Mid-markets buy and build on success

• There has been much made of the robustness of the private equity mid-markets at a time when the larger LBO market is effectively closed. Although it is true that we are still seeing smaller deals getting done, things are not as smooth as they seem.

This comment by one mid-market private equity player sums up general opinion: “A lot of banks are cautious about lending more than £25m debt, it is not all plain sailing for the mid-markets, I suspect even here we will see a slowdown in deal doing”.

But one area of the lower mid-markets that can genuinely claim continued robustness in the present climate is the dedicated buy and build specialists.

Over the last week we have already seen two such deals come to market. The first saw UK lower mid-market house Sovereign Capital announce the acquisition Orient Gold, a national provider of apprenticeship and adult learning, by its portfolio company STL, a Northern England based training provider.

The other saw Graphite Capital back the £22m acquisition of Global Gas Supplies (a supplier of diving gas to the oil and gas industry) by its portfolio company Dominion Gas (see p4).

According to Ryan Robson, managing partner at Sovereign, the almost guaranteed success of these deals lies basically in relationship banking. “The initial platform deals will be tougher to do but the bolt-on deals will be easier,” he says. “These deals tend to require smaller portions of debt, but also the bank is lending to an existing business, a relationship is already in place”.

Mike Innes at Graphite Capital agrees, saying that Royal Bank of Scotland stretched its hold level by 10%–15% to accommodate the debt needed for the acquisition of Global Gas by Dominion.

• As an aside, and following the mid-market versus the large buyout theme, IFR Buyout Europe’s sources confirmed growing resentment in the BVCA (British Venture Capital Association) towards its larger members.

At a debate held by law firm SJ Berwin last week regarding the Walker report (see below), BVCA chairman Wol Kolade was apparently quite bitter about the size of the membership subscriptions the larger buyout funds pay to the BVCA, while Javier Echarri, secretary general, reiterated that the BVCA was not there to provide PR support for the larger firms.

There also appears to be a split among the large buyout firms in the UK over the Walker Report, with UK groups including 3i, Bridgepoint, Apax and Permira apparently supporting it while others – mainly US firms – are less enthusiastic.

A new CEO for the BVCA is about to be announced from a shortlist of five. It is rumoured that Simon Walker, director of corporate communications at Reuters, is top of the list for the job, which is now thought to be worth £350,000, significantly more than Peter Linthwaite commanded. If he does take on the role it will be interesting to see how somebody with a communications rather than industry background deals with the present conflicts.