What do Adare, Walstead Group, Hobs Reprographics, Coveris, YM Group, Pureprint, Thames Card Technology, Writtle Holdings and Henry Stone have in common?
All are the subject of private equity investment in one form or another, and to varying degrees.
According to the British Private Equity & Venture Capital Association (BVCA), a whopping £27bn has been invested in more than 3,900 companies over the past five years. Getting on for 3,000 UK businesses are currently backed by private equity and venture capital, and 84% of those investments were in small and medium-sized businesses.
How, then, does private equity work, and what sort of printing company is it suitable for?
For a business to grow it needs capital, and that money needs to come from somewhere. The BVCA defines private equity as “finance provided in return for an equity stake in potentially high growth companies… private equity firms raise funds from institutional investors such as pension funds, insurance companies, endowments, and high net worth indi- viduals. Private equity firms use these funds, along with borrowed money and their own commercial acumen, to help build and invest in companies that have the potential for high growth.”
Venture capital, meanwhile, is typically targeted at cash-hungry start-up firms that are at an early growth stage.
As the BVCA puts it, private equity will usually involve “active ownership” – the investors will often take a controlling stake in a business and will be very much involved with the running of the company and with decisions about its strategy. That’s something the target company’s management team will need to be comfortable with as part of the private equity structure.
It can also be cut-throat. Some private equity companies, so-called ‘vulture funds’ for example, specialise in targeting companies in financial difficulties as a way to pick up assets on the cheap.
When it comes to providing insights about how to successfully navigate the world of private equity, there can be few print bosses more experienced in their dealings than Robert Whiteside, the chief executive of Adare Group. Having led the buyout of the group from its then-private equity backer Allen, McGuire & Partners 11 years ago, Adare has been involved with six investors since, most recently the 2015 secondary MBO backed by Leeds-based Endless.
As Whiteside points out, there are lots of private equity firms out there and each will have a distinct strategy and approach. “They are all very different. Some are only interested in buying lots of distressed assets in a bundle. Or they might have a very targeted buy and build strategy,” he notes. “And sometimes their strategy might not be aligned with that of the management. Obviously it’s better to be aligned than to be hostile.”
It’s imperative, then, to pick the right partner. Adare’s involvement with Endless came about through the investor’s assiduous networking, which allowed Endless to be on the front foot when the opportunity to become involved with Adare arose. “For the two years before the deal was done they’d call us up every few months to see what was going on. They kept their ear to the ground, networking and finding the opportunities that were out there,” Whiteside recalls.
As a result, the two parties developed a relationship and understanding, which Whiteside believes is fundamental to success. “If you’re choosing a private equity partner you need to get to know them very well, and understand their strategy and modus operandi. If it’s aligned with that of the company, then you can move the business forward together and achieve the best results – it’s a two-way thing.”
In the case of Adare, the timing proved to be absolutely pivotal. Last year, within the space of a few weeks, the group made two significant acquisitions. Firstly, Banner Managed Communication, which had been an existing Endless investment, and then Polestar Applied Solutions in Nottingham.
“Inside of two months we were able to do that because we both absolutely knew what the strategy was, and that strategic acquisitions were the best way to get growth and value. And Endless were absolutely up for that,” Whiteside notes. “They are a transformational investor and have been very involved and very supportive.”
Risk vs reward
Where there is reward, there is of course also risk, and hard-nosed decisions are undoubtedly made.
Investments don’t always come good. Rutland Partners recently found itself on the receiving end of some unwelcome publicity relating to issues surrounding the pension fund at a former investment, turkey producer Bernard Matthews, which turned out to be, well, a turkey. The furore resulted in Rutland posting a 1,100-word rebuttal on its website. And in 2011 Sun Capital Partners jettisoned Polestar’s then-£45m pension liability when it acquired the group in a complex pre-pack deal.
Polestar also achieved a dubious claim to fame as one of the worst failures of a European leveraged buyout when its backers lost £700m and private equity house Investcorp’s circa £250m investment in the business was wiped out back in 2006. Polestar also went on to prove costly for Proventus Capital Partners, which lost £93m during its short-lived and ill-fated involvement prior to the group’s collapse last year.
Unfortunately, such events can cast a long shadow over the printing industry in general. “Printing has had bad press and Polestar has done the sector no favours whatsoever in terms of the banking and finance community,” asserts Walstead Group chairman Mark Scanlon, who points out that things are different on the continent. “The printing industry in Germany is huge and well-regarded.”
Fortunately for Scanlon and others in our trade, there are private equity investors out there with an ability to judge each business case on its individual merits. Indeed, while Polestar was in its death throes, Walstead secured a £33m investment from Rutland Partners (for a 53% stake in the group), that facilitated its takeover of Austria-headquartered Leykam Let’s Print – a deal that has propelled Walstead Group’s sales to beyond the £400m mark.
Oliver Jones, partner at Rutland Partners, says of the deal: “We are not sector-focused, we are opportunity-focused. We ask ourselves whether a market is here to stay for the foreseeable future, and we are not necessarily obsessed with whether a market is growing.”
Rutland’s checklist of requirements for what makes a desirable investment includes: a market that has scale, an excellent management team, meaningful market share, and a suitable brand and reputation. Jones found them all at Walstead.
“Walstead is a classic case,” he explains. “We are in a partnership there with an entrepreneurial team of owner/operators. We saw a really good team wanting to do something transformational in continental Europe, following the deals they had already done in the UK and Spain.”
From Walstead’s perspective, Scanlon says the management team had specific requirements of its own. “We wanted to realise some of the value created since we acquired Wyndeham Group in 2008. We also wanted a partner who could help support our business. They can help us accelerate our business plan, and grow and develop it.”
Whether that growth plan involves further acquisitions remains to be seen. Scanlon also points out that having private equity backers on board helps “add a bit more gravitas” even to a company the size of Walstead.
“They are very choosey about who they deal with and there is a detailed due diligence process. That is challenging, but also important. It helps when you are dealing with banks, because it demonstrates good governance. The protocols and reporting required add more professionalism,” he explains.
Walstead and Rutland came together after Walstead appointed Deloitte to look into the market and advise on PE firms that would be likely to invest in the print group. Like Whiteside, Scanlon believes that forming the right partnership is crucial for success. “Each PE firm has different criteria for investment, and you also need the right chemistry – they are colleagues, joining us.”
Getting the right professional advice is also crucial. Stephen Goodman, chief executive of YM Group, is another seasoned pro when it comes to the world of private equity investors. He was chief financial officer at Britton Group when it was acquired by Sun Capital Partners, as part of the investor’s buy-and-build strategy in packaging that resulted in the creation of the now $2.5bn (£1.9bn) turnover Coveris group, formed from Exopack, Britton, Kobusch, Paccor and Paragon Print & Packaging.
“My experience with private equity funds is positive,” Goodman says. “I’ve helped them make money and they’ve helped us make money and build a better business.”
Britton Group was viewed as “a platform business” at the time, Goodman explains. “We were making money and growing, and Sun could transfer those techniques to other businesses in order to make the sum of the parts greater than the individual elements.”
Goodman subsequently joined YM in 2014 as group finance director, and went on to lead a management buyout of the business the following year. At that time, the Business Growth Fund, which had taken a 20% stake in YM for a £10m investment in 2013, reduced its shareholding and now has a minority stake in the business, alongside Pricoa Capital Group which provided a term debt funding structure to support the management buyout.
“Having the right corporate adviser is key – don’t think you can do it on your own,” he adds. “Then it’s all about the debt structure and getting that right, and making sure it’s appropriate for the business. There’s got to be some wriggle room in there in case things don’t go to plan.”
The Business Growth Fund is backed by five of the UK’s major banks and was set up in 2011 with a mission to “unlock the potential” of fast-growing businesses, typically taking a minority stake in firms with sales of between £5m-£100m.
Its other printing industry investments are Hobs Reprographics (£7m stake), Pureprint Group (£5.3m stake), Thames Card Technology (£3.2m stake) and it successfully exited from its £5m investment in thermoforming packaging business Plastique when that business was acquired by TEQ last year.
The Business Growth Fund has decided upon a long-term investment strategy of up to 10 years, but other private equity firms are typically looking at the medium-term of three-to-five years. It’s important that all parties understand these timescales from the outset.
For example, back in 2006 before the management buyout from Allen, McGuire & Partners took place, M&A activity at Adare would not have been on cards, because the investor was in the process of winding down its fund so the appetite for further investment simply was not there.
Adare’s current owner Endless has also been involved in industry consolidation: former investments Excelsior Technologies and St Neots Packaging were sold to Mondi Group and Sun Capital, respectively.
At Writtle Holdings, its private equity investors, ABRY Partner and Veronis Suhler Stevenson are poised to dispose of their 27% stake in the group. “Our PE shareholders want to exit as their funds have come to the end of their life span and we are finding buyers for their shares, but not looking at PE,” explains Writtle chairman Robert Essex. “There is enough demand from private buyers given the dividend yield and track record.”
Both Walstead’s Scanlon and Rutland’s Jones emphasise the need to be in agreement about the eventual exit strategy. “It’s important that our expectations are aligned about an exit or part-exit. Before you get in, you want to know how to get out,” says Scanlon, while Jones adds: “We generally set out to deliver a plan, and as a rule the quicker you do that, the quicker you reach a point where an exit happens. It’s almost a natural course. We find we sell best when we can prove we’ve made a real difference to a business.”
And although Walstead, YM and Adare rank among the biggest print businesses in the UK, smaller firms can still engage with PE. Thames Card Technology was in a turnaround phase and had sales of £16.3m when BGF made its investment. And another deal formed from the Polestar collapse saw the management at Stones and Wheatons, with sales of circa £20m at the time, gain backing from Thames Valley Capital. TVC has gone on to back their subsequent purchase of Headley Brothers.
Private equity, then, can be an option worth investigating for print firms of all shapes and sizes that have reached a certain scale, have ambitions to grow, and have a willingness to embrace a change of control if necessary. With suitable advice, and the right combination of company and investor, it can result in a successful outcome for all parties.
Get professional advice, it will be money well spent
Find the right sort of private equity provider able to support your company’s current situation and future plans
Form a strong relationship with your private equity partner
Be prepared to cede majority control
Put the right debt structure in place for your business
Be clear about the eventual exit strategy, and what happens next
SELECTED PE STAKES IN PRINT
Bridgepoint Development Capital Inspired Thinking Group
The Business Growth Fund Hobs Reprographics, YM Group, Pureprint, Thames Card Technology
Lynx Equity Label Express
Thames Valley Capital Henry Stone group of companies
Sun Capital Partners Coveris, Albéa (France), PaperWorks (US/Canada)