Deals of the year

As the year draws to a close, Nick Britton looks back on 12 deals that have helped make it a memorable one

Despite the looming shadow of the credit crunch, this has been a good year for growing companies. In the first nine months, fast-growth businesses raised £3.3 billion on the Alternative Investment Market (AIM), 45 per cent more than in the same period of 2006. There was plenty of money flowing in the venture capital (VC) market too, with £828 million invested in UK companies to September.

Behind those headline figures are hundreds of individual stories of companies that have achieved or exceeded their ambitions. Here, we look at just 12 deals that transformed the companies that made them.

JANUARY

Company: Mobango
Type of deal: Series A venture capital
Funds raised: €2 million (£1.4 million)

You can’t fault Fabio Pezzotti’s timing. The CEO of mobile social network Mobango (pictured) sold his last company, Xoom, which he describes as the largest web community in Italy, to fixed-line provider Telecom Italia in 2000. After riding out the dotcom crash as an angel investor, he founded Mobango at the end of 2004 with the proceeds of Xoom’s sale.

Though Mobango is a light operation, with just a handful of staff and a reliance on viral marketing, Pezzotti needed to invest in technical infrastructure to support his growth ambitions. He secured funding of €2 million from technology-focused VC firm Doughty Hanson in return for 30 per cent of Mobango, which now has two million registered users.

Pezzotti sees explosive growth potential for mobile services in Europe, pointing out that usage here is still below that of India or the US. ‘We want to create a model that can be faster in inventing and applying new services,’ he says.

FEBRUARY

Company: Medway Foods
Type of deal: Expansion finance
Funds raised: £250,000

One casualty of Jamie Oliver’s campaign for healthier school meals was Canterbury Foods Group, which went into administration two years ago after failing to adapt fast enough to the changing climate. All was not lost, however. Former chief executive Paul Ainsworth and finance director Alison Everett conducted a management buy-out of the pastry products division and the new company, Medway Foods, is now fighting back with a healthier range of school dinners.

With the help of funding from the Government-backed South East Growth Fund (SEGF), Medway has branched out into new markets, manufacturing products on behalf of other companies and launching its own brand, Kentish Bakehouse. SEGF has invested its permitted maximum of £500,000 this year, in return for 20 per cent of the £13 million turnover business.

MARCH

Company: Martin Audio
Type of deal: Trade sale
Funds raised: £17 million

Martin Audio, a supplier of loudspeakers to bands including Take That and The Killers, had been looking for a trade buyer for some time. Managing director David Bisset-Powell, who led the MBO of the company back in 2003, says that it needed to access a wider range of technologies to build its business.

The sale to US audio technology group LOUD Technologies for £17 million allowed ISIS Equity Partners, which backed the original MBO, to generate a return of 3.5 times their investment, or an IRR of 45 per cent.

APRIL

Company: Avacta
Type of deal: AIM secondary fundraising
Funds raised: £2.7 million

Developing a new biopharmaceutical drug can cost $1.2 billion from start to finish. That’s a lot of money – especially if the end product doesn’t work.

‘There are examples of drugs that have gone through development, but turn out to be so viscous you can’t put them through a needle,’ says Avacta’s CEO Alastair Smith (pictured). Smith adds that biopharmaceuticals present unique challenges, partly because the amounts of material available for testing are so tiny.

In response to the problem, Avacta has developed technology that runs tests on drugs in development and, says Smith, reduces the risk of failure. The company reversed into a shell company on AIM last year, and in April raised £2.7 million to commercialise the product, which is in the final stages of development. Its investors include IP Group, which has been involved in the company since it spun out of Leeds University in 2004, and institutional investor Gartmore.

MAY

Company: Last.fm
Type of deal: Trade sale
Funds raised: $280 million (£137 million)

The sale of social music website Last.fm to US media group CBS gave hope to back-bedroom entrepreneurs everywhere, as the company’s three founders netted multi-million pound fortunes in return for a few years of penury.

It was also a tidy deal for Last.fm’s backer Index Ventures. Exactly how tidy was not disclosed, though reported figures suggest that Index received a return of more than ten times its investment, which it held for just 12 months.

Index co-founder Neil Rimer tells Business XL: ‘We all felt that CBS was an ideal partner with whom to take the Last.fm vision to the next level, so we ended up exiting earlier than expected, but very much for the right reasons.’

JUNE

Company: Ubiquisys
Type of deal: Series B venture capital
Funds raised: $25 million (£12.3 million)

Ubiquisys, whose technology aims to improve mobile coverage in the home, has raised $37 million to date, including $25 million in its June funding round. Founder Will Franks explains that the calibre of its investors, which now include search engine giant Google, has been as important as their money.

‘Google approached us earlier this year,’ says Franks. ‘They see what we are doing as a technology that is helpful for the whole [telecommunications] industry, and that makes a huge difference to our credibility as a company.’

JULY

Company: Tenon
Type of deal: Acquisitions
Funds raised: £10.4 million

How times change. Accountancy group Tenon, which suffered a £106 million goodwill writedown in 2003, has made six acquisitions this year, three of them in July. The purchases of Unity and Jackson Jolliffe Cork in the North of England for a total of £10.4 million, and Hurst Morrison Thomson in the Thames Valley, all strengthened Tenon’s recovery and insolvency operations.

‘We see this as a business that we, sadly, can take some comfort from at the front end of a potential recession,’ says CEO Andy Raynor. ‘But it’s also a business that there will always be a need for, whatever the economic weather.’

AUGUST

Company: Polypipe
Type of deal: Secondary buy-out
Funds raised: £450 million

Piping systems manufacturer Polypipe was bought out by its management from FTSE 250 engineering group IMI in 2005 for almost £300 million. Just two years later it completed a secondary buy-out for more than 1.5 times that amount, providing a return of 4.2 times its investment for US private equity backer Castle Harlan.

Jeremy Furniss, partner at Polypipe’s adviser Livingstone Partners, says that 40 senior managers held equity in the company as a result of the first buy-out. ‘It’s a great example of how a broad base of shareholders benefited very significantly, not just the private equity house or the CEO,’ he says.

The complex deal, backed by Bank of Scotland Integrated Finance, was completed in just six weeks, beating the credit market meltdown by a whisker. Kristian Gavan, deal leader at Livingstone, comments: ‘Had we not run the transaction incredibly quickly, it could have become a casualty of the debt market turmoil.’

SEPTEMBER

Company: Dominion Gas
Type of deal: Acquisition
Funds raised: £22 million

Specialist gas supplier Dominion Gas was sold to its management in May, with backing from mid-market private equity firm Graphite Capital. The Aberdeen-based business followed this up quickly with the acquisition of diving gas specialist Global Gas Supplies for £22 million, with funds from Graphite, more bank debt, and reinvestment from the vendor.

Mike Innes, partner at Graphite, says that the deal almost doubled Dominion’s turnover and profits. ‘We were looking to scale the business, and to follow key customers to locations around the world. Global provided scale and added international presence.’

OCTOBER

Company: Motivcom
Type of deal: Acquisition
Funds raised: £15 million

After cutting its teeth on several smaller acquisitions, AIM-listed staff motivation specialist Motivcom had been promising its investors a bigger deal. It delivered in October with Zibrant, a company that books venues and accommodation on behalf of blue-chip clients. Motivcom paid £15 million for the business, raising £3.1 million from a share placing, £3.7 million in shares paid to the vendors and £8.8 million in bank debt.

‘One thing we’re pleased about is that [Zibrant’s] management team is still intact, keen and engaged in the business,’ says executive director John Sylvester, adding that Zibrant’s managing director Chris Madge has joined Motivcom’s board.

NOVEMBER

Company: China CDM
Type of deal: PLUS secondary fundraising
Funds raised: £5 million

Shares in PLUS-listed carbon credit specialist China CDM quadrupled in price to 100p after Asia-focused asset manager Atlantis invested £5 million in the company. The funding allows China CDM to continue identifying and helping develop projects in China that qualify for carbon credits, which can then be sold to companies in Europe. It also gives the Jersey-incorporated business the financial clout to begin trading the credits itself.

The company’s ambition is to become ‘the largest provider of carbon credits worldwide’, says non-executive director Simon Littlewood.

DECEMBER

Company: Plastics Capital
Type of deal: AIM IPO
Funds raised: £16.2 million

Manufacturing group Plastics Capital is bullish about its growth prospects. Chairman Faisal Rahmatallah (pictured) says that in the small, fast-moving markets where the group’s businesses operate, there is little threat from cheaper manufacturing bases overseas. ‘Plastics are continually being developed to substitute metal, glass, wood and other materials, in all sorts of new applications,’ he states.

The group’s £16.2 million IPO on AIM this month has enabled it to pay off debts of around £13 million, putting it on a firmer footing to make new acquisitions, Rahmatallah adds.