In a surprise management buyout deal this month, partners of Livingstone Guarantee bought their business back just 18 months after the troubled consolidator Tenon Group took it over.
The managers of the corporate finance team made the move because of disappointment over the size of deals available since joining Tenon.
Jeremy Furniss, managing partner of Livingstone, told Accountancy Age that smaller deals were not cost-effective in Livingstone’s strategy.
According to Furniss, one of the advantages of joining the Tenon Group in 2001 was that it connected Livingstone to an existing client base.
This was a welcome luxury to partners in a purely ‘M&A boutique’, who were used to starting from scratch for every single deal.
But it soon emerged that Tenon’s client base and Livingstone’s expertise did not form a good match.
Livingstone made its fortune by focusing on deals between £5m and £100m, the market space that ‘investment banks and the corporate finance departments of the Big Four had long forgotten about’. Tenon’s client base, however, consists of companies with around £5m to £20m turnover, which typically generate smaller M&A deals between £2m and £5m.
‘This only became apparent after a period of time. At the time, joining the Tenon Group seemed interesting. But it was not working out – Tenon’s client base wasn’t delivering the sizes we specialise in,’ said Furniss.
Furniss said Tenon’s ‘disappointing financial performance’ became an obstacle in the difficult M&A market. ‘Corporate finance clients like to be associated with successful companies,’ Furniss explained.
At the same time, poor results at Tenon caused a shift in management, and the company’s newly appointed chief executive officer Andy Raynor was looking to restructure the group to focus on core functions. As a result, he wanted a corporate finance arm that catered for the smaller deals its client base wanted.
Both parties decided it was time to shake hands and say goodbye on good terms. While Furniss has no interest in #2m to #5m deals, he believes the small end of the market does have significant growth potential. He is convinced Tenon’s corporate finance arm will do well.
‘It is a massive opportunity because it is an under-advised area of the market. Tenon has got the skill base and we would be happy to refer smaller clients to Tenon,’ said Furniss.
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