When Simon Rigby took control of Spice he wanted to develop the business into a major player, and he knew exactly how he was going to do it. Mark Dunne reports
Simon Rigby is not afraid of a challenge. After leading a management buy-out of a division of Yorkshire Electricity in 1996, the CEO of Spice has built the utility support provider from servicing a single £3 million contract into a £300 million-turnover business.
The group’s meteoric rise comes as the result of Rigby’s plan to expand its offering through targeted acquisitions. In the past three years, Spice has spent more than £200 million buying 27 businesses, including Mono Services, a housing maintenance provider, and commercial energy broker Energy 2000 Marketing.
“We operate in fragmented markets where clients are consolidating, and they want to see their suppliers do the same,” Rigby says. “We are putting more services together for some major clients in the UK.”
These deals have established electricity, energy, gas, telecoms and water divisions for the group, serving companies such as EDF Energy, United Utilities, Yorkshire Water and British Airways. The Leeds-based group’s acquisition strategy seems to be working, as it reported a 40 per cent jump in its pre-tax profits to £17.1 million in the year to May 2008.
Spice’s latest deal saw Morrel, a consultancy to the water industry, joining its stable in October. Rigby claims that this deal is an example of how the group is continuing to grow in spite of difficult conditions.
The group paid £150,000 on completion for Morrel, with the agreement including an earn-out that could take the value of the deal up to some £5 million. There are several triggers for the deferred sum, including the signing of key contracts.
“It is a deal for the times,” says Rigby. “It’s got an earn-out clause as in these troubled days I have to manage the heightened risk for my shareholders. As you can see, it is a very sweet deal for us.”
In the early years of Rigby’s grand plan, his deals were funded by debt, but in 2004 that route seemed to be exhausted, prompting him to look for a new way of financing the opportunities he saw. He decided that his best option was to float Spice on AIM, a move that not only gave it access to new currency, but also reduced its debt.
The group has since moved up to the Official List to increase its liquidity. Interestingly, access to the public markets has enabled the company to extend its borrowings. “Banks are funny old things,” observes Rigby. “I owed them £40 million, but as soon as we floated they lifted the facility to £80 million. I thought if they had done that earlier, then I wouldn’t have needed to float.”
Today, Spice is able to draw on £170 million from a syndicate of banks comprising HSBC, Barclays, Lloyds TSB and KBC. By the end of May its debt stood at £125.9 million, dwarfing last year’s £75.2 million.
Part of the family
Using these funds to make acquisitions is only the first step in Rigby’s plans to create shareholder value. Once a company becomes part of the group, he insists that the business continues to trade under its own brand and be run by its existing management. The only addition Spice tends to make is to put a finance director on the board.
“We see no reason to spend £120 million for something called Revenue Assurance and then change its name to Spice Assurance. If we had everything badged Spice it becomes a division of an amorphous blob, so if somebody bought one of our businesses they would have to rebrand it. Therefore, by developing the existing brands we are creating value.”
The current economic climate has done little to alter Rigby’s corporate vision: “If there’s good value for us then we will invest; if not then there are plenty of other buses coming along in a market like this.
“We are certainly in no rush to spend the money, but we are determined not to miss out on any opportunities that are going to present themselves over the next 18 months.”
Rigby claims Spice is always looking at deals and that the market should expect the group to make half a dozen a year, but buying is not the only activity on his mind. He says, “As soon as one of our businesses is worth more to somebody else than it is to us then we will sell it.”
Morrel Consulting – Water industry consultant – £5.22 million
Mono Services – Housing maintenance services – £450,000
British Power International – Engineering and consultancy services – £8.85 million
Melton Power Services – Private power network specialist – £4.5 million
Utility Technology – Service provider to telecoms and electrical companies – £200,000
Line Design Solutions and GIS Direct – Technical consultants to utilities – £100,000
Energy 2000 Marketing – Commercial energy broker – £5.5 million