HMT Director Ricky Lane recently hosted a live webinar on value drivers within the e-commerce fulfilment sector and how recent events have impacted this space over the past 12 months. Ricky was joined by four expert panellists from within the sector during the session:
Nick Wells – CEO at leading delivery management company Whistl whom HMT have advised on numerous transactions;
James Hyde – Co-Founder and CEO at e-commerce fulfilment provider James & James who took on private equity investment from LDC in 2020;
Alex Snodgrass – Investor at BGF, who recently invested in global fulfilment specialists, Fulfilment Crowd; and
Pascal Wittet – Investment Partner at private equity house Ethos Partners who are invested in a number of companies who use outsourced fulfilment (Pet Mate / Motocaddy) and are actively seeking to invest in the sector.
Ricky and the Panelists explored four main topics during the webinar, looking at the macro-economic impact of both COVID and Brexit on the sector, the use of technology and M&A value drivers, as well as welcoming questions from the guests.
Below are the main takeaways from the session.
The impact of Covid-19
Accelerated five years of e-commerce demand growth in 12 months
This increased demand will stick post pandemic due to the structural trends towards outsourcing and growth in SME retailers
The high street will become a place to go as a day out and many will continue to make the final purchasing decision online
The impact of Brexit
Tightening of the labour market in the eCommerce supply chain due to EU nationals leaving the UK prior to Brexit
Issues around tariffs / levies / charges and the time it’s taking to get stock across border is making a lot of retailers look for a solution where they can fulfil directly from the EU
The solution is being provided via strategic relationships with existing continental operators or by setting up greenfield investment in new sites
The M&A market in the e-commerce fulfilment sector
Technology driven
Not important in itself but important as an enabler to delivering an efficient and cost-effective service
For institutional investors, the value in the technology is its ability to allow a company to scale quickly without undue reliance on people or capital expenditure
In the medium term, physical technology within the fulfilment centre is likely to remain limited to the automation of basic tasks to reduce headcount rather than deep robotics and AI
M&A Market
Trade acquisitions being driven by the ability to buy in unique capabilities and to add scale to drive efficiencies
Institutional investors believe there is still a significant amount of growth to come in the sector and therefore remain committed to investment
Multiples are being driven by the target’s ability to use technology to scale, whether their proprietary technology will provide a competitive edge, the vertical that it serves, and the capital-intensive nature of the operation (capex light models attracting a higher valuation)
Understanding the EBITDA position and demonstrating that the acquirer isn’t buying off the back of a COVID-bump is going to be key for the next 12 months
If you would like to receive a link to a recording of the full webinar session or if you are considering entering an acquisition, disposal or fundraising process please contact Ricky Lane at [email protected].
HMT Director Ricky Lane recently hosted a live webinar on value drivers within the e-commerce fulfilment sector and how recent events have impacted this space over the past 12 months. Ricky was joined by four expert panellists from within the sector during the session:
Nick Wells – CEO at leading delivery management company Whistl whom HMT have advised on numerous transactions;
James Hyde – Co-Founder and CEO at e-commerce fulfilment provider James & James who took on private equity investment from LDC in 2020;
Alex Snodgrass – Investor at BGF, who recently invested in global fulfilment specialists, Fulfilment Crowd; and
Pascal Wittet – Investment Partner at private equity house Ethos Partners who are invested in a number of companies who use outsourced fulfilment (Pet Mate / Motocaddy) and are actively seeking to invest in the sector.
Ricky and the Panelists explored four main topics during the webinar, looking at the macro-economic impact of both COVID and Brexit on the sector, the use of technology and M&A value drivers, as well as welcoming questions from the guests.
Below are the main takeaways from the session.
The impact of Covid-19
Accelerated five years of e-commerce demand growth in 12 months
This increased demand will stick post pandemic due to the structural trends towards outsourcing and growth in SME retailers
The high street will become a place to go as a day out and many will continue to make the final purchasing decision online
The impact of Brexit
Tightening of the labour market in the eCommerce supply chain due to EU nationals leaving the UK prior to Brexit
Issues around tariffs / levies / charges and the time it’s taking to get stock across border is making a lot of retailers look for a solution where they can fulfil directly from the EU
The solution is being provided via strategic relationships with existing continental operators or by setting up greenfield investment in new sites
The M&A market in the e-commerce fulfilment sector
Technology driven
Not important in itself but important as an enabler to delivering an efficient and cost-effective service
For institutional investors, the value in the technology is its ability to allow a company to scale quickly without undue reliance on people or capital expenditure
In the medium term, physical technology within the fulfilment centre is likely to remain limited to the automation of basic tasks to reduce headcount rather than deep robotics and AI
M&A Market
Trade acquisitions being driven by the ability to buy in unique capabilities and to add scale to drive efficiencies
Institutional investors believe there is still a significant amount of growth to come in the sector and therefore remain committed to investment
Multiples are being driven by the target’s ability to use technology to scale, whether their proprietary technology will provide a competitive edge, the vertical that it serves, and the capital-intensive nature of the operation (capex light models attracting a higher valuation)
Understanding the EBITDA position and demonstrating that the acquirer isn’t buying off the back of a COVID-bump is going to be key for the next 12 months
If you would like to receive a link to a recording of the full webinar session or if you are considering entering an acquisition, disposal or fundraising process please contact Ricky Lane at [email protected].
After a hesitant stop-start as the pandemic impacted the UK economy, deal appetite for private equity backed management buyouts quickly sprang back into life last summer and has continued to grow.
Of course, accepting private equity investment in many cases means introducing significant third-party debt to the balance sheet, often for the first time in the company’s life and usually at, or in the twelve months following, investment. Using leverage to drive deal returns for sponsor and management shareholders alike is a well-trodden path, but the shape and size of those debt packages is constantly evolving.
As in 2008, the dislocation of credit markets in the wake of the pandemic has once again reshaped borrower options for buyout leverage, and nowhere more so than in the £1-5m EBITDA lower mid-market segment. Traditionally still largely the domain of mainstream lenders, the avalanche of CBILS applications swamped bank lending teams in 2020, leaving access strictly for existing customers only.
Private credit, as it has done for nearly a decade now in the larger deals market, stepped into the gap with many funds reducing their minimum business size thresholds to be relevant in the lower mid-market. Offering reduced amortisation, longer maturities, higher leverage and most importantly over the last 12 months, strong conviction with faster deal execution, the swing to private credit in this segment was striking in 2020. However, as the pressure of government loan schemes diminishes there are signs that the Banks are returning to the new deals track in 2021, a recent example being the completion of Horizon Capital’s MBO of The Marketing Practice in April.
For a long time the staple of conservative SME lending, the pandemic has also allowed asset-based lending (ABL) to demonstrate its effectiveness in the racier world of leverage buyout financing. Where increased uncertainty has dampened the appetite of cash-flow lenders for certain sectors, releasing funding against the secure value of invoices, stock and PPE has enabled deals to continue to be done.
Layering a reduced strip of cash-flow lending behind a bigger ABL line, either from the same lender or another, is also providing an effective buyout financing structure when the asset base runs short. Such a strategy was used effectively by HMT in the MBO ofWheelwright Ltd, a leading UK wheels and automotive aftermarket wholesaler supported by Arbuthnot Commercial ABL and Caple International.
Despite this desire to do deals, surely a recession of the likes not seen for 314 years would show the high-water mark for leverage appetite in the buyout market? Not so this time around as government support and low interest rates have suppressed credit losses, which alongside deep reserves of fund liquidity is driving the continued confidence to lend. However as inflationary pressures grow and fiscal support is withdrawn, we may well see interest rates rise and delayed credit stress begin to materialise this year, reshaping the credit cycle yet again.
With more optionality than ever for buyout financing, ensuring the correct approach to debt structuring at the outset is vital for management to deliver the growth plan once the dust has settled on their newly minted private equity partnership.
If you’re contemplating an MBO this year and would like to discuss financing options, please do get in touch with our team on 01491 579740.
After a hesitant stop-start as the pandemic impacted the UK economy, deal appetite for private equity backed management buyouts quickly sprang back into life last summer and has continued to grow.
Of course, accepting private equity investment in many cases means introducing significant third-party debt to the balance sheet, often for the first time in the company’s life and usually at, or in the twelve months following, investment. Using leverage to drive deal returns for sponsor and management shareholders alike is a well-trodden path, but the shape and size of those debt packages is constantly evolving.
As in 2008, the dislocation of credit markets in the wake of the pandemic has once again reshaped borrower options for buyout leverage, and nowhere more so than in the £1-5m EBITDA lower mid-market segment. Traditionally still largely the domain of mainstream lenders, the avalanche of CBILS applications swamped bank lending teams in 2020, leaving access strictly for existing customers only.
Private credit, as it has done for nearly a decade now in the larger deals market, stepped into the gap with many funds reducing their minimum business size thresholds to be relevant in the lower mid-market. Offering reduced amortisation, longer maturities, higher leverage and most importantly over the last 12 months, strong conviction with faster deal execution, the swing to private credit in this segment was striking in 2020. However, as the pressure of government loan schemes diminishes there are signs that the Banks are returning to the new deals track in 2021, a recent example being the completion of Horizon Capital’s MBO of The Marketing Practice in April.
For a long time the staple of conservative SME lending, the pandemic has also allowed asset-based lending (ABL) to demonstrate its effectiveness in the racier world of leverage buyout financing. Where increased uncertainty has dampened the appetite of cash-flow lenders for certain sectors, releasing funding against the secure value of invoices, stock and PPE has enabled deals to continue to be done.
Layering a reduced strip of cash-flow lending behind a bigger ABL line, either from the same lender or another, is also providing an effective buyout financing structure when the asset base runs short. Such a strategy was used effectively by HMT in the MBO ofWheelwright Ltd, a leading UK wheels and automotive aftermarket wholesaler supported by Arbuthnot Commercial ABL and Caple International.
Despite this desire to do deals, surely a recession of the likes not seen for 314 years would show the high-water mark for leverage appetite in the buyout market? Not so this time around as government support and low interest rates have suppressed credit losses, which alongside deep reserves of fund liquidity is driving the continued confidence to lend. However as inflationary pressures grow and fiscal support is withdrawn, we may well see interest rates rise and delayed credit stress begin to materialise this year, reshaping the credit cycle yet again.
With more optionality than ever for buyout financing, ensuring the correct approach to debt structuring at the outset is vital for management to deliver the growth plan once the dust has settled on their newly minted private equity partnership.
If you’re contemplating an MBO this year and would like to discuss financing options, please do get in touch with our team on 01491 579740.