one” on the deal. He says they almost Having trained in accounts a period he describes as an instinctively knew what each other would be doing. with Volvo in the UK, and then “enormous learning curve”. Having a strong corporate "inance adviser allowed him to stationery chain Staples, Craig But he emerged at the other focus on brand and post-acquisition strate#y. Wildman’s first big step on end to join the Omnicom- He says the process taught him the importance of the learning curve came in owned advertising agency the FD being close to the MD: “Working together they 2001 when he joined Phones group, AMV BBDO, in 2008. can really add value to an M&A process. I could not International, owned by Peter In 2013 he had a taste of have led our deal last year if I had not understood the Jones of Dragons’ Den fame. start-ups when he joined heart of Albion’s business. Obviously, the FD has to He was finance manager of its Engage Group as COO. From understand the numbers, but a deal is not just about German operations. there he moved to Albion. understanding the numbers. It is also about seeing Wildman’s first indirect where synergies are, and how the strate#y stacks up, exposure to M&A came two where the holes are. We did, and they did, we "ixed years later, when one of the them and that’s why the deal happened.” businesses was sold to Legal advisers to Albion were Bird & Bird, and legal Vodafone – he’d been advisers to KBS were Osborne Clarke. Kingston Smith involved in driving the growth drafted the SPA and negotiated the earn-out clauses, of the company sold through which run through to 2017. M&A activity ahead of its sale. He says that period of his NEXT STEP career really shaped his With four clients now in Germany they are considering interest in working for setting up a hub, or perhaps even making a strategic dynamic, innovative, growing acquisition, of course provided the cultural "it is right. businesses. He says smaller M&A deals will be "inanced from the From there he joined balance sheet. Obviously if any larger opportunities Dusseldorf-headquartered PR arise the new group will have to seek external funding. and communications agency This year, Albion plans to open four new business Pleon, but in the UK, not units. Two of them will require capex investment, Germany. He joined the infrastructure and equipment for their respective business’s UK operations business offerings – a "ilm studio with equipment and as CFO, but his role soon a green room. “Being a business that operates with high margins and strong cashflow, the majority of our capex work, and how our brands would work. The deal itself funding will be the excess working capital cash was almost on the side of it.” deposits, therefore making our working capital work Albion’s approach is to help growing businesses harder for us and having a strong return on quickly achieve scale – intensive advertising campaigns investment across the board.” to build brand strength, data analytics for start-ups Wildman picked up Financial Director magazine’s and PR campaigns with an entrepreneurial approach. FD of the year award in March. It is quite an That offering in many ways mirrors the approach of achievement – having survived a horri"ic motorbike Albion’s main clients. It ran the TV and outdoor crash as a teenager, which left him wheelchair-bound advertising campaign for property website Zoopla. Its for two years, he has a tremendous enthusiasm, data analytics team developed global although he readily admits that didn’t customer acquisition marketing for “Don’t sit still. come instantly. King, the games company behind Candy To up-and-coming FD’s he advises: Crush Saga. And they also created the Things have “Don’t sit still. Things have changed. European PR campaign for Telefonica’s changed. FDs are FDs are front of"ice now and no longer start-up incubator Wayra. Since being a back of"ice function. They are founded in 2002, Albion has also front office and leaders of the business and not part of worked on the start-ups Skype, no longer a back the support team. We are moving into Innocent and Betfair, as well as for the a new period of growth in our corporates Aviva, Hays and office function” economy; push yourself to move comparethemarket.com. outside your comfort zone and tackle When it came to leading negotiations, the challenges in front of you. That’s how you grow Goodman took a back seat, and Wildman drove and build a solid business that is agile for your the deal. Albion was advised by a Kingston employees, shareholders and client base. Smith team, led by experienced media M&A “One of the things I have learnt is that there is no set corporate "inance partner, Nicola Horton (left). way of approaching things. When you look at M&A done Wildman had previously worked with Horton, well, it is by people at the heart of the business.”

CORPORATE FINANCIER MAY 2015 13 Four specialists give their opinion on whether a Capital Markets Union can really help to open the door to new funding and growth

n February, the European particular start-ups, SMEs and long-term Commission published its Green projects. It also wants to create a single I Paper on a Capital Markets Union, market for capital by removing barriers to (CMU). Described as a “landmark project”, its cross-border investments, and to diversify aim is to unlock funding, boost growth, create the funding of the economy and reduce the jobs and develop a more resilient "inancial cost of raising capital. system across all of Europe’s 28 member The Green Paper poses questions about a states. The CMU is a key element of the number of issues, including supervisory investment plan, announced by the authorities, building sustainable securitisation, Juncker Commission, which took of"ice in widening the investor base for SMEs through November 2014. standardised credit scores, and developing The Commission believes that investment in European private placement markets. Europe remains too heavily reliant on banks, The launch started a three-month with many SMEs still having limited access to consultation period, which ends on 13 May. "inance. In the US, 80% of capital funding Following this the Commission will adopt an comes from capital markets and 20% from action plan, setting out a roadmap and banks. In Europe the reverse is true. This is timeline towards creating a CMU by 2019. compounded by different rules and market It has stated: “Pressing measures will be taken practices and differences in "inancing as soon as possible. Others will come further conditions between member states. down the road.” Barriers to capital flows need to be Corporate Financier asked a number of “knocked down one by one” according to the capital markets specialists for their view on Commission. Its objectives are to improve the points raised and implications of the access to "inance for all businesses and Green Paper for local capital markets and infrastructure projects across Europe, in how, in practice, these aims can be achieved. GETTY

14 MAY 2015 CORPORATE FINANCIER REGULATION

LINDA MAIN RICHARD WEAVER KPMG partner specialising in capital markets PwC capital markets partner

“The reality is that most companies will the opportunity to exit some of those “Inevitably there is a risk that private equity be attracted to markets for reasons of investments to the public market. They will be squeezed if you get a more efficient geography or business. While there will are not mutually exclusive; they are functioning of equity finance for SMEs. But in be enthusiasm to attract companies aspects of a successful, fully- the UK at least, most PE houses are from different markets, the number of functioning system of finance. But what interested in the “M” rather than the “S”. companies that will be genuinely looking the proposals should do is encourage There will be a degree of challenge to PE, at multiple alternatives is fewer than investment in equity as an alternative to but generally they are fishing in a more people think – essentially those with a debt, which is a good thing for the significant pool, where for those sorts of genuinely pan-European business. European corporate sector as a whole.” companies, availability of finance is not “Harmonisation of investor rights will as challenging. be difficult to achieve, certainly in the “The Green Paper makes reference to short- to medium-term. The national credit scoring. Yet a developing company laws, and the expectations and levels of will often be massively indebted, making sophistication of participants are so losses, and permanently close to bust different, that I think we are a long way before its next round of seed funding. It’s from that goal. It’s important to try to hard to see how credit scoring works in any understand that union does not coherent manner for, say, a developing tech necessarily mean harmonisation. You company. That’s not to say it’s not a good can have a CMU without automatically idea to have some means for companies to harmonising everything. With the reduce the diligence burden on the current variations across Europe, we potential investor by providing them with should be looking at other ways of something better than they currently get. achieving the overall goal of encouraging “I am not sure that What feels like a positive idea is some form equity investment across Europe. The of external declaration of quality, a kitemark ultimate goal is a good one, but its the CMU will create of some sort, that can be used by the achievement and execution will take time. competition between company as a badge to attract capital. “I am not convinced that CMU would “One thing the Green Paper doesn’t lead to weaker investor protection. Do private equity and mention is language. Unless you get every not assume that the outcome of CMU European capital single EU state to accept they will put the will be that regulation will sink to the entirety of their prospectus into English, lowest level. It is important that there is markets. You can’t what is the standard language? It’s just a balance between regulations not have a successful another example of the type of barriers that being overly burdensome while still the paper does touch on, which look highly maintaining protection for investors. private equity world daunting if not insurmountable. “I am also not sure that the CMU will without the opportunity “Improving the provision of finance and create competition between private equity finance to SMEs, reducing the cost of equity and European capital markets. to exit some of those raising equity capital, improving the private Both are important aspects of the investments to the placement market – those are laudable aims, corporate landscape. You can’t have a but I wouldn’t confuse that with the CMU.” successful private equity world without public market”

CORPORATE FINANCIER MAY 2015 15 Join the discussion in the Corporate Finance Faculty’s LinkedIn group and follow @ICAEW_CORP_FIN on Twitter

TANDEEP MINHAS ANDY BALDWIN Taylor Wessing partner and EY partner and EMEIA financial services leader specialist in UK public markets

“The Green Paper seems to imply that there “The whole premise behind CMU is “I don’t see a major shake-up of end will be a centralised regulator rather than a making the pie bigger, as opposed to consumer advice coming from CMU. Of series of national regulators, as we have at trying to carve up the existing pie and greater concern has been the focus on the moment. It’s difficult to see how that create winners and losers. The proposals yield from retail investors and the will work. It won’t come as good news for should drive opportunities for banks, growth in alternative finance. Do those who feel there is already too much institutions and other advisers, and debt investors putting money into peer-to- centralised regulation within Europe. and equity providers within the market. peer lending appreciate the risk they “Harmonisation of laws is a huge task. It The extra investment required to support are taking on? Those classes are very involves governmental and political will the return of more stable economic lightly regulated compared with across all of the member states. There is no growth could come from CMU-driven traditional equity-based investments.” common ethos at the moment to form the alternative sources of financing. starting point for legislation. “The spirit of the CMU is less about “There is always a risk that investor more regulation and more about better, protection could be reduced, with lower more efficient regulation. Europe tends barriers. Reducing red tape for smaller to harmonise towards higher rather businesses wanting to raise money is a than lower levels of protection, so I positive step. But it begs the question how don’t see a risk that investors would be that will be done without reducing the disadvantaged. This is about giving current standard of disclosure, accounting investors a wider portfolio of assets to and vetting that is a necessary part of small invest in, with greater comfort and companies raising money on capital markets. confidence through better transparency “Investors are cautious and relatively and risk credit information, while giving rarely stray out of their domestic SMEs access to funding outside their boundaries. If a new regulatory structure domestic market. “I don’t see a major makes it easier for a small business in “I don’t see that we have competition Poland to access capital in London, that is between public markets and private shake-up of not necessarily going to result in more placements. The private placement market end-consumer investment, because of the attitude that in Europe is relatively underdeveloped, those funds have. The less familiar you are particularly in comparison to the US, advice coming from with the economic or political infrastructure where you could see those different CMU. Of greater of a country, the less likely you are to risk investment routes as alternatives to investing in it. I’m not sure that reduced meet the same need. But in Europe, there concern has been regulation on its own will remove that issue is so much headroom for them to grow the focus on yield which is currently a stumbling block to that they are not competitors. In the investors spreading their net wider. short term, we will see them more as an from retail investors “The Green Paper is aspirational, which alternative to bank lending rather than and the growth in you can’t criticise. But it does seem at making a choice between a bond, doing odds with the proposed financial an equity rate or a private placement. alternative finance” transaction tax currently being debated.”

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Turning a business round, be it as an adviser or a specialist investor, is a difficult job – and one made more so every time a failed business falls under the media and political spotlight. David Prosser looks at how hard graft can get businesses back on track GALLERYSTOCK

18 MAY 2015 CORPORATE FINANCIER COVER STORY

e understand that not all businesses will succeed, and when they do not, they need W skill, courage and capital to give them the time necessary to review options, take advice from others and turn around their fortunes,” so said Lord Digby Jones at the Institute for Turnaround’s 2014 national conference. Welcome as the UK’s economic recovery of the past two years has been, it is fair to say that corporate UK endured a much less punishing recession than many originally feared. Statistics from the Insolvency Service show that company liquidations spiked immediately after the "inancial crisis, remained flat for four years, then fell sharply last year. There were 14,040 company liquidations in 2014, down 6.3% on 2013 and the lowest total since 2007. There could be many reasons for these statistics. Leaner and more agile businesses generally than in the recession of the early 90s? Technological innovation helping businesses drive ef"iciencies “Turnaround into their operations? Low interest rates, giving experts secure businesses greater ability to service debt? But the sustainable perhaps there is another place to give credit – turnaround specialists, who have nursed so many return of viability businesses back to health. to a company” Christine Elliott, WORTH THE EFFORT chief executive, Institute for Turnaround The collapse of City Link in December resulted in Better Capital founder Jon Moulton appearing dynamic sector – the UK high street. The revamp before two government select committees (see started this year. Its London restaurants turned into ‘Broken Link’ Corporate Financier, April 2015). It is American diners – some have even had cocktail bars important government understands what added (in the Strand branch, pictured). turnaround investors do, not just why failures “It was very important to assess the brand, the occurred. Turnarounds have proved a vital part of product development and the market,” Cartwright the corporate landscape through the recession. So, adds. “There has been a huge round of investment how are they approached? in the estate to move it from a tired brand to “We’re looking for something we believe is worth something more energetic.” putting the effort into,” says Paul Cartwright, Instinct is a crucial skill, he adds. “You develop a managing partner of private equity "irm Rutland feeling for the right situation. As well as meeting Partners. “We want businesses we believe will be the people it’s essential to visit the business and assets people really want to own once we’ve see it up close so you can get a real sense of where worked with them. Our job is to understand the the issues are; you know it when you see it.” dif"iculties currently confronting the business, and These initial assessments will decide both how they can be tackled.” whether the business can be saved and what the In November 2012, Rutland Partners invested in strate#y might be. In the worst-case scenario, an Pizza Hut’s UK business, pledging between £20m insolvency practitioner will take over, but and £30m of support for its £60m refurbishment turnaround advisers will "irst look at a sale process plans. The aim was to reposition the restaurant for part or all of the business. Their preference, chain, which had become a tired brand in a very however, is to restructure.

CORPORATE FINANCIER MAY 2015 19 Lenders, owners or management itself, either on MONEY IN BIN BAGS their own behalf or as part of an investment team, call in specialist turnaround advisers. The scope of CeDo is (now) Europe’s leading manufacturer of their role is often underestimated, but they can be own-branded household disposable products – the difference between a company going under, bin bags, freezer and food bags, foil and cling film. It also has the Paclan and Poly-Lina brands. and it surviving to prosper another day. “After the initial In July 2009, Rutland Partners acquired the “Turnaround professionals secure the sustainable observations, we £185m-turnover, German-headquartered business return of viability to an underperforming company,” start with a plan from Delton, for an undisclosed sum. says Christine Elliott, chief executive of the Institute “The company was split into UK and European for Turnaround. The word “sustainable” is for the first 100 businesses, and with a management team that especially important, she argues. “We’re looking for days and then we felt wasn’t strong enough, the company was more than a quick "inancial restructuring that buys build out from underperforming as a result,” says Ben Slatter, the business some breathing space, but doesn’t lead there” partner at Rutland Partners (pictured below). to fundamental change.” Rutland’s strategy was pretty simple: create Allan Kelly, the lowest cost-scale producer in the restructuring partner, market. They set about restructuring operations PLAYING CATCH UP Baker Tilly under a new UK head office. The management “Underperforming” does not necessarily mean team was overhauled, led by a new executive distressed. Some sort of disruptive event or chairman, Alan Jamieson and CEO, David challenge will often have to be faced down and the Pearce. Rutland and the new management team breadth of that de"inition means the role requires a addressed three key issues: improving set of diverse skills. Turnaround specialists are manufacturing efficiency, reducing cost of sales strategic managers of change rather than "inancial by substitution of polymers for cheaper engineers. “It’s about understanding the value of materials, and elimination of excess overheads. the business,” says Michael Magee, a partner and “We took costs out of the business, moved leader of the "inancial services restructuring a manufacturing plant from China to Vietnam and increased production capacity through practice at PwC. “What was it that got the business efficiency projects,” says Slatter. “The up and running in the "irst place?” “We facilitate the implementation of cost reduction and efficiency Restructuring "irms have access to industry- turnaround by measures drove increased profitability for the speci"ic data on metrics such as margins, pro"its and helping clients to business as a whole.” EBITDA. Where a business is behind on such understand their The five-year tenure saw a professionalisation yardsticks, the question then is whether the shortfall of the business and step change in the can be easily caught up. Sector specialists can leverage and the profitability which led to a successful exit last forecast potential sales achievable in their segments. options that are year for 2.8x original investment. In simple terms, a "inancial restructuring focuses available “This wasn’t a distressed business, but rather on the balance sheet, and operational restructuring unloved and undermanaged, and as a to them” consequence the company was the pro"it and loss account – improving the Simon Thomas, underperforming,” says Slatter. “By giving it business’s performance, cutting costs, deciding partner, Addleshaw the attention it needed, we were able to where to retrench and where to expand. Goddard change that.”

£185m turnover of CeDo when Rutland Partners bought it in 2009 – it exited at 2.8x investment in 2014

20 MAY 2015 CORPORATE FINANCIER COVER STORY

ASSEMBLE THE TEAM Industry experts and financial specialists, with the aim of getting all the bad news out of the way and assessing recovery potential. FIVE STEPS TO TURNAROUND

1 AGREE LONG-TERM STABILISE THE BUSINESS STRATEGY Identify and head off The full turnaround 5 immediate threats. Can blueprint for long-term wages or critical suppliers financial and operational be paid? Are banking changes with buy-in covenants being met? from all stakeholders. INTERIM GAIN 100-DAY PLAN CREDIBILITY With specific actions WITH and associated 2 STAKEHOLDERS measurable targets. Lenders, suppliers, management and of course the workforce are the means to understanding where the 4 business has gone wrong and administering the resources to put it right. 3

Unfortunately, this will often mean substantial job to build your strate#y on factors you can control, cuts. Most turnaround situations involve an and cost is the crucial one.” element of both. For this reason, says Featherstone, cautious targets for top-line performance improvements are IN IT FOR THE LONG HAUL “In a turnaround usually set and if they are beaten, it’s a bonus. Falling Firstly, the business must be stabilised, which may you need to short can undermine the company’s credibility with require some delicate negotiations with lenders and other "inancial stakeholders. stakeholders, including staff, or suppliers who may build your Maplin, which Rutland acquired from venture be unwilling or unable to continue working with strategy on capital "irm Montagu last June for £85m, had been the company on the same terms. factors you can through a turnover-focused turnaround, which With immediate threats averted – these are control. Cost is tackled a decline in sales. A new management almost invariably cashflow-related – attention the crucial one” team, led by John Cleland, joined in 2012. Its turns to the long term. “After the initial ‘click-and-collect’ online sales have grown to £6.5m Don Featherstone, observations, we start with a plan for the "irst 100 turnarounds partner, EY from nothing since he took over. Maplin is now days and then build out from there,” says expanding its product offering. Allan Kelly, a restructuring partner at Baker Tilly. And Aquascutum, the iconic British clothing “We’re looking to go beyond the quick "ix and to brand, emerged from administration to be acquired leave a sustainable business when we walk away by its’ Asian licensee YGM Trading for £15m in 2012. from the company.” In a turnover play, it has since opened a new The speci"ics can vary enormously depending on flagship store on Soho’s Great Marlborough Street. the issues faced by the business, but all advisers agree it should essentially be a detailed blueprint. WALKING THE LINE “The more speci"ic the plan the better,” says What went wrong in the past can help inform Don Featherstone, a turnarounds partner at EY. “It “The challenge decision-making. But of course business is fluid and needs to have practical targets and actions that can is to find up to needs constant assessment. “You’ve got to be measured and monitored.” three or four get below director level, to the "inancial controller Almost inevitably, in the early stages of the and the people on the shop floor,” says Baker Tilly’s long-term strate#y, focus will be on cost savings identifiable Kelly. “Very often, they will understand very and ef"iciencies. “There’s a saying in our business steps back to well what the problems are which impact their – ‘there’s no such thing as a revenue-driven profitability” ability to deliver.” turnaround’,” says Featherstone. “It’s not that the Ben Newton, Ben Newton, an assistant director at private top-line performance of the business is not assistant director, equity investor Better Capital, says the challenge is important, because it is, and we’ll work hard to Better Capital to "ind up to “three or four identi"iable steps back improve it. But in a turnaround situation you need to pro"itability”. He points to the example of one of

CORPORATE FINANCIER MAY 2015 21 Better Capital’s "irst investments – aerospace components manufacturer, Gardner. SPORTS DIRECT “It was housed in sub-standard facilities. MORE CONTROVERSY To become a world-class business it needed Often tied up with turnarounds in the UK are signi"icant investment in new facilities, and we company voluntary liquidations, which somehow were comfortable with that because Airbus, its emerge Phoenix-like with the same or very similar biggest customer, committed to placing new management, or pre-pack administrations, orders,” Newton explains. (‘pre-packs’), have been a matter of public Another private equity strate#y can be concern for quite some time. There has been seeking compatible businesses for its portfolio. long-held fear that sometimes they are used to save some investors at the expense of other “We bought Of"ice Team last year partly because investors, creditors, suppliers, contractors and – as a supplier of of"ice products it was a very good not least – workers. "it with Spicers, a wholesaler in that market that In March, Sports Direct managing director we already owned,” says Newton. “We’re now Keith Hellawell appeared before the Scottish merging the two companies and achieving great Affairs select committee, to explain how a synergies in areas such as distribution.” subsidiary, USC, went through a pre-pack Turnaround specialists working as a chief administration, which saw the loss of 200 jobs in restructuring of"icer (CRO), or advisers, are Scotland, and the taxpayer footing the bill via the slightly more hamstrung in their approach. Insolvency Service. Landlords and suppliers were Stakeholders, somewhat justi"iably, will want to left out of pocket too. The dispute is ongoing. see the plan and are likely to offer robust challenges to its assumptions and forecasts. “It’s almost like pitching a new business plan for a the "inancial structure will be questioned. Banks start-up company,” says PwC’s Magee. “It's the people being asked for further loan capital may want their But business plans can be destroyed, if the at the business increased exposure reflected in some form of equity market moves more dramatically than forecast. the turnaround stake in the business. Shareholders may fear their Better Capital bought Reader’s Digest for £14m in will depend on stakes being diluted. Investors may demand security 2010. Despite investing a further £9m to migrate in the form of the company’s assets. Reaching it to digital platforms and take cost out of the – it needs to be agreement while ensuring the business has a capital business over the next four years, it was sold for their success, structure to underpin its recovery can be a challenge. a nominal sum last year. As Ben Newton not yours” “As a CRO, you have to walk a very balanced line succinctly puts it: “We just hadn’t anticipated Michael Magee, partner that reflects the economic and legal priorities of the the pace at which the market would decline.” in financial services various stakeholders, as well as the needs of the Equally, it will not be just the business plan; restructuring, PwC company,” says EY’s Featherstone. “You need to be

THE FIXER “The chief restructuring officer (CRO) acts as the single point of accountability for the restructuring plan, and operates with the delegated authority of the chief executive,” explains Michael Magee of PwC. “This is someone who has extensive experience of turnaround environments, though not necessarily in the same industry, who can identify what is achievable, and provide continuous feedback.” CROs often have to build strong relationships with the owners of the business in turnaround, as well as winning the support of management and the rest of the workforce. “The image of the turnaround professional is out-of-date,” says Christine Elliott of the Institute for Turnaround. “This isn’t usually a command-and-control role, but something that is much more collaborative.” Most turnarounds are likely to require a CRO because management and staff will be busy running the firm. “It’s a lot to ask even a good management team to do that, while simultaneously restructuring,” says EY’s Don Featherstone. Having someone to focus exclusively on restructuring is a huge advantage.”

22 MAY 2015 CORPORATE FINANCIER COVER STORY

Date Closed Bidder Target

Four Pizza Hut delivery outlets Jul pH Leicester 2014 Ltd Consideration: Undisclosed Deal Type: Acquisition £ m Private group Pizza Hut (UK) Ltd 20 Nov led by amount Rutland Partners 2012 Rutland Consideration: Undisclosed invested in support of a Partners Deal Type: Investor buy-out £60m restructuring of Pizza Hut UK Portfolio of eight Pizza Hut Apr Pizza Hut restaurants 2011 (UK) Ltd Consideration: Undisclosed Deal Type: Acquisition Three Pizza Hut delivery franchises PIZZA HUT UK: A DEAL HISTORY PIZZA Sept NAS Manna in Bolton, Bury and Leigh, Lancs 2010 Ltd Consideration: Undisclosed Deal Type: Acquisition Eight Pizza Hut restaurants TAFS Foods Mar 2008 Ltd Consideration: £ 3,550,000 Deal Type: Acquisition Certain business and assets MTF Foods of Pizza Hut (UK) Ltd Jan 2008 (Pizza) Ltd Consideration: Undisclosed Deal Type: Acquisition Pizza Hut UK Ltd Sept Yum! 2006 Brands Inc Consideration: £ 111,509,775 Deal Type: Acquisition SOURCE: EXPERIAN CORPFIN

acutely aware of who will bene"it as value accrues.” RESURGENCE OF SETTING UP FOR SUCCESS AN ICONIC BRAND It is at this stage of the negotiation process that legal advisers play a crucial role in brokering an “We want In November 2012, Rutland Partners agreement. Simon Thomas, a partner who businesses we acquired Pizza Hut’s UK restaurant business, specialises in restructuring at law "irm Addleshaw investing £20m in support of its £60m Goddard, says: “The absolute crux of what we do is believe people refurbishment and restructuring programme. to facilitate the turnaround by helping our clients want to own The objective was to reposition an iconic to understand their leverage, where the value once we've restaurant chain in a very dynamic and breaks and the options that are available to them,” worked with competitive sector on the UK high street. Thomas explains. them” The first refurbished restaurant reopened in While it may not be the initial plan that is agreed Crawley, in October 2013, with an interior design Paul Cartwright, upon, once it has been through the stakeholder managing partner, that emphasised its American heritage. More mill, the key thing is that the plan is stuck to, says Rutland Partners recently, Pizza Hut’s flagship store on the Strand in Featherstone. “Everyone needs to understand the London was refurbished, complete with cocktail bar. need to be completely disciplined about achieving Rutland managing partner, Paul Cartwright, the targets agreed,” he says. “Having that rigour is said: “It was very important to assess the brand, crucial to the trust you’re trying to rebuild between the product development and the market to the company and its stakeholders.” identify where we could make a significant Even when there is a Plan B, stakeholders may not difference. The business had an iconic brand and back it. The collapse of Plan A may be the "inal straw, a loyal customer base, but had declined through or Plan B may be a sale of assets, without a view to lack of investment. We are fundamentally long-term sustainability. Or insolvency – where Better addressing this through a radical change Capital found itself last December with City Link. programme that restores the brand and appeals Turnaround investors and advisers can only do so to a wider customer audience.” much for so long, when the business can’t get to a As well as the refurbishment programme, stage where it can run itself. “Those company doctors Cartwright says they are driving operational who go into a business believing they are the answer improvement, with improved service and are doomed to fail from the start,” warns Magee. “It’s development of the menu, with the ultimate aim the people at the business the turnaround is of transforming Pizza Hut into “an energetic ultimately going to depend on – it needs to be their restaurant chain, relevant in today’s consumer success, not yours.” environment”.

CORPORATE FINANCIER MAY 2015 23 Leaving the security of a huge corporation for a start-up is a tough decision. ForgeRock co-founder Jonathan Scudder speaks to Marc Mullen about raising three rounds of venture funding and creating a global software company to rival Oracle. PICTURE CREDIT XXXXXXX/XXXXXX, XXXXXXXXX XXXXXXX/XXXXXX, CREDIT PICTURE

24 MAY 2015 CORPORATE FINANCIER ALTERNATIVE FUNDING

n February 2010, Jonathan Scudder was one ForgeRock has raised couple of decades – there have been a number of of five founders of security software company momentous changes in the market. Planning in detail I ForgeRock. The business was founded with just was always difficult because of the lack of experience. It $40,000 (£26,900), immediately after the completion of $52M was a steep learning curve – you need to be good at Oracle’s $5.6bn acquisition of Sun Microsystems. The in three fundraisings learning and open-minded. In one way, you need to be Oracle-Sun deal had taken nine months to complete, and reactive, but in another you need to be proactive. The during that time it became clear that the combined classic trap is that you wait until you need money before entity would be continuing with Oracle’s identity and SERIES A you go out and look for it, and that is always too late.” access management software. Scudder, together with Lasse Andresen, Steve Ferris, $7M Q: WHAT DO YOU LOOK FOR IN ADVISERS? Victor Ake and Hermann Svoren, decided to go it alone from Accel Partners A: “In general, we have industry experts on board, who and to continue with Sun’s open-source identity represent missing chunks of capability. We have a mix software. Five years on, ForgeRock has raised $52m in + of abilities and skills within our team. So we are looking three fundraisings – $7m series A from Accel Partners; SERIES B for skills that will be complementary to the abilities we $15m series B led by Foundation Capital Partners (and have in our team. Advisers cover a broad range of including Accel); and $30m series C led by Meritech things for us. When it comes to financing, advisers Partners (and including Accel and Foundation Capital). $15M bring tremendous experience of processes. They have led by Foundation Based in San Francisco, ForgeRock has more than 200 helped us with scaling sales and networking. We have a Capital Partners (and employees with six other offices – in Vancouver (US), including Accel) fantastic team of advisers, which is continually Singapore, Grenoble, Oslo, London and Bristol, where changing. The software world changes all the time and Scudder is based. ForgeRock now has Oracle in its sights. + we have to as well.” SERIES C Q: HOW MUCH OF A PLAN DID YOU HAVE Q: YOU HAVE SOME HEAVYWEIGHT WHEN YOU STARTED OUT? ADVISERS? A: “I have seen us come so far. When we set out, we $30M A: “One of our advisers is Scott McNealy – the co- led by Meritech Partners had only a vague idea of what this would entail. You (and including Accel and founder and former CEO of Sun Microsystems. He had no can do all the reading you can, and get an idea of what Foundation Capital) reason to know or care about what we were doing, when options are available, but that is in theory. The idea of we were literally five blokes in a garage. But he was really planning the funding right from the start, saying we will Jonathan Scudder supportive. He was a fantastic adviser, who had done a raise this type of finance to build out the business in six is co-founder, board million things more than us. He loved what we were member and chief months’ time, then in two years we will do this, is a architect at ForgeRock. doing and breathed life into some of our projects.” good idea. But again it is in theory. When it came to His core focus is software strategy, probably the only definitive answer we arrived and developing Q: WHAT KEY LESSONS HAVE YOU TAKEN at was that presumably there would be a need for internet-based FROM STARTING UP BUSINESSES? enterprise software. capital at some point. We started with $40,000, and A: “There is a surprisingly long list of lessons. We have ForgeRock is the seventh had to get sales moving right away. We self-financed company he has founded had three rounds of financing in two-and-a-half years. for two years and perhaps could have continued in that or co-founded We’ve been through the mill. The first time you take on vein for a while, but being cash constrained meant external funding will be the biggest challenge, because making tough decisions.” you have to change from convincing yourself to convincing someone external that it is the right thing to Q: WAS BRINGING IN EXTERNAL do and that everything is heading in the right direction. FINANCING A TOUGH DECISION? Then there is the question of how you balance that with A: “You need to have an open mind. Are you looking for running a growing company. Even now, we are very seed capital or angel investment or venture capital? You resource-strained. Having your plan mapped out for should be aware of the funding options and you can potentially competing investors is of course very helpful, find out about them pretty easily. But then you look a but making that a prioritisation is very difficult. It can be bit closer and you find out there is part debt and there easy to fall into the trap of focusing on the wrong things. are different options. It was only through engaging Perhaps what wasn’t worth spending so much time on advisers that we had our eyes opened to all the was modelling all the ways the company could opportunities. Often there were things put on the develop. On the other side of the table they are table that we hadn’t thought about. Everything doing all their own models, doing their own does change and in my experience that applies calculations. If anything, the headline should be to financing.” demonstrating the ambition and the aims of the business and the management team. Q: HOW FLEXIBLE DOES YOUR The history and the hard data points are STRATEGY NEED TO BE? useful for due diligence. The projections A: “It is easy to be rigid around strategy if you have may look like a hockey stick, but having a hit the right one. It is a lot harder to change reality very good idea based on what you have just by being stubborn. For most of us, you have to achieved so far is very useful. Having a look at where business is at, at any time and what strong culture of linking the strategy and the plan to you need. We have a really short history here – we the finance makes it far easier to put the story across to started at the tail end of the financial crisis. the investors. Being on the same page is infectious, as Imagine anyone who has done this over the past is demonstrating your passion and drive.”

CORPORATE FINANCIER MAY 2015 25 Last year was a record year in terms of global venture capital investment activity. And according to a report on global VC trends by EY, 2015 is likely to see that boom continue. Jason Sinclair reports

ast year, $86.7bn (£58.2bn) was invested in The consumer services sector received the most 6,507 VC deals worldwide, EY’s 2014 investment in 2014, driven by the high-value deals L Venture Capital Review found, the highest of mobile-based platform companies such as Uber, annual investment level since 2000. The report said Snapchat and Flipkart. The sector attracted $29bn the global VC-backed deal activity is likely to of investment in 2014, the highest amount invested continue its bullish trend, driven by a consistent in it over the past six years and more than double pipeline of new IPO listings, along with improved the amount invested in 2013. It led all the other investor confidence. “Public sectors with 1,690 deals, closely followed by The lead author of EY’s report, Bryan Pearce, said: valuation is business and financial services with 1,682 deals. “We’ve been able to follow investment cycles strong and In terms of sectors, the report says: “We through good times and bad, and it certainly seems mid-to-late anticipate that interest will continue to focus on we’re back to good times.” technology, healthcare, consumer, business and Pearce identifies a number of reasons for the stage public financial services.” upturn in investment, but he highlights public valuations are Pearce was enthused by the report’s findings markets as the biggest factor: “Public valuation is a driver that about emerging markets: “One of the things that’s strong and mid-to-late stage public valuations are a encourages interesting to me is that the demographics of the driver that encourages M&A activity by corporates M&A activity emerging markets – the populations, the emergence because they feel empowered to acquire companies of the middle class – are tremendously exciting to to accelerate their own growth.” by corporates” growth funds, especially for western investors Bryan Pearce , global looking at these markets that have a good feel for a leader, entrepreneur of the EMERGING TRENDS year and venture capital business model that works. According to the report, given the positive trends advisory group, EY “Over and above accelerating growth, we know and macroeconomic factors, investors will remain that many corporates are looking for innovation and keen to invest early-stage capital in emerging agility, or new products and services,” Pearce said. markets in pursuit of higher returns. Activity in China “It’s all a good combination for M&A, and when you is expected to remain strong, and interest in India add these things together, you get a bit of a virtuous will increase, in part because of political factors, cycle. And you get record years of investment into namely a more pro-business government. Lower oil VC. I don’t want to sell it that everything is positive, prices will further boost economic activity, helping $86.7bn but we do have a very nice confluence of events.” Invested in 6,507 to sustain a positive operating environment for VC. VC deals worldwide In 2014, VC funding was found to be at an all-time in 2014 HUBS OF ACTIVITY high for the three key VC markets – the US, Europe EY divided the report into ‘hubs’ of venture activity, and China. During the year, investments increased which Pearce explained were “often based around by 47% in the US and 27% in Europe, while almost quality universities and the right kind of corporate”. tripling for China compared with 2013. Strong $29bn “In all these areas, there’s a pool of venture Invested in the activity in the IT and consumer services sectors were consumer services money – and when people see opportunity it can be said to have contributed to the increase in China. sector in 2014 encouraged by the government (whether that’s

26 MAY 2015 CORPORATE FINANCIER ANALYSIS

GLOBAL VENTURE CAPITAL INVESTMENT

51.1 35.6 46.6 56.0 49.8 53.5 86.7

100 6,507 7,000 6,040 6,551 6,000 80 5,500 5,458 6,085 4,813 5,000 60 4,000

40 3,000 2,000 1,808 20 1,550 1,516 1,542 1,560 1,361 1,000 NUMBER OF ROUNDS

AMOUNT INVESTED (US$ BN) AMOUNT INVESTED 1,531 0 0

2008 2009 2010 2011 2012 2013 2014

Investment During Q1 (US$ Bn) Investment During Q4 (US$ Bn) Investment During Q2 (US$ Bn) Number Of Rounds During The Year/Qtr Investment During Q3 (US$ Bn) Number Of Rounds During Q4

INDIAN VENTURE CAPITAL INVESTMENT

7.3 4.2 6.7 5.0 3.8 4.0 4.5 6 300 252 260 241 5 250

4 186 200 through tax programmes or limited partnerships).” 3 150 Of those hubs, the Bay Area in the US maintained 121 121 98 2 100 its dominant investment position during 2014, 79

almost doubling the amount invested from the NUMBER OF ROUNDS

AMOUNT INVESTED (US$ BN) AMOUNT INVESTED 1 26 71 50 levels seen in 2013. The UK was leapfrogged by 43 59 35 both Beijing in China and Germany in these global 0 38 0 investment charts, although it did see a dollar 2008 2009 2010 2011 2012 2013 2014 increase in investment size. Beijing made a Investment During Q1 (US$ Bn) Investment During Q4 (US$ Bn) comeback in the top five hotbeds, recording a 237% Investment During Q2 (US$ Bn) Number Of Rounds During The Year/Qtr increase in the amount invested compared with the Investment During Q3 (US$ Bn) Number Of Rounds During Q4 previous year. The median deal size at seed round increased INDIA: AN OPEN ECONOMY across all markets, suggesting investor sentiment remains positive and that VC investors were One VC firm chasing Indonesia, Malaysia, prepared to make bigger investments in young growth is Amadeus Capital Philippines. And there’s a companies worldwide. Partners, whose chief talent pool. Venture capital The report contained mixed news about exits. executive Anne Glover is indigenous there.” outlined its strategy: “We While IPO activity increased, the average IPO exit Glover says that Amadeus raised a global fund in was smaller, though the US continued to dominate is looking at “demand- 2013 focusing on the in terms of capital raised, followed by China. driven investment – emerging middle classes in anything that serves the European data was skewed somewhat by the emerging markets, and we emerging middle class”. megadeal for Rocket Internet which contributed to identified 18 or so markets She is unworried by the a 600% upturn. When it came to M&A exits, Europe that were on the cusp of lack of IPO and M&A remained flat while China and the US broke records. material digital revolution. activity in India (as Investments at the later stage almost doubled “This includes China, but identified by the EY in 2014 compared with the historical levels. A it’s very hard for countries report), seeing it as a similar trend was also seen for investments made in outside to deal there, predictable stage companies operating at revenue-generating stage. while in India there’s a of the cycle: “There’s just Increased median deal sizes for most markets much more open been huge growth of showed VCs willing to make larger investments economy, and a long-term companies. I think many at an early stage. entrepreneurial culture. are poised for exits in the As Pearce explains: “Money chases growth. And it’s a huge market. next couple of years. Major US venture firms are all after perceived Bangalore is the hub of They’ve only been through opportunities abroad. In Europe, there may look tech activity and from one cycle. They’ve not had there we can also reach four or five like the US, but like there’s less growth, whether it’s through up-and-coming markets there’s still quite a lot of demographics or political events. So you look in South-East Asia – experience on the ground.” for innovation.”

CORPORATE FINANCIER MAY 2015 27

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ast year was a record year for private equity of which Toronto is the capital. But Calgary, investing in Canada. According to data from Vancouver and Montreal also have pockets of activity. L Preqin, there was $20.9bn invested in “Reflecting the importance of natural resources to buy-outs last year. And according to Canadian Canada’s economy, deals struck in the west of the Private Equity & Venture Capital Association (CVCA), country tend to be industry-speci"ic, mainly in the oil a total of (US) $32.6bn was invested by private equity and gas industry,” notes Eric Klein – it accounts for – a record. Increasingly, cumulative fundraising by just under a third of all deals by value. Canada-focused private equity funds has resulted in The leisure and hospitality sector accounts for buy-out funds in the country sitting on $20.6bn about 26%. Healthcare and life sciences is third of dry powder. largest, but pretty far back, attracting just $3.2bn At some point, "inancial gravity dictates that that of investment last year. In Ontario, meanwhile, dry powder will "ind its way into the market. Domestic manufacturing/distribution and consumer cheap debt is to an extent pushing up multiples and businesses remain active. this is having an impact upon the purchasing pro"ile. Venture capital is certainly not as developed as “In a competitive market, the ability of private it is in the US – according to CVCA there was just “We do need more equity "irms to move more quickly than would-be $1.5bn of investment through 379 deals in 2014. harmonisation trade buyers can give them an irresistible edge,” “Opportunities abound for M&A activity in across Canada with suggests Eric Klein, partner and managing director Western Canada due to the recent weakness in oil respect to securities of corporate "inance transactions at Farber Financial prices,” says Suppa. “Compressed multiples are in Toronto, part of the Mergers Alliance leading to opportunistic buyers. Multiples overall commissions or international network. are near or at all-time highs.” He estimates they are regulators” A broad trend is clear, say advisers: private equity between 1x and 2x EBITDA higher than "ive years Doug Bedard, senior companies are becoming increasingly active as baby ago, on average. vice-president, MNP boomers look to sell the companies they have built When it comes to debt, Bedard points out: “With Corporate Finance in recent decades. Succession-driven divestitures are in fact identi"ied as the number-one driver in the mid-market. LAW UNTO THEMSELVES? Doug Bedard, senior vice-president of MNP Corporate Finance, points out: “Deals being done When it comes to regulation, Canada “takes a little bit are focused on the equity range of between $5m from the US, a little from the UK and a little from itself”, quips Eric Klein, partner at Farber Financial. Anti- and $20m, with senior or subordinated debt of competition laws in Canada are similar to those in the US, up to $100m.” which it possibly borrows more from. Another major force at play in Canadian M&A is foreign investment. Almost every major US private The government has prevented a number of large deals in equity "irm is shopping in Canada. “Attracted by rising strategic industries, such as telecoms and energy, in recent years. Under earnings multiples, they have the double advantage of Canadian law, M&A must benefit Canada as a whole, with the other most buying companies priced in a weaker currency, frequent reasons cited being national security and anti-competition. Last year, "inanced by more readily available US-sourced debt,” the government blocked BHP Billiton’s proposed acquisition of Potash Corporation, and the year before, Accelero Capital’s proposed acquisition of says Bruno Suppa, partner at BDO in Toronto. Allstream business of Manitoba Telecom Service was blocked by Ottawa state.

MAJOR HUBS For the most part, however, M&A with Canadian companies can be relatively Like much of the "inancial sector in Canada, corporate simple and quick, says Bruno Suppa, a BDO Toronto partner. Canadian M&A rules "inance and M&A activity is centred in Toronto. More favour the acquirer, and government approvals are relatively easily obtained. than half the deals by value are in the state of Ontario, ALAMY

30 MAY 2015 CORPORATE FINANCIER ROADSHOW

CANADA IN NUMBERS

POPULATION 34.8m GDP “Reflecting the importance of natural resources to $1.58trn Canada’s economy, deals

GDP/CAPITA struck in the west of the country tend to be $44.5k industry-specific, mainly in oil and gas” CRUDE OIL Eric Klein, partner and managing PRODUCTION director corporate finance transactions, 4.0m Farber Financial barrels per day (fifth respect to capital raising in the exempt market – the biggest in the world) non-prospectus offering – there is no mature secondary market for private issues. We do need more NATURAL GAS harmonisation across Canada with respect to our PRODUCTION securities commissions or regulators.” 145.2bn Suppa observes: “National and international cubic m (sixth biggest advisory "irms and boutiques tend to be most in the world in 2013) dominant in mid-market M&A advisory, while the big Canadian banks with investment banks and brokerages operate at the higher value end of the

SOURCE: CIA FACTBOOK market.” Some of the Canadian banks have separate ALL FIGURES IN US DOLLARS mid-market investment bank offerings, but more and more are closing. For example, Scotia recently CANADA-FOCUSED PRIVATE EQUITY FUNDRAISING closed its mid-market M&A advisory shop. The big 35 Canadian banks went further down market during Number of funds Aggregate capital raised (US$bn) the recession when deals were scarcer – but with 30 M&A having picked up over the past few years they are back to focusing on bigger deals. 25 INTERNATIONAL DEALS 20 Cross-border M&A is a prominent feature of the market. Advisers report having seen a lot more US 15 private equity players looking to Canada for deals, 10 taking advantage of aggressive "inancing conditions in the US where senior debt "inancing is available for up 5 to 6x EBITDA compared with 3x through Canadian lenders. The recent weakness of the Canadian dollar 2006 2007 2008 2010 2011 2013 2014 2009 makes Canadian targets much cheaper for US and international companies. NUMBER AND AGGREGATE VALUE OF PRIVATE EQUITY- BACKED BUYOUT DEALS IN CANADA By contrast, while cross-border M&A by Canadian companies was very active when the Canadian 150 Number of deals Aggregate deal value (US$bn) dollar was at par or higher than the US dollar, it remains to be seen how its current weakness will 120 impact this trend as US-denominated targets are now much more expensive for Canadian "irms. Sales to international trade players have been a 90 feature. OMERS Private Equity sold Canada’s leading analytics service company Maxxam to French 60 business Bureau Veritas for just under $600m at the start of last year. But Bedard points out one challenge facing exits: 30 “Canada has one of the highest numbers of public companies per capita in the world, but the IPO market 2014 has shrunk to less than half of the pre-2000 levels.” TABLE SOURCES: BOTH PREQIN SOURCES: BOTH TABLE

CORPORATE FINANCIER MAY 2015 31 Appointments

BAKER TILLY PROMOTIONS NEW AG PARTNERS Jason Stone (left) and Wild joined Baker Tilly in 2002, James Wild (below) have and is based in its Manchester of"ice. Addleshaw Goddard has both been appointed He recently worked on the sale of promoted three lawyers to partner in Baker Tilly’s Fentons and Walker Smith Way to partner in its corporate corporate "inance team. Slater & Gordon, and the private department. Andy Green Stone joined the "irm equity investment by Piper into (top), who advises on M&A, in 2006, and is based in Chester-based Hickory’s BBQ chain. private equity and London. An experienced Wild said he also expected to see a reorganisation, with a corporate "inancier, he “steady increase in deal flow in the particular focus on retail has advised large mid-market”, with increased interest and consumer, has been corporates on non-core disposals. He in growth through acquisitions promoted in the firm’s was also a key member of the team amongst large corporates. Manchester office. advising on Baker Tilly’s acquisition He added: “Key sectors to watch in Simon Wood (middle), in of Tenon in 2013, and the subsequent 2015 include leisure and hospitality, the firm’s London office, disposals of Financial Management recruitment and legal. My focus has also been promoted. and Baker Tilly Employee Bene"it going forward will be advising He specialises in equity Solutions to Towry and AJ Gallagher, mid-market, entrepreneurial capital markets and takeovers. He respectively. businesses on disposals, acquisition trained with Slaughter and May, before “A number of large global deals or private equity fundraising. joining Eversheds, and then in 2012 he have been announced in Q1, which joined Addleshaw Goddard. could lead to potential spin-off Graham Cross (bottom), who is also disposals,” he said. “I would expect based in London, and specialises in the this trend to be reflected in the “A number of large financial services sector, has also been mid-market over the coming year.” global deals have made up to partner. As well as advising He added that in his new role he on private equity investment and M&A, would be focusing on advising been announced in he has advised on restructuring large corporates and Plcs on Q1 which could lead transactions. He trained with DLA Piper “non-core exits and acquisitions in and joined Addleshaw Goddard in 2012. order to help them realign their to potential spin-off The firm has made 18 new partners. strategies and focus”. disposals”

Close Brothers from McKinsey, where she passive equity. He was global NEWS Invoice Finance worked for five years in strategy head of index equities at Legal has recruited development. & General Investment IN BRIEF Edward Langham, Management. from National Australia Bank, as Private equity professional a corporate sales director in its Richard Thomas has joined the Corporate finance Yorkshire and north-east team. acquisition finance team of advisers, Duff & Lloyds Bank in Birmingham as Phelps, has Mobeus Equity director, from Key Capital promoted Ryan Partners has Partners. He previously spent McNelley to managing director promoted eight years in Grant Thornton’s in its portfolio valuation Freddie Bacon corporate finance team. practice in London. He (left) to investment executive, specialises in the valuation of and Dominic Draysey to KPMG has invested £3m in UK illiquid securities and interests. investment analyst. data analytics technology company, Flexeye. Hospitality sector Mina Mutafchieva specialist Gareth has joined Palamon HSBC Global Asset Ogden has been Capital Partners as Management has appointed promoted to associate principal, Joseph Molloy as head of partner at haysmacintyre.

32 MAY 2015 CORPORATE FINANCIER COMPANY NEWS

INVESTEC MOVES LEGAL BRIEFS Investec has recruited Serge Rissi (left) as a director in markets group as partner in the its "inancial sponsor firm’s Amsterdam office, from transaction group. With 15 Linklaters. He is a US-qualified years’ M&A experience, he has international capital markets joined from M&A advisory "irm Slaughter and May has promoted lawyer, who specialises in advising Quayle Munro. He previously three to partner in its London-based on multi-jurisdictional debt and worked for Hawkpoint and corporate team: (L-R) Robert Innes, equity transactions. UBS Warburg. Chris McGaffin and Sally Wokes. Jane Warren (left), who has All three have been with the Magic Ogier has promoted been with Investec since 1994, has been Circle law firm since 2005. Sara Johns and appointed UK head of digital. She will Christopher Jones to manage the "irm’s entire digital relationship Cooley, which opened a partner in its Jersey and with clients, including the development of a London office in January, Guernsey offices new, simpli"ied advice-based online has recruited John respectively. Johns investment management service. Wilkinson and Nicola specialises in M&A, Maguire as partners in Jones on advising its London-based life financial institutions, investment BLP PROMOTIONS sciences corporate funds and corporate clients. Berwin Leighton Paisner has group, from Reed Smith. promoted Matthew Baker (left) Wilkinson specialises in specialty Brendan Slack has joined to partner in its London pharma, biotech and medical Dentons’ banking and corporate team. He joined technology companies, Maguire in finance practice as a from Mayer Brown in January life sciences and other IP-rich clients partner in London from 2011. Working in the "inancial services Speechly Bircham. department, he advises banks and "inancial Peter Voorhees has institutions on regulatory and commercial joined international law Law firm Morgan Lewis has acquired issues. Manoj Purushothaman has also firm Simmons & Bingham McCutchen, bringing its been promoted to partner in the corporate Simmons’ financial number of offices worldwide to 29. department of the "irm’s Singapore of"ice.

Claire Braithwaite Kostas Manolis has Moven app founder IN SIGHT, the firm’s thought has been joined Downing and CEO Brett King leadership arm. He joined appointed head of Private Equity as joins digital financial KPMG in 2007 and is founder Tech North, Tech partner from services investment and chairman of the client- City UK’s initiative to Caird, where he had worked and advisory firm Anthemis facing economics practice, accelerate the North’s digital since 2010. Group as venture partner. which helps clients deal with economy. She is chief financial the competition authorities and operations officer at Stuart McMinnies Deloitte has and regulators. corporate advisory firm has joined Duke recruited Clearly So. Street as partner Steve Williams as GE Capital has from 3i, where he senior partner appointed Isabel KPMG partner Ben was a senior partner. for Scotland and Fernandez as McDonald has joined Northern Ireland. He leads chief commercial Funding London, Mid Europa Deloitte’s financial services officer. Since joining GE Capital the tech start-up Partners, the private practice outside London. in 2000, she served as fund, as non-executive director. equity firm focused chief commercial officer for He leads KPMG’s enterprise on CEE, has KPMG has appointed North America and has also practice in London, working recruited Pawel Padusinski as Bill Robinson as its headed up various GE Capital with privately-owned co-head of the Warsaw office new chief economist businesses in the US businesses. alongside Zbigniew Rekusz. and head of and Europe.

CORPORATE FINANCIER MAY 2015 33 ON MY CV Nordic adventure

THE CV

Anthony trained at Travers Smith in London, qualified in 2000 and became a partner in 2008. As a corporate department partner, he specialises in corporate finance and M&A transactions, including IPOs, equity Co-ordinating equity fundraising with two independent fundraisings, public takeovers, private acquisitions requires detailed planning. Anthony Foster company acquisitions and disposals. He spent a year tells us about Benchmark Holdings’ Nordic expansion on secondment with the Bank of England during WHAT WAS THE DEAL? proceeds from that IPO were same advisory team as on the the financial crisis. He has The deal was three transactions earmarked for acquisitions, but 2013 IPO, although since then it a BA in history from involving AIM-listed Benchmark these two required extra "inance. has strengthened its internal Oxford University. Holdings, which sought to make legal capabilities by recruiting a two cross-border acquisitions – WHAT WERE THE general counsel. We provided Recent deals of SalmoBreed AS, a Norway- TIMESCALES? UK legal advice, and Cenkos NBNK Investments on based salmon genetics company, The chief complexity was not so Securities "inancial advice. Local its £50m AIM IPO and Stofn"iskur HF, a salmon much time, but rather the counsel was also brought in Arria NLG’s acquisition breeding company based in co-ordination of both the from Norway and Iceland, with of Data2Text and its Iceland. They were funded by a (independent) acquisitions and Arntzen de Besche and Fjeldsted £102m AIM IPO £70m private placing with UK the equity fundraise. Each & Blöndal, respectively. institutional investors. process had its own dynamic, Peel Group’s £1.65bn and distinct and different WHAT WERE THE MAIN Trafford Centre sale WHAT WAS parties. Benchmark and its CHALLENGES? Metro Bank’s £385m THE STRATEGY? advisers had to consider all the An acquisition and an equity private placement These acquisitions enabled scenarios – if one transaction fundraise is not uncommon, but Benchmark to establish a were to be delayed, should the a second M&A exacerbated the breeding and genetics division. other continue? Should the usual tensions on the timetables. in the day a competitor took The two acquired businesses fundraise proceed for both? In each jurisdiction – Norway a 10% stake in the Icelandic were complementary between What disclosures needed to be and Iceland – there were business, which had not been themselves and Benchmark’s made to the markets? Each of challenges to incorporate certain planned for. existing operations, and offered the selling shareholders had UK provisions, such as around the existing group opportunities their own priorities and, as there market practice conditionality WHAT WERE THE KEY to expand its market share. were a number of listed sellers, and timing of payment of LESSONS LEARNED? their own disclosure obligations. consideration. There were local A tight-knit group of advisers HOW DID YOU GET law issues, such as restrictions given clear client instructions is INVOLVED IN THE DEAL? WHO WERE THE on currency exchange, and essential. It also requires careful I advised Benchmark on its ADVISERS? announcement obligations, that planning to make sure there are AIM listing in 2013. Part of the Benchmark kept largely the had to be addressed. Then late contingency plans in place. TOM CAMPBELL TOM

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