Wol Kolade: defender of the realm

The reception of ISIS Equity Partners is all glass, chrome and highly polished floors. A door opens and the six foot-plus Wol Kolade, who heads up ISIS, gives me a strong, friendly handshake, apologising for running slightly late.

The reception of ISIS Equity Partners is all glass, chrome and highly polished floors. A door opens and the six foot-plus Wol Kolade, who heads up ISIS, gives me a strong, friendly handshake, apologising for running slightly late.

The reception of ISIS Equity Partners is all glass, chrome and highly polished floors. A door opens and the six foot-plus Wol Kolade, who heads up ISIS, gives me a strong, friendly handshake, apologising for running slightly late.

Kolade is a man very much in demand at the moment. Aside from his commitments at one of the UK’s most successful mid-market firms, he’s the chairman of the British Venture Capital Association (BVCA).

If you believe some of what’s been uttered in the media lately, that makes him the godfather of a nefarious gang of champagne-quaffing, tax-evading asset strippers.

A media frenzy
Such was the furore as private equity behemoths swarmed over household names like the AA and Alliance Boots, that the profession has been branded irredeemably evil, most notably by Brendan Barbour, general secretary of the Trades Union Congress. The hysteria prompted the recent resignation of BVCA chief executive Peter Linthwaite and an investigation by the Trade and Industry Select Committee.

If it’s such a murky and dishonest practice, that must make Kolade, in his role at the BVCA, the devil incarnate. Except he isn’t. In fact, Kolade comes across as, well, rather nice.

‘I believe passionately that private equity is a force for good in the UK,’ he says. ‘What irks me more than anything else is how people in the press have painted private equity as nothing other than taking household names private and gearing them to the eyeballs, when it’s not about that at all. If you over-gear things, it comes to bite you when the chips are down.’

Kolade speaks with authority. He joined ISIS in 1993 and assumed the hot seat five years later. ‘When I took over, it was a business that was lost and going nowhere due to its generalist approach. We had £30 million under management back then and now we have £700 million. In those days, we had five people, now we have over 50,’ he says.

ISIS, which has a regional presence across the UK, invests in companies valued between £5 million and £75 million seeking between £2 million and £30 million of equity.

As soon as he took control, Kolade made the decision to avoid the manufacturing sector, with its downward pricing pressures, and to concentrate on retail, leisure, media, IT, healthcare, business services and financial services.

It’s almost perverse that sector specialisation wasn’t considered earlier. He reflects: ‘I sat back in ‘97 and was a bit perplexed. In the UK and Europe, the bigger private equity deals earned better returns than the smaller ones.

‘The risk and return curve was all skewed. Looking at it rationally, you would expect the smaller deals to be riskier and that means they should offer a better premium through a higher rate of return.’

On the other side of the Atlantic, the process followed that logic. He continues: ‘It worked in the US like that and when I investigated further I realised there were lots of sector specialists in the US. Their engagement with companies was different; in Europe, you tend to have a collection of individuals who are very talented, as opposed to structures.’

What Kolade likes to see is an owner-manager who’s operating a business in an area with potential for growth. ‘The thing I like about entrepreneurs is that they always go where the action is. We decided we wanted to keep close to these people as we knew they’d guide us to where the economy is growing,’ he says.

The right candidate
ISIS currently has 35 companies in its portfolio. Some of these have come to the firm seeking backing and others have been deliberately singled out and approached for investment. ‘What we love is those people who are absolutely focused on delivering for customers – that’s what keeps them awake at night,’ he comments, adding that a view to the international market is essential too.

When consenting to private equity backing, Kolade says an owner-manager needs to give thought to what the competition is doing and, crucially, how the company will change: ‘What people don’t tend to appreciate is that, once we get involved, businesses are not the same.

‘If a person isn’t going on a journey with that in mind, then there will be a real problem. Business is hard and it requires change, always.’

That isn’t to imply a company is going to be stripped of its assets for a fast buck. Kolade gives the example of clothing retailer Fat Face, which ISIS exited in 2005 with an internal rate of return for investors of 67 per cent after the company’s turnover increased eightfold to £60 million in the space of five years.

Back in 2000, ISIS invested £3.5 million for a stake in Fat Face after the founders, Tim Slade and Jules Leaver, who began designing T-shirts and selling them from rucksacks in the French Alps, decided they wanted to sell the business outright.

‘When we came in, Fat Face was already growing profits 50 per cent per annum. The challenge for the retail outfit was the speed of its growth; at the start of our involvement there were 20 shops and by our exit there were 97,’ Kolade explains.

Keeping up with growth
The speed of expansion was such that they moved warehouses three times and had to change computer systems on four occasions. He adds: ‘You really have to take the tiger by the tail as you put a different management team in place. What helped in this instance was that both of the founders knew when to let go.’

Slade and Leaver were able to take a back seat and became non-executive directors as soon as Fat Face was able to grow without their day-to-day involvement. In 2003, Louise Barnes was brought in from Monsoon as chief executive and Stewart Owens joined from PC World as finance director.

It’s a textbook example of how private equity can function at the smaller end of the market. ‘When [private equity buy-outs] work well, it’s about making a connection between stakeholders and management, taking a medium-term view and executing that plan,’ he says.

Kolade feels this positive of the private equity market has been lost in the wider buy-out debate, which often sees the industry criticised for profiteering and shying away from appropriate taxes. Critics argue that paying as little as ten per cent tax on deals worth billions is unacceptable, but Kolade flatly asserts that it’s for the Government to look at what’s for the best. ‘Of course we are trying to defend [a system] that works well. It’s for the Government to make a choice and then it must live with the consequences of its decision,’ he notes.

That may sound like a loaded gun. Kolade would disagree, but goes on to argue that the UK’s competitive edge could be blunted by a tighter tax regime, citing how New York was the epicentre of venture commerce before the tightening of the regulatory screw after the Enron and WorldCom scandals.

‘London is the place to be at the moment but we have no right to this situation. We have a can-do attitude and if we start to limit that freedom it will disappear as quickly as it has come,’ he says.

Kolade is unperturbed by the massive amount of debt that is used in certain deals: ‘Debt can magnify returns on the way up and make things worse on the way down. What is crucial is that you have the appropriate debt structure.’

Trade unions have accused buy-out firms of causing job losses, although the evidence suggests the exact opposite. Research by the BVCA has found that, since 2000, private equity has generated more employment than the FTSE 100 and FTSE 250 put together.

Where Kolade does concede that private equity should undergo a rethink, is in its levels of transparency and disclosure, and this chimes with the independent report conducted by former Bank of England executive director Sir David Walker on behalf of the BVCA. ‘We must explain the financials,’ says Kolade.

Cost of compliance
The surge in private equity activity (over £100 billion raised this year alone) can partly be attributed, claims Kolade, to the governance rules that now constrain listed entities. ‘If the stock market worked properly, there wouldn’t be the opportunity to buy these household names,’ he asserts.

‘A CEO of a public company spends an enormous amount of time dealing with matters other than business, such as governance and regulation. I’m not saying it’s bad, but maybe the pendulum has swung too far.’

If that’s the case, private equity is providing entrepreneurs with a necessary alternative. ‘Our reason for being is not to create jobs, but if you create good business then you create sustainable employment and that must be good for the economy,’ he says.

The notion of ‘doing good’ has cropped up throughout the conversation. He evidently gets a buzz from watching a business thrive and people prosper and believes the media hysteria will settle down: ‘The debate [about what we do] is finally gaining depth and colour, not concentrating solely on the public to private issue. The thing is, no-one from the private equity side was really fighting the case.’

There’s still a long way to go, but Kolade, in his modest manner, seems to be doing a good job so far.

Click here to read exclusive comment from Michael Denny, executive chairman of NVM Private Equity, on demands for private equity firms to pay more tax.

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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