Through your various funds, you’ve been the most active growth capital investor in the UK over the past few years. Do you expect to maintain that position?
I’d like to think so. Our investment rates are likely to be going up next year, from where we are now.
Have you adopted any particular strategies towards investing during the recession?
If anything, we have probably done more growth capital investment than the more mature management buy-outs and buy-ins, and there are two reasons for that. The first is that there is more opportunity at the moment in that space: valuations of mature companies are becoming more reasonable, but they are not coming down as fast as we would have liked. The second reason is that we have quite a big portfolio, so we’ve been trying to identify which companies have more potential to grow quicker and which might therefore need further capital.
Have you had to bail out any of your companies?
We’ve been quite fortunate there because the whole portfolio is quite lightly leveraged. We’ve probably put a total of £500,000 into a portfolio with a value of £150 million to support bank covenants, that’s just into two businesses out of about 250 to 300. Across our whole portfolio borrowings are about 1.25 times current profitability. That’s pretty low compared to buying a house.
What about sectors that were hard-hit, like retail and property?
It’s one of the consequences of having a big portfolio: you name it, we’ve seen it. One of our companies was in construction piling, which has not been a great market to be in. They saw a 50 per cent drop in sales last year. But it’s not uniform across sectors. One of our retailers in up 20 per cent in like-for-like sales, another is down 15 per cent (the first is in outdoor clothing, the second in mid-priced kitchens).
Have exits been difficult?
There may be fewer exit opportunities, but deals can be done very quickly and for a good price when a business is doing well. For instance, we sold one of our healthcare businesses for $130 million (£80 million) last year and the due diligence was done really fast because the company was seen as adding value. No CEO is going to be sacked for buying a fast-growing business in a recession.
David Hall is featured in this year’s Business XL Power Top 50.