The focus of Welsh dealmaking moved to the stock exchange in 2007, but there was plenty of activity elsewhere. Douglas Friedli reports ahead of Insider's annual Dealmakers Awards.
It turned out to be the year when Welsh companies finally overcame their shyness about joining the stock market. With just one full flotation in 2006, the bar was set fairly low anyway. But the country gained no fewer than six PLCs in 2007. That added an extra dimension to a year which also included some chunky acquisitions buyouts and funding deals.
What makes this pace of activity more impressive is that the global credit crunch intervened in the late summer to make cash much harder to find.
Geraint Rowe, a partner at Gambit Corporate Finance, says it was a year of two halves. "It was fairly binary. The first six or seven months were very aggressive in terms of valuations and the availability of credit. After the credit crunch, debt finance dried up," he says.
The biggest deal by far was price comparison site operator Moneysupermarket.com's flotation, which raised £3366m and gave the North Wales company a starting valuation of £3843m. Chief executive and founder Simon Nixon confounded those who said the company was overvalued with the biggest ever UK internet flotation coming a full six years after the dot com crash.
The rest of the stock market debutantes chose to join AIM. They included Boomerang Plus, the TV production company behind Channel 4's Freesports extreme sports series, and S4C pop show Bandit. Chief executive Huw Davies said the £314m AIM market debut would give his Cardiff-based company a platform for further growth and allow it to act as a consolidator in its home region. The deal raised £33m for Boomerang, which has been backed by Finance Wales since 2005.
Freshwater, the fast-growing public relations group, joined AIM in July, raising £34m and valuing the business at £39.5m. Also joining the junior market was Energybuild, which owns the Aberpergwm coal mine in the Neath Valley, which raised £310.6m in a £326m flotation. And Enfis, a Swansea developer of low-energy lighting systems, joined AIM at the start of the year, placing £34.5m of shares, giving it a market capitalisation of over £313m. Early investors included Sir Terry Matthews' Wesley Clover investment vehicle and Finance Wales.
Conditions have changed since the start of 2007 and Gerallt Jones, partner at Hugh James, says the AIM boom is unlikely to continue. "With 2008 expected to be a turbulent year, the number of listing generally is likely to be lower, which will inevitably have a knock-on effect on Welsh companies," he says.
"Companies contemplating a listing will need to consider even more carefully with their advisers what is a realistic valuation and whether this justifies the disruption, expense and additional regulation resulting from a listing."
2007's six new PLCs were almost balanced out by five which left the list. Those departing included Ubiquity Software, which was snapped up by Avaya International Enterprises of the US for £374.3m, a 86.5 per cent premium on the company's market value before the deal was announced.
Surface Technology Systems dropped out of AIM after Sumitomo Precision Products, the Japanese group which held most of its shares, bought the rest in a deal valuing the whole company at £33.7m.
Welsh companies staying on AIM made a few interesting moves. Anglesey Mining unveiled plans to float its subsidiary Labrador Iron Mines in Canada. Anglesey figured that a Canadian market listing would ensure a higher valuation for the division which is working on a mineral rights scheme known as the Schefferville project in Newfoundland and Labrador.
Ice cream maker Hill Station survived a torrid start to the year to raise £33.3m, allowing it to pay for the £3650,000 acquisition of rival So Real Ice Company and pay creditors.
And Wynnstay, the agricultural goods company, raised almost £31.3m in an institutional share placing which will finance a twin-track strategy of expansion through acquisitions and organic growth.
A busy year for buying Away from the stock market there was plenty going on.
2007 saw plenty of acquisitions with the balance fairly even between Welsh and non-Welsh buyers. The year kicked off with one of the biggest acquisitions by a Welsh company in recent years when cash machine operator Notemachine of Crickhowell bought the UK operations of rival TRM for £345.3m. The deal, backed by Rutland Partners, Barclays and Kaupthing Singer & Friedlander, made Notemachine one of the biggest cash machine groups in the UK.
One of the most adventurous Welsh acquirers, in geographical terms at least, was electronics company Pure Wafer which bought Arizona wafer reclaim company Exsil for £35.7m. Cash for the deal came from debt funding provided by Royal Bank of Scotland. Morgan Cole advised Pure Wafer on this rare Transatlantic takeover, described by Pure chairman Giles Clarke as "company transforming".
Other Welsh firms buying beyond Wales included Yes Group, the unsecured loans broker, which bought rival No Worries Loans in a deal which saw No Worries managing director Sally Hill become managing director of the Yes Group.
And Finsbury Foods, the cake maker, acquired Weight Watchers cake maker Anthony Alan Foods for a total maximum consideration of £33.75m in a deal funded by a £32.1m loan from HSBC.
The traffic was not all one-way. National Britannia, the Caerphilly health and safety services company, was bought by Connaught, a Devon group in the same sector, for £391m. National Britannia was advised by Deloitte and M&A Solicitors on the deal which gave its investor Lyceum Capital an exit.
TrichoTech, the drug misuse research company, was bought by industry leader Concateno for £311.25m. TrichoTech was advised by law firm Dolmans and corporate finance house Livingston on the deal which will see the business remain in Cardiff.
Hedges & Rose, Wales' eighth biggest insurance broker, was bought by Giles Independent Brokers of Scotland. Gambit Corporate Finance and M&A Solicitors advised Hedges & Rose, which is based in Llantrisant.
Home insurance repair company Anglia (NW), based in Denbighshire, was bought up by Homeserve, based in Walsall, for an estimated £337m, depending on future earnings.
In a few cases, Welsh companies bought within the Principality. That was the case when ProtectaGroup took Hodge Insurance Brokers, the former insurance broking division of Julian Hodge Bank. Protecta, which boasts rugby legend Ieuan Evans as a non-executive director, has made 11 acquisitions and shows no sign of letting up.
Just before it floated, TV production company Boomerang snapped up Teledu Apollo, a Welsh language programme maker with a turnover of about £345m.
And Hyder Consulting, the management and infrastructure firm, bought RPA Quantity surveyors of Cardiff for £33.3m, with a further £3500,000 depending on the unit's future performance.
Gambit partner Geraint Rowe estimates his firm has around 75 per cent more deals in progress now than was typically the case at this time of year in the past. But he predicts a change in the nature of Gambit's workload this year: "Management buyouts have come back into play now. It is a cyclical thing - when valuations are higher, people sell to trade buyers."
Buyout activity keeping up Not that management buyouts were in short supply in 2007. Peter's Food Service, the pie maker, was bought out by a refreshed management team led by Mike Grimwood in a £320m deal backed by NGBI Private Equity and the Royal Bank of Scotland.
Williams Medical Supplies, a provider to the primary care market, was taken over by managing director Vince Kerr and commercial director Nigel Knight following the retirement of Robin Williams. Isis Equity Partners provided £310.5m while National Australia Bank supplied debt funding for the Rhymney company.
Financing Wales The equity funding market was buoyant in 2007, with Finance Wales, the Welsh Assembly-backed investment house, a leader in terms of the sheer number of investments it made. It was also able to cash in on some of its earlier investments, racking up three flotations and a trade sale. Peter Wright, investment director at Finance Wales, says the credit crunch and its after-effects could mean an even busier 2008: "The much anticipated slow-down has curtailed activity levels from the banks, but this has actually opened up opportunities for Finance Wales. We're actively looking for new deals at a time when others are saying "no' or 'maybe'.
"While there's a lot of caution out there, we're still actively looking to invest in companies with strong growth ambitions."
Wright's agency was active in some more traditional industry sectors, joining a £32.9m funding round for Cardiff printer Gardners along with the Bank of Scotland and the Welsh Assembly to support expansion plans which will create 41 new jobs. The company, now one of the UK's biggest digital print providers, was advised by Hugh James.
Xxe9nos, the Welsh business angel network, stepped up its funding activities, reporting that it had provided a record £32.1m for early stage Welsh companies in one year. Among the companies it backed was Trace Technologies, an optoelectronics company with rights to a fibre optic cabling system developed by BAE Systems.
Rescued A handful of businesses were saved from the scrapyard. KPMG found a buyer for the Maesteg factory of Creative Outsourcing Solutions, a cosmetics maker which went into administration in December. The site, which supports 560 jobs, was bought by contract manufacturing and packaging group Budlepack International.
Bayswater Tubes of Pencoed was rescued from receivership through a management buyout backed by the Welsh Assembly and Finance Wales, negotiated by Clay Shaw Thomas. The company, now owned by directors Dale Smart and Simon Beasley, is now called Beasmart Aluminium Tubes.
An optimistic outlook for 2008 Looking ahead to 2008, turbulence on the stock market has yet to translate into pessimism in the boardroom. Gambit Corporate Finance enjoyed its busies t year ever as valuations rose at the start of the year. Partner Geraint Rowe says: "We see the credit crunch easing this year, although the first quarter will remain difficult.
"Transactions are happening at sensible levels rather than at unsustainable levels, which was what was happening (early 2007). We were seeing very, very full valuations, which was driving a lot of these deals."
The Co-operative bank, which did only property deals in Wales in 2007, is eyeing a couple of high-profile corporate transactions. John Williams, senior manager at the bank's Cardiff corporate banking centre, says: "There is a climate of caution, but I have not seen a discernable change in what is happening. Nobody fully understands the credit crunch, but we are reasonably optimistic."