Manchester: it’s about who you know

According to unquote" data, the north of England housed 27 deals in the £5-150m range in the first half of this year, just slightly less than London's 30. The bustling lower- to mid-market activity has caused some operating in the region to label it as Europe's second largest private equity market after London.

And in the upper echelons of the large-cap market, the region has not gone unnoticed either, with Clayton Dubilier & Rice's purchase of Liverpool-based B&M Retail at the end of last year, adding to the list of Blackstone's acquisition of confectionery maker Tangerine, Terra Firma's investment in Four Seasons Healthcare, Cinven's buyout of Guardian Financial Services, and most famously KKR's secondary buyout of Cheshire-based Pets at Home.

However, despite all of its attractions – namely a wealth of opportunities against a relatively limited number of houses based there – when it comes to the lower- and mid-markets, competition for quality assets is fierce and the region has long been dominated by players who have operated there exclusively for several decades.

Relationships and deep networks lay at the heart of the city’s PE market

Manchester's tightly knit business community means relationships and networks are arguably more vital there than in other UK geographies. "The market in Manchester is better connected," agrees Rothschild's managing director Andrew Thomas. "The quality and depths of relationships translates into dealflow, and houses that build relationships with management tend to be more successful in processes."

"A regional network gives you an edge on the market," says Ged Gould, director and co-head of LDC's Manchester office. "You're more wired into what's happening and you gain a better understanding of how businesses are performing as you can easily keep up with management teams."

The strength of relationships between GPs and management teams can wield great power. Northern-focused newcomer NorthEdge managed to create a pipeline of deals while raising its debut fund to prove to potential investors that its network could throw up steady dealflow. "This was tricky," admits Grant Berry, managing partner of NorthEdge. "We had to build a pipeline without the capital to do the deals. However, this worked to prove the strength of our relationships. We were able to get management teams to delay processes and wait for us to hit our first close before being able to transact."

Phil Adams, CEO of Altium observes how Manchester's close community has developed a culture of friendly competition as well as a great deal of sophistication. "The north-west market is very sophisticated in that operators need to be the best at what they do; they need to have extensive contacts and an international reach. The tough competition in the market means that only the best players survive and thrive as people would not be afraid to turn to London-based firms if local players aren't good enough."

Proprietary predicament
Despite Manchester's vibrant corporate finance and advisory community, as relationships and networks underpin the city's corporate universe, surely active deal-doers are adept at sourcing the asset class's holy grail of proprietary deals? According to Thomas: "Private equity houses in the region are working hard to originate deals independently but despite this, buyers and sellers have had to adapt to different processes when transacting on or off market. For example, there are a lot more preemptive processes today and fewer traditional auctions."

Rather than hunting perilously for that ever-elusive proprietary deal, houses are progressively employing this slightly different preemptive tactic.

Thanks to fiercer competition for quality assets, local players are harnessing delicately cultivated relationships to fend off advances from out-of-towners. And this goes for advisers as well as management teams. "Many of us have grown up with people now sitting in advisory firms and it's more than likely that we've worked together at some point," explains Gould. "Relationships throughout the community help when trying to do a deal, and especially when competing against houses coming up from London."

And, according to Jonathan Boyers, head of KPMG's corporate finance advisory in the north: "London houses are targeting Manchester aggressively." But the close community in Manchester means there is much more awareness and knowledge of potential deal activity. The downside to that is some managers will think the market is a bit too clubby, but the advantage is deals are much more likely to happen."

However, Boyers insists that it is not all down to GPs grooming potential management teams years ahead of a possible deal: "The asset will always go to the best buyer."

Indeed, a significant factor in Synova Capital's acquisition of Cheshire-based Dental Buying Group (DBG) in 2010 was, according to the firm's managing partner Philip Shapiro, its lack of proximity. And, despite DBG falling into the Manchester region, the transaction was kept entirely off-market: "No one knew that the business was being sold. The company's owner wanted to keep the potential deal away from the local market and viewed our London-base as an advantage."

According to Shapiro, in recent years he has encountered a large number of owner managers keen to keep the details of their businesses below the radar screen.

Local deals executed by local players are unlikely to remain private in Manchester, as its well-connected business community is clearly plugged into anything and everything. However, this does not mean the market is closed to outsiders – as with Synova's purchase of DBG, there are managers actively seeking non-local backers. What is clear is that houses ranging from small-cap to large-cap are targeting the north-west in search of quality assets.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• UK / Ireland
• Clayton Dubilier & Rice
• Blackstone Group
• Terra Firma
• Cinven
• KKR
• Rothschild
• LDC
• NorthEdge Capital
• KPMG
• Synova Capital
• Top story