Private equity: Finding a match
Article Date: Jul 18 2006
Enthusiasm and rapport were major factors in choosing a private equity backer for the management team of Robinia Healthcare, another recent buy-out. Founded in 1995, Robinia is a fast growing organisation specialising in residential support services for adults and young people with learning disabilities. In 2003 Bridgepoint Capital funded a management buy-out valued at £50 million, which enabled the business go through a period of highly successful growth, taking advantage of much greater government and societal emphasis on care of the disadvantaged with a policy of providing responsive, high quality services that cater for the needs of individual users.
By 2005 the company’s founder, Elizabeth Wagstaff, decided to retire as chief executive and to realise her equity in the business. 'The only way Bridgepoint could re-finance was through a secondary buy-out,' says current CEO Glen von Malachowski.
He led the process which resulted in a secondary buy-out in which Barclays Private Equity and Lloyds Development Capital collaborated to provide £80 million funding to acquire equity from Bridgepoint. 'We did something like eight presentations to potential backers. The question was did they have the knowledge of the market – if not, we would have to spend too much time explaining things; and did they have the affinity for what we did. Some of them believed that they did, because they had invested in providers of care for the elderly – but they were miles away from understanding what we do. It’s like a doctor and a dentist – they are both in the medical sector, but in detail there is a world of difference in what they do,' says von Malachowski.
'It was a very stressful and demanding process. There has to be a rapport, a chemistry between the management and the backer; we needed to feel that we could get on with them and they would be straightforward with us. Some people did try to influence us in ways that were not very professional.
'With a couple of exceptions who were particularly mean with what they offered, most of the potential backers put forward a financial offer that was in line with market norms at the time. The real differentiator was their negotiating stance, which we thought was a good indicator of what a future relationship would be like. One equity house we considered said they were quite happy to talk about xyz for as long as we liked – but at the end the answer would be ‘no’! We paid a lot of attention to their style, stance and attitude – how well they picked up on what was important to us and how honest they were about what they could offer.'
Malachowski and the management team quickly warmed to the Barclays and Lloyds teams. 'They both had previous investment in the care sector, and they were responsive, dynamic and aware – they have proved to be terrific partners,' he says. 'They stood out a mile. Their standpoint was to put the quality first, then get the business, and only then to look at cost controls to get the required profit levels.'
'Their value base was synonymous with our own, and they also showed a knowledge of the value base of the care sector – the language and values, attitudes to disability and disadvantage and those historically marginalised. Combined with their business acumen and their previous experience, it was a winning formula.'
Ultimately, the value you get from PE investment is not about cash – it’s about relationships, experience and the depth of involvement you require. What distinguishes one bag of money from another is the equity house’s ability to develop a rapport with the management, to display knowledge of the business and the sector, and to convince the management that they will play with a straight bat in the years ahead.
This article was originally published in Masterclass magazine.
