The lure of private equity investment to fuel growth

As a private equity house dedicated to building companies in the financial services, industrial and business services sectors, Dunedin partner Giles Derry tells GrowthBusiness more about the firm's approach.

When I begin by asking how he describes the Dunedin approach to investing in businesses, Giles Derry reveals that it is all about finding the ‘hidden champions’ of the UK economy.

Fresh from accepting the Private Equity House of the Year award for Dunedin at the GrowthBusiness M&A Awards 2014, Derry is looking back on what has been a very successful year for the firm.

As a partner at the firm since 2005, Derry has an overarching role involving deal origination and a particular focus on financial and business services. He and Dunedin are constantly on the look out for businesses that are number one or two in their market, dominant players in a niche or those that have the ability to get there.

Once those have been identified and an investment deal closed, the firm then grows each one through one or a mixture of roll out, international development or buy-and-build acquisition activity. With the likes of CitySprint and Hawksford in its active portfolio, the firm has built up an impressive crop of interests.

‘CitySprint is a prime example of a buy-and-build strategy,’ Derry says. ‘It’s a business which is the number one same-day delivery company in the UK and has, during our period of ownership since 2010, made 15 acquisitions and doubled turnover.’

Investment cycle

Since raising a new £300 million fund, which closed at £50 million higher than first planned in July 2013, it has been a case of continuing on with a tried and tested approach. The fundraising process saw many of its existing backers re-up, alongside some new investors – giving its Dunedin Buyout Fund III a distinctly international feel.

Commenting on the level of involvement from limited partners (LPs), Derry says, ‘The nature and thoroughness, and extend of diligence, has increased. I guess that is because they also have people to answer to.’

On a new deal front, something Derry is actively involved in, it is a two-pronged approach. As well as making sure its advisory base is well looked after and served, Dunedin spends a lot of time on sourcing themselves, and has a direct origination function heading that up. Two of its recent investments, involving EV Offshore and Kee Safety, were both completed either off market or outside of a large process.

Transactions during the last 12 months, for which Dunedin was recognised for alongside a strong shortlist, range from the exit of branded dental membership plans business Practice Plan for a 2.8x return to the supporting of a number of portfolio firms’ acquisition activity.

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Dunedin’s recent backing of high performance video camera venture EV Offshore through a management buy-out is an example of where the firm implements one of its value-add services. Its DebtBridge offering involves a debt element to help with the running costs of the business during and immediately after the deal.

The benefit that private equity can bring to a business is something Derry is keen to emphasise, but is in need of constant education. Through his chairmanship of the Corporate Finance Faculty at the ICAEW (Institute of Chartered Accountants In England and Wales), the investor was part of the Business Finance Guide and its recent publication.

‘I think it’s a really helpful route map in terms of providing businesses at all levels with steer as to what is available – with the pluses and minuses of each.

‘The more we can get that information out into the community of business leaders and entrepreneurs the better.’

Smart capital

Private equity, he says, brings with it the discipline of an institutional investor with assistance in growing and developing. Combined with contacts to help set up oversees and advice on financial disciplines complete a package that starts with a chunk of growth capital.

Looking to the future, Derry is optimistic that the market will provide sufficient appetite for exits. ‘It’s no secret that there have been a whole rash of IPOs since the beginning of the year, and towards the end of last – we’ve had a good 12 months for the equity markets.’

However he has noticed a slight pausing for breath, or a little bit of indigestion in new issues as he calls it. With some of the recent issues being priced at lower ranges, Derry is still firm that the UK public markets remain open for new assets.

And as for whether Dunedin can have another year like the last, it’s a case of focusing on investing capital wisely, he adds.

‘It’s important to remain disciplined, especially when you are in market where multiples are sneaking up slightly. Paying the right price for good businesses is essential.’

Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.