It's a growth industry

THEY could be seen as the business equivalent of fertiliser - helping build up their fledgling charges through a nutritious network of financiers and advisers and helping small firms grow bigger.

Corporate finance is self-fulfilling; and its practitioners, like Graham Watson and his colleagues at Macfarlane Gray hope to help themselves through helping others.

Small is beautiful, thinks Mr Watson - at least to start off with. Having tired of operating in the world of Deloitte’s multi-million dollar daily activity and sprawling 120,000 global workforce, he’s returned to his home town; downsizing, if you like, to the world of Scotland’s small business community.

"I didn’t want to be involved in a big organisation again," he reasons. "In big organisations you have opportunities, but there are also areas that make it tougher to do some of the things you’d like to do."

Foregoing the glitz of San Francisco and three years in the endless Californian sunshine, Blackhall-born Mr Watson packed 20 years of investment banking and corporate finance experience in his bags and took up the challenge of dangling in front of Scotland’s SMEs the type of advisory service normally only bitten upon by the bigger fish in the business pond.

Macfarlane Gray has just created a corporate finance division (MGCF), adding to the services the traditional Stirling-based accountancy business offered.

"Edinburgh was chosen as its location because of its proximity to a wealth of bankers, lawyers and investors - all the main and ancillary services needed to help growing businesses," explains Mr Watson.

And the reason for targeting SMEs? "I think as advisers, where you can add most value to a business is helping it grow through the early stage of its expansion plans," he says.

"We saw through the existing client base that they were looking at things like growing and it was a clear opportunity to help them out."

While a number of the bigger business services groups, such as Deloitte, are established corporate finance providers, Mr Watson believes the SME and start-up area MGCF aims to concentrate on is not an area the advisory giants are too interested in - an area of differentiation MGCF hopes to benefit from.

"If they are interested in helping it may be that you’ll get a less experienced adviser, leaving their most experienced people on the bigger deals," he suggests.

"We’ve taken the view that in today’s world a lot of the really exciting opportunities are in small business growth."

Having knocked about the business financing sector for "donkey’s years", there’s little Mr Watson hasn’t turned his hand to.

Like advising on the takeover of Pontins by Scottish & Newcastle; raising funds for the Scottish Rugby Union, Hearts and Arsenal football clubs; advising ScottishPower on its privatisation and the Government on the privatisation of British Energy. He was also a key adviser to David Murray when the Edinburgh-based businessman bought Rangers and provided input on the formation of the London Stock Exchange’s Alternative Investment Market.

If it’s being started-up, expanded, floated, diversified or sold, Mr Watson or his ilk are likely to be involved.

"It [corporate finance] is one of the leading cogs in the business gear train. It’s because of that, that corporate financing has always prospered over the years," he explains.

The West End-based MGCF team is small - just Mr Watson, Greg Callan and Alan Skilling, plus a trusty secretary. But with an established presence in the Central Belt, the division has the ready-made support structure of Macfarlane Gray’s 50-strong payroll to add to the MGFC team’s collective 50 years’ experience.

Mr Watson says the hardest part of his job is gaining the trust and confidence of clients. "Sometimes you need to tell them you don’t think what they’re aiming for is right. Being able to say ‘no’ is something we here feel strongly about," he says. "I can only give them the reasons for my advice and the benefit of experience, I can’t force them to act on it."

But most do when the potential benefits leap from the pages laid before them. Once they have the trust, however, they need to know you can deliver on your sales pitch.

"It’s like an individual buying a house. If someone puts the buying, selling or growth of their business in your hands, they want to know you know what you’re doing and can get them the best deal; see them through the minefield.

"If they’re building up a business, they need to know you can get them in front of investors, be it in Edinburgh, Manchester, Ireland or America."

This is where an extensive and productive network of global contacts marries with solid experience to deliver a suitable development strategy for ambitious businesses.

To Mr Watson’s mind, he’s simply in the business of adding value to companies. Take McQueen, for instance, a Galashiels-based printer, employing around 30 people and worth about £4m when they introduced themselves to Mr Watson.

"As a traditional printer it was not a business that was really going to grow much in its present form," he explains.

Having kept an eye on the market, though, McQueen’s management sensed what might lie ahead and pulled themselves away from the plughole. Through a three-year steering process under the counsel of Mr Watson, McQueen transformed itself first into a fulfilment printer for software companies - manuals and packaging - before finally becoming a fully outsourced technology support services firm that then sold itself to Nasdaq-listed Sykes Enterprises, one of the world’s leading providers of customer care management - for £75m.

"It’s a great success story - a little company employing about 30 people in the Borders growing and becoming part of an American firm which now employs hundreds in Edinburgh," offers Mr Watson.

According to recent research by Barclays Bank, business start-ups in Britain showed 288,000 new companies started up in the first half of 2004 - 25 per cent up on the year before. But having successfully navigated the choppy start-up waters, most small companies need to grow to prosper.

Where many small company owners can at times be too busy operating the daily running of the business, corporate finance services can also provide an eyes and ears facility for firms.

"Through the network we can help companies benchmark their business against the best performers in their field, whether it be profit margins or costs or starting a business in another part of the country.

"We’ve got access to some of the top research in the world. Who’s buying, who’s selling, what’s being paid, who’s investing. We can say who the banks are lending to, who private investors are backing," explains Mr Watson.

He points to the likes of Edinburgh-based Wolfson Microelectronics as one example of a small start-up business - a two-man university spinout- that grew because its owners continued to monitor the market for its technology applications. Today, Wolfson supplies Sony and Microsoft’s top-selling game consoles. It floated on the LSE in November 2003 with an initial market value of more then £230m.

Mr Watson says:

"If you don’t grow, you can be sure there’s someone who competes with you, maybe in China or India, that is."

Essentially, Mr Watson suggests, growing your business is no longer just about ambition. "It’s also about survival," he attests. "SMEs need to have on their agenda at least a willingness to look at how they continue to develop."

Such an attitude will certainly bring opportunity and financial benefit to MGCF, with remuneration likely to be priced at a percentage of the added value, or a mix of that and an equity stake, Mr Watson says.

It’s unlikely, though, that the management at McQueen grudged handing over their payment for services.

Abroad experience to count on

PRIOR to joining Macfarlane Gray’s corporate finance team as a managing director, Graham Watson was a corporate finance partner with business services giant Deloitte, latterly heading up the firm’s American private equity team in San Francisco.

The Edinburgh University law graduate-cum-accountant had also spent time as a director with investment banking firm Noble Grossart and had been managing director of David Murray’s Carnegie Sports International.

His CV of corporate transactions - acquisitions, mergers, disposals, fundraising and privatisations - reads like a Who’s Who of business. Having returned to Scotland from the US, he’s now focusing his efforts on helping small companies grow.

However, during his time in San Francisco, Mr Watson was asked to become a founding member of the Globalscot organisation, the Scottish Executive-backed programme which aims to use a worldwide network of 500-plus ex-pat Scottish business people to help Scottish businesses grow.

"These people all have a proven track record. They are all passionate about helping Scotland and its business community and willingly give of their time. To them, it’s about giving something of their success back," Mr Watson explains.

"Globalscot is one of the best things [economic development agency] Scottish Enterprise has done in the recent past, albeit belatedly after they took a lead from Ireland, Australia and Canada.

"Those countries all have very organised networks of ex-pats interested in what was going on back in their own countries. They [Scottish Enterprise] realised one of the best ways to push Scottish business globally was to use an alumni system of prominent Scots living abroad."