Safe and sound
Safestore’s multi-million AIM float is indicative of corporate activity in Southeast England – the fastest growing economic region in the UK.
When self storage provider Safestore plc returned to AIM in March this year with a market cap of £449 million, it was a different beast to the one that left the junior market in August 2003.
When Safestore de-listed, following a £39.8 million Bridgepoint -backed management buy-out, it had just 24 stores. Now it has 99 – including 19 in France – following an aggressive growth strategy that has seen the company complete four acquisitions, including a £210 million deal for Mentmore plc in June 2004.
Safestore’s revenues for 2006 were £64.3 million – up 22% year on year – and its Ebitda grew 24% to £3.53 million
Borehamwood-based Safestore returned to AIM to continue its growth. When the company was relisted, it raised £35 million by issuing some 14.5 million shares at 240p each. The company plans to add between seven and 10 stores per annum in the UK and Continental Europe and will consider making acquisitions.
Other companies in the Southeast have also sought to grow through AIM listings in recent months. For example, specialty pharmaceuticals company Neuropharm Group plc , which develops medicines for central nervous systems disorders, raised £20 million when it launched on AIM on March 1.
Neuropharm, which is based in Leatherhead, Surrey, plans to use the proceeds to complete certain development programmes and launch a product.
The company posted a loss of £847,000 for the six months to December 31, 2006, but thanks to the company’s AIM float, its chief executive is confident that the company now has the funds to complete its development programmes.
Southeast-based companies have also sought to join the UK’s third market. Mediterranean Moorings plc, an investment company set up by Griffin Corporate Finance, joined PLUS Markets in February. The company, based in Hildenborough, Kent, was set up to acquire Mediterranean yacht moorings and/or other property within marina developments and selling them on at a profit.
On joining PLUS, Mediterranean Moorings raised £350,000 to fund acquisitions. In April the company announced its first deal, paying some euro4 million [£2.7 million] for four berths at Marina Genova Aeroporto in Italy.
Making the deal
Meanwhile, companies based in the Southeast have also been active in deal making in a range of sectors, especially in the small to mid-market. For example, in January, Berkshire-based automotive retailer Ridgeway Group bought rival Pentagon Group for £38 million. Pentagon comprised four car dealerships and five commercial vehicle outlets in Hampshire, Sussex and Dorset.
Meanwhile, some companies have decided to go onto the acquisition trail for the first time. Reading-based catering company Charlton House recently acquired City of London-focused rival Chester Boyd in a deal that added £10 million to Charlton House’s turnover, taking it to £67 million in total.
Post-deal, Chester Boyd will remain a stand-alone operation. The deal is part of Charlton House’s strategy to expand its business from traditional staff restaurant business to take on more commercial contracts.
Management buy-outs have also been on the agenda for SMEs. Farnborough-based piling contractor Wilky Foundations Systems was acquired by managing director Neil Miller from The Wilky Group in April. Wilky Group disposed of its piling operation to concentrate on its core activities in property development, investment, fund management and finance.
Southeast-based companies have also proved attractive takeover targets. Davies & Tate plc, the holding company of Window Fitters Mate, which sells windows, doors, conservatories and ancillary products was recently bought by Sheffield-based rival SIG plc for an undisclosed sum.
Uckfield, East Sussex-based Davies & Tate will continue to be managed by its chairman and managing director Philip Davies post-deal.
Meanwhile, specialist trade distributor of plumbing and heating products and building materials Wolseley plc , which is based in Theale near Reading, continued to be one of the more acquisitive businesses in the region, snapping up four overseas businesses in February for £13 million.
The acquisitions included Grif-Fab, a US-based distributor and fabricator of fire protection systems and SA Escaffre & Fils and Eurl Espace Carrelages, a general
builders’ merchant and ceramic tiles specialist based in Albi in southern France.
In addition, Wolseley’s subsidiary, DT Group acquired the outstanding 60% of Greenland-based builder’s merchant Superbyg Kalaallit Nunaat A/S that it did not previously own, from Pisiffik A/S in January. This was followed in February by the acquisition of Swedish builder’s merchant Jarn och Tra Orust AB from Animonhus AB.
These deals are part of Wolseley’s ongoing acquisition strategy and the company has spent £342 million on some 33 purchases since August 1, 2006.
But the largest deal in the region in recent months was by Newbury-based telecoms giant Vodafone, which in May completed its £5.5 billion acquisition of Indian rival Hutchison Essar from Hutchison Telecommunications International.
Other telecoms businesses in the Southeast – mostly clustered with other tech-based companies in the Thames Valley – continue to flourish. For example, Newbury-based Azzurri Communications was recently recognised as one of the companies with the fastest growing profits in the UK in the Sunday Times Profit Track 100 survey. Azzurri has made 16 acquisitions since it was formed in 2000, seeing profits growing 65% per year from £3 million in 2003 to £13.4 million in 2006.
Ahead of the competition
However, not all businesses have found the business climate so favourable. In the first quarter of 2007, 959 Southeast-based businesses went into insolvency– more than any other region in the UK – but this was nonetheless 1.6% down year on year, according to business information provider Experian.
But this was way behind the UK average fall in the quarter of 8.8%. Indeed, the neighbouring Southwest and London recorded significant falls in insolvency of 11.9% and 29.3% respectively. This shows that businesses in the Southeast are still finding conditions tough, compared to their neighbours.
This may seems surprising, given that the Southeast is the fastest growing region in the UK, in terms of output growth, according to the latest PMI South East Report from the Royal Bank of Scotland. In the first quarter of 2007, the Southeast recorded stronger output growth than any other region, hitting a nine-year high in January, before slipping back slightly in the months since.
“The Southeast of England was the UK’s fastest growing region in the first quarter of 2007,” said Ross Walker, RBS economist. “With demand remaining strong, Southeast companies were able to raise their output prices at the fastest rate recorded by the survey.”
This growth has continued into Q2, with new order volumes increasing in April. “Growth in the Southeast private sector economy strengthened in April as rates of expansion of both new orders and output improved. Employment continued to rise, although the rate of job creation eased since March.”
Indeed, the regional economy has grown for 49 consecutive months – dating back to early 2003 – and shows no signs of slipping into reverse. The service sector and manufacturing production have been particularly strong, with the latter buoyed by increased overseas demand for products.
While cost inflation is still growing – and has been since mid 2003 – the rate of growth has eased in recent months and is now at its lowest level since January 2006, ensuring that businesses in the region are not under as much pressure to raise costs.
Unemployment has also fallen in the region for 20 consecutive months, as managers continue to recruit to handle the increase in business.