Private equity returns to the North East

The recession presented UK businesses with a number of challenges and difficult strategic decisions. Now, as the economy strengthens, businesses are facing equally difficult decisions to ensure they are best positioned and adequately funded to take advantage of this growth.

Private equity houses are demonstrating that not only is capital available, but that they can also provide operational support to ambitious companies looking to expand. In some cases they are also keen to facilitate company owners de-risking their personal financial positions by crystallising a proportion of the value that they hold in their businesses.

In the last six weeks two of the most significant private equity investments in the North East this year completed: the securing of significant development capital from Lloyds Development Capital (LDC) for Express Engineering, and the £25.5 million investment in Fine Industries by NorthEdge Capital.

Private equity funding all but vanished from the North East a couple of years ago, as many sectors become more active due to consolidation. Now private equity houses are returning to the region and becoming active in the mergers and acquisitions (M&A) market alongside trade players.

There are options available to businesses facing the challenge of securing investment for their existing operations and in support of acquisitions as part of a wider growth strategy. Whilst debt funding is generally lower cost than equity, debt providers are much less flexible regarding financial structures. As well as providing funding, private equity houses will also add value to a business by offering operational support and access to experienced business leaders relevant to that industry. For these reasons many transactions are structured with a mix of debt and equity funding.

This was recently seen with the investment from LDC for Express Engineering. Having continued to invest in recent years to more than double its manufacturing floor space and staff, the company was also looking to further grow the business. This was part of a wider strategy to focus on fully aligning itself with high integrity, precision engineering sectors in aerospace and oil and gas and also establishing a Brazilian joint venture.  Despite investing throughout the downturn, further expansion of the company’s UK and Brazilian operations was essential to allow Express to continue to meet the rising demand from its global customer base.

Nigel Davison, managing director of Express explained it is not only the injection of funds where a private equity investor can add value. He said:

“Our business has grown rapidly in recent years to become one of the leading players in the precision engineering market.  The investment, alongside the operational support from LDC, will strengthen our ability to service a flourishing domestic oil and gas sector, further develop our manufacturing operation in Brazil and explore other foreign market opportunities for growth.”

Fine Industries also recently partnered with a private equity house. The contract manufacturer of bespoke, high quality fine chemicals, which is based at Seal Sands Chemical Park in Teesside, was the subject of a management buy-out from Evonik Industries in 2008.

Following five years of growth, Craig Morgan, managing director, who was part of the original buy-out team, led the latest buy-out.  In terms of partnering with a private equity house he said:

“The backing from NorthEdge provides us with an even stronger platform to accelerate our growth and move our business to the next level. It’s great to be working with a team that are as committed and passionate about our future as we are. The investment will accelerate the capital expenditure programme to increase capacity and support the company’s growth ambitions.”