GrowthBusiness has been given exclusive access to Cennox, Broadbandchoices.co.uk, Springfield Healthcare Group and GCI Com, all portfolio companies at the Business Growth Fund (BGF). As part of a roundtable discussion, we posed the question: how is capital expenditure being tackled post-deal?
Richard Bishop, head of investments at the Business Growth Fund:
‘A strong organic strategy is very important for growth, so when you are thinking building the business and investing in, how are you approaching that at Broadbandchoices.co.uk Michael?’
Michael Phillips, managing director of Broadbandchoices.co.uk:
‘Our organic strategy has a number of pillars to it. The first one is to invest in the product: so make our proposition as strong as possible for the customer. We need a product that will help customers and ultimately will increase conversion rates.
‘The second area is around investment in brand, and advertising in the price comparison space doesn¹t come cheap as it requires a lot of up-front investment. So that¹s where having right kind of investor is important.
‘Typically private equity tends to take a two to three years time perspective, so having the BGF, who will invest over longer five-year period and take long view, is important. TV advertising response rates can often be slow to begin with, a typical S curve, and you need an investor who has the confidence to wait for the returns to come.
‘For us, building a brand means growing our category and becoming the brand leader within that, and there are lots of rewards well documented in other price comparison verticals. It is also about building a platform for scale. Because of that, we¹ve just appointed a new marketing director, and now a CTO.
‘What the BGF investment has allowed us to do is employ a high quality management team to take us to the next level. But, there are a number of challenges attached to all of that including so heavy investment in technology. As an organic strategy we have to make sure we¹ve got the platform right internally, but that requires a lot of investment. So having the right partner is everything.’
Wayne Martin, CEO of GCI Com:
‘I think I¹d echo what Michael has said. GCI Com, post the BGF investment, replaced the majority of its management team. The team is the strongest its ever been now and we can see the integration and automation benefits that are being driven through the business that came out of gap analysis which was performed through the due diligence process from the BGF.
‘Sometimes when you¹re very busy you can¹t see wood from the trees and the due diligence process really brought out areas in the business that we were relatively good in but not brilliant in. So, investing in the right skill set and right people to drive us forward, we are starting to see pay back on that investment now.
‘GCI Com has been a technology-led organisation, and back in 2005 we became the pioneers of ethernet within the UK, basically a technology that businesses need to link into the world wide web and have fast access to e-commerce portals and ICT communications.
‘BT, Cable and Wireless and Talk Talk Broadband have copied that technology so that was a great accolade for GCI Com, but to allow us to maintain our unique position in the marketplace we needed to continue to invest and be ahead of the game in terms of technology. At this stage of time we are again looking at a re-fresh project within most of the main key BT exchanges that we are actually positioned in to give us this leading technology advantage.’
More from our exclusive Business Growth Fund roundtable:
- Taking on capital for acquisitions
- Marketing and new hires for companies after backing
- Capital expenditure for businesses post-investment
- Building out new products
- Video: Deciding when and how to take on backing
- Video: How acquisitions can accelerate growth
- The Business Growth Fund: Two years in numbers
- Stephen Welton: Entrepreneurs, don’t be afraid to ask for help
Hunter Ruthven, editor of Growth Business:
‘How have competitors reacted to you being in a situation where you have more capital to invest?’
WM: ‘I think where GCI Com sits we are one of the largest ICT companies now in the UK. Historically, in the early days, it was very easy for our competitors to copy us. But, because we have invested in a very robust network in the UK, for somebody to replicate GCI today, with the infrastructure we have in the UK, you would need a £15-20 million investment – ignoring the time to roll that out and build that.
‘So from GCI’s perspective, it is great that some of our smaller independent competitors can look at us and know that to replicate what we’ve got is nearly impossible for them.’
RB: ‘Graeme, in your business it is all about investing in people, how do you go about that?’
Graeme Lee, group CEO of Springfield Healthcare Group:
‘We are keen to look at new geographical locations as part of our strategy, and we do see that new locations give us a bigger platform to achieve better organic growth. Where we’ve existingly operated, as we’ve been so successful, it has been harder to get the bigger double digit growth figures.
‘So looking at strategic regional acquisitions, where we see good potential for growth, is very important to us.
‘Since we’ve been able to go into partnership with BGF, the key difference is that by providing domiciliary care alongside the care village model, our message is very clear. We are able to say that while people can stay in their own homes as long as possible, if that isn’t possible then there is a big range of care services they could tap into. So we can offer them real choice at the right time and that helps us get our message out and market ourselves which will hopefully affect our organic growth.’
Company profiles from our exclusive roundtable:
RB: ‘Building a new care village is a big expenditure decision isn’t it?’
‘Yes it is a huge one and it’s getting harder and harder. The banks have retrenched very significantly from where they were four or five years ago. They would almost fund a care home concept 100 per cent of a loan to value because of the way they would do it. With the loan to value, once you got to turn-key, they would revalue it. That meant that they would give you almost 100 per cent funding.
‘Now they’ll only do up to 60-65 per cent of the development value, and the turn-key value is no longer realised in the initial stages of trying to do a deal. So the capital required by yourselves alongside the bank is massive, and even though we put investment in it wasn’t enough in order to be able to deliver the care village model.
‘With the BGF money alongside us, we have been able to bridge that gap.’
RB: ‘Clive, how do you go about making capital expenditure decisions?’
Clive Nation, founder and chief executive of Cennox:
‘Capital expenditure hasn’t changed at all just because we have an investment with the BGF, we’re still very careful to look at anything that can lead to purchase in terms of its return on investment.
‘But, what we have been able to do is look at things which we might have otherwise struggled by with. So, for example, a new very expensive piece of plant to assist with our manufacturing process is now possible to do. And the return of that is an increase in our efficiency.
‘Those kind of decisions would have been harder to have made. But equally, as we grow the business, it is the infrastructure necessary to acquire blocks of vehicles, so lots of ten, whereas in days gone past we would be thinking very hard over two or three. So the shackles have come off and it allows you to look at your capital needs very differently.’
RB: ‘Investing in your business takes confidence, it’s one of the key components, so what is it you’re looking for to give that confidence?
CN: ‘For us, one of the key things we’ve done is to streamline our offering. We were originally a group of three different companies, all trading with the same clients and they had decision to go to any of the companies.
‘It was very important to re-brand and to group those together, which has now been completed. We now have a single offering, a one-touch point for our clients, and that in itself has enabled us to have a good structured platform to work from.’
This feature is part of a larger package looking at the Business Growth Fund’s active portfolio. See links above for more content.