M&A Week Day 3: The Northern acquirers buying companies based elsewhere

In the third part of our exclusive piece of research – conducted by Zephyr in association with Knight Corporate Finance and Clarion Solicitors – we turn to the Northern acquirers buying companies from outside the region.

You can jump straight to the table, but first, Nick Jaspan casts his eye over the changing landscape of the creative North in recent years.

M&A activity and private equity investment in the North’s creative industries has, until the past few years, largely been dictated by a pattern of Northern companies being bought and precious little private equity (venture capital) investment.

Excluding a handful of large companies, the average size of a company operating in the creative sector in the North was one of five to 10 employees with no assets to speak of. These companies’ assets essentially being those who came in at 9am and left at 5 to 6pm… aka people.

However, the growth of the internet and e-commerce, combined with the huge growth in gaming, software products and tech infrastructure companies, has resulted in more realisable assets and products now being deployed by creative industries companies in the North and since the end of the recession in 2010, there has been a steady and growing interest in investing in the sector.

New funds specifically created to invest in the sector – most notably AXM’s £15m fund (now fully invested) – have been complemented by professional services firms establishing dedicated TMT (Technology Media Telecoms) teams within their organisations.

Advisers can smell fees which in reality is good news for Northern entrepreneurs as the sector has hitherto often had to turn to London-based advisers because of the relative scarcity in Northern media specialisation.

The BBC’s investment in Salford is indicative of a growing trend for the North as a whole

But the North, as opposed to London (and other more developed media centres), still comprises a region which is home to more selling companies and entrepreneurs than buying companies and entrepreneurs.

The number of companies based in the North which have been bought since 2010 is roughly three times the number of Northern companies who have bought companies elsewhere.

This pattern is likely to change given the circumstances referred to above with greater financial interest being demonstrated and the huge investment made by the BBC in Salford – and Sky in Leeds – resulting in greater investment in the supply chain in the North and investments by Ericsson, SIS, Shine and many others support this increasing trend.

And of course Peel’s commercial nous and its growing interest and investments in a range of media and digital interests would in all probability not have occurred if the property company had not succeeded in its bid to outsmart Manchester council and house the BBC’s re-energised Northern base in Salford, which in turn led to Peel’s interest in Pinewood Studios and global media cities. And which in turn also sparked the future investment in the Sharp and Space Projects as a consequence of being spurned at the BBC altar.

In the meantime, the highly profitable digital and pharma sectors in the North are also attracting substantial new investment from London, Paris, Tokyo and elsewhere.

Manchester is now the UK digital centre for MediaCom

WPP plc (the world’s largest quoted marketing services company) has made Manchester its UK digital operational centres for two of its media buying brands – MEC and MediaCom – and co-incidentally has also invested in Peel’s MediaCityUK in the shape of The Farm.

Elsewhere, Havas (quoted on the Paris Bourse), fresh from its acquisition of Creative Lynx in 2012, has grown the agency from one employing 80 staff to one employing over 230 staff in Manchester and has renamed the agency Havas Lynx with offices in London, Paris and New York now reporting into the Manchester HQ.

Dentsu, the Tokyo-listed global marketing services holding company, employs over 500 staff in the North with around 400 based in Manchester spread across five operating brands.

The biggest brand, Carat, is the UK’s second largest digital media buying agency: a scenario which has probably never existed before in any regional company occupying one of the top two or three slots in a national ranking.

Given that Carat/Aegis/Dentsu ultimately ended up paying around £95m to take full control of Jeal and Lucas’ ground-breaking digital front-runner, reflects the legacy of the strength of the mail order business (and its successor digital) in the North with its keener eye on ROI than arguably London agencies with a keener eye on creativity.

And inward investment in the North’s digital sector in the shape of M&A activity can also lead to new and increased investment and management skills in the region reflected in deals such as Paperhat’s multi-million acquisition of CTI Digital in Feb 2015, which in turn led to CTI buying the 10-person digital agency Curve Digital in Leeds with plans by parent Covent Garden-based Paperhat for further digital acquisitions in the UK and overseas anchored on CTI and its increasingly global footprint.

Sam Davies of Knight Corporate Finance

This heightened interest in the North is also being played out Fat Media of Lancaster which again was the subject of an earlier acquisition as it has made two acquisitions in Bristol (Strategy Digital) and London (Reach Local) in the past 18 months while headcount back at HQ in Lancaster has continued to grow, almost doubling in size since the company’s previous MD Michael Gibson opted to sell the agency.

But growth and renewed confidence in the North overall has also led to companies outside the sector also now dipping their (financial) toes into the creative world given the increasing awareness of the sector’s attractions. Financial management company AJ Bell, one of the UK’s largest fund administration companies, bought a niche financial publisher, MSM, based in London for an undisclosed sum believed to be over £3m.

Sam Davies, of Knight CF, says that looking at the longer term trend, “Northern Media M&A deals have been averaging over 30 deals a year since 2010 with acquirers’ main objectives being to gain strategic capability and geographic footprint expansion and establish leading positions within specific services and locations.”

The most actively traded companies in the North remain marketing and communication companies followed by printing, digital services, publishing and the broadcasting and music production sub sectors.

The most active buying company in the North is Fishawack, a medical communications agency headquartered in Knutsford, which is itself controlled by the PE company Growth Capital Partners. Fishawack has been on the acquisitions trail since 2010 and has acquired five companies across the UK, US and Switzerland, reflecting the owner’s buy and build strategy as it pursues an international growth plan.

M&A Week Day 3: The Northern acquirers buying companies based elsewhere

See our full M&A series:

M&A Week Day 1: Northern creative companies acquired between 2010 and 2016
M&A Week Day 2: Northern creative companies acquired between 2010 and 2016 (part 2)
M&A Week Day 3: The Northern acquirers buying companies based elsewhere
M&A Week Day 4: Northern targets for Private Equity and VC deals
M&A Week Day 5: Mergers and acquisitions in the creative industries: a concluding perspective

Data compiled by Zephyr