Shares in business advisory and insolvency group Begbies Traynor (BEG:AIM) rallied 6% to 110p on much heavier than average volume after the firm raised £22 million through the sale of 20.85 million new shares at 105.5p in a placing which it said was heavily over-subscribed.
Proceeds from the placing, which amounted to 16.3% of the firm’s existing equity capital, will go towards buying insolvency firm David Rubin & Partners, which is being acquired for a maximum of £25 million with an initial down-payment of £12 million.
The balance of the price will be paid subject to ‘earn-out’ clauses dependent on the performance of the business over the next five years.
Begbies said the deal, its largest to date, ‘delivers a significant increase in scale of the business recovery and financial advisory business, with a material increase in the Group's size in the key London market’.
Chief executive Ric Traynor said as well as being earnings-enhancing the acquisition left the firm ‘well-positioned to increase its market share and to deliver material growth in the 2021-22 financial year’.
Together with the £20 million purchase of CVR in January, today’s deal takes Begbies from £70 million of revenues to £100 million with a material shift towards financial advisory and insolvency, in anticipation of the chancellor eventually withdrawing financial support for struggling firms and a sharp rise in business failures.
According to the firm's most recent Red Flag Alert there were 630,000 companies in the UK in 'significant financial distress' in the final quarter of last year, an increase of over 135,000 from the fourth quarter of 2019 and 73,000 from the third quarter. the biggest three-month increase in the alert's history.
Government support 'may have stopped companies from going into insolvency, but it hasn't stopped their liabilities like rent and rates increasing', says the chief executive. At some point, winding-up petitions and insolvencies will increase dramatically.
Analyst Rachel May of Shore Capital estimates the two deals will increase Begbies’ share of the UK insolvency market to 12% from 8% in 2018 and will increase its London office fee income from £13 million to more like £28 million as it takes on larger cases.