www.bridgepoint-capital.com
Steaming with
Bret Holden
MAY 2002
ISSUE 1
The man behind the
world’s biggest
car wash group
THE POINT
Intelligent investing in Europe from
Death to the Italian rat
How buy and build turned France’s Eurogestion into Italy’s
number one rat catcher
Investment minefield or utopia?
Europe’s healthcare industry under the microscope
Making fat boys slim
Diet for an entrepreneur
Intelligent private equity investing in Europe
• Focus on Europe’s middle market companies
• 25 year track record of buying and selling businesses
• Over €4bn under management
• Offices in France, Germany, Italy, Spain, UK and Nordic region
THE POINT
MAY 2002
ISSUE 1
CONTENTS
www.bridgepoint-capital.com
EDITORIAL
What’s The Point?
News
4
From Stockholm to Madrid:
Bridgepoint funds, acquisitions,
exits, people
Rat Catcher
9
How buy and build turned Pierre-Vincent
Debatte’s Eurogestion into Italy’s number
one pest business. By Catherine Wheatley
Face to Face
12
Amanda Hall talks to Bret Holden,
ceo of IMO Group on cleaning up at
the car wash
Market View
15
Nick Lockley reports from
Germany on the state of the private
equity business
European Healthcare
Investment opportunities under the
microscope. By Paul Durman
Making the Most
20
The Point guide to smarter living.
Luke Johnson in Madrid.
And making fat boys slim
Bottom Line
22
Richard Rivlin on how UK tax changes
are boosting entrepreneurial Britain
Published by: Bladonmore Publishing Ltd
16
The Point is our way of showing
the people who matter most to us –
our investors, our management
teams, the intermediary community
we work with and of course, our
own team - what it means to be a
Bridgepoint-backed investment.
Not that Bridgepoint itself needs
any introduction. Our aim is to use
The Point to shine a light on the middle market and the
companies within it as well as to provide intelligent insight
into one of the most dynamic sectors in Europe.
Typically, we invest in middle market companies because a
number of characteristics will have already drawn us to them.
It goes without saying that the management of the company
itself will be impressive - both with their knowledge of their
sector and with their vision for their business. Witness Bret
Holden, chief executive of IMO Car Wash Group, a company
Bridgepoint backed in 1998. The car wash sector and vision?
Think again and read Amanda Hall’s profile of the man and
his views on what you do with over 800 car wash sites
across Europe.
The sector in which our companies operate will also be
capable of development, either through organic growth or
consolidation. In each issue of The Point, we’ll be looking at
which sectors to watch. In this issue it’s healthcare, a market
well known to Bridgepoint and one which frequently
makes the headlines wherever you are in Europe. Paul
Durman takes us through what he describes as ‘a near-perfect
investment opportunity’.
And what about the businesses themselves? Bridgepoint
companies will be growing either domestically or be capable
of transformation into an international operation. Recognise
your own business in this? Catherine Wheatley explains
exactly what we mean when she explores the ‘buy and build’
strategies of several Bridgepoint companies - Nordisk
Parkering, the car park operator in Scandinavia, France’s
Eurogestion, the pest control group, Plastimo, the marine
recreational equipment manufacturer, Alcontrol, the Dutch
analytical services company and the UK’s specialist
equipment hire company Longville Group.
All of these reasons may go some way to explaining why
this market is attracting the attention of investors from
around the world - investors who are constantly looking for
reasons to allocate their sought-after funds in areas with the
most promise. I hope that like them, you too will begin to see
why Europe’s middle market is the place to be.
www.bladonmore.com
Publisher: Richard Rivlin
Editor: Amanda Hall
Design: Create Services
Photography: Tom Stockill
William Jackson is chief executive of Bridgepoint Capital
The views expressed in The Point are not necessarily those of Bridgepoint Capital
Companies in this issue
Eurogestion p9 Longville Group p10 Alcontrol Laboratories p10 Nordisk Parkering p10 Plastimo p11 IMO Group p12 Nestor Healthcare p16 Healthcall p16 Alliance Medical p16
Rhoen Klinikum p17 Synergy Healthcare p17 Match Group p18 myCFO p20 Coutts p20 C Hoare & Co p20 Centre for Nutritional Medicine p21
THE POINT
3
Stockholm to Madrid
NEWS
4
THE POINT
EXPRESS
New fund targets pan European buyouts
Bridgepoint Capital has raised more than €1.7bn for
its latest fund and could end up with closer to €2bn at
formal closing in May.
The firm originally set out to raise €1.6bn but
increased interest from investors has pushed this
target higher.
The new fund, which has an investment period of
up to five years, will target pan European mid-market
buyout opportunities.
New investors from Europe and North America and
Asia have been told that the money is earmarked for
transactions with a value up to €400m, with equity
investments of between €15m and €100m.
The mid-market is a competitive arena, but the new
fund will give Bridgepoint the opportunity to consolidate
its position as a leading investor in this field over the
coming years.
The fund has already signed off its first three deals;
the €206m buy out and de-listing of UK manufacturer
and distributor of ethnic and speciality foods WT
Foods, and the €176m growth capital/equity release
transaction in Virgin Active, the health and fitness business;
and the €67m buy out of UK specialist hire company
Hydrex Group.
Bridgepoint’s new fund is likely to increase the
competitive stakes among mid-market equity providers.
William Jackson, chief executive, believes that raising this
fund in the current market vindicates the company’s
strong reputation with its investors.
Jackson says: “The European mid-market is emerging
as a place where investors want to be. This is clear
from the number of new investors attracted to the
fund who are making allocations with a private
equity firm that has a proven middle market
investment strategy.”
The latest fund follows Bridgepoint’s €1.6bn First
European Private Equity Fund which closed in April
1999 and which has made 65 investments over the past
three years.
Leading placement agents Helix Associates and
Jerome P Greene & Associates advised Bridgepoint on
the raising of funds.
Graham Dewhirst, Bridgepoint’s head of investor
relations, says: “We have
closed initially at €1.7bn.
We will close the fund on
May 3rd with around
€1.9bn set against a
€1.6bn target.
“By modern standards,
given that a number of
funds have not made
their targets, to come in
ahead of ours, and within
the time frame is very
pleasing.”
Dewhirst: ahead of target
Nordisk Parkering acquires Norway’s Scanpark
Nordisk Parkering, the biggest privately owned
car park operator in the Nordic zone, has acquired
Scanpark AS, the fourth largest parking manager in
the region.
Bridgepoint acquired Nordisk Parkering in July last
year with a plan to grow the business organically and
through selective acquisition. The combined group is
now the Nordic market leader and the number
two in the Norwegian market.
Founded in 1997, Scanpark was owned by its
management team led by managing director
Hans S a l o m o n s e n a l o n g w i t h f o u n d e r a n d
m a r ke t i n g director Torr Foss. Following the
acquisition Salomonsen and Foss remain with
the company - both have reinvested in the business.
Graham Oldroyd, Bridgepoint’s director responsible
for investments in the Nordic region says: “Scanpark
is the fastest growing car park operator in Norway
with a management team that will fit well with that
of Nordisk Parkering. Combining both businesses
will also result in significant cost and operational
synergies as well as improving Nordisk’s
geographic coverage.”
Around two thirds of Scanpark’s revenues come
from car park management and a third from
parking enforcement.
Oldroyd adds: “This deal is strategically very important as it will enhance our ability to win new contracts
and will give us bigger operational coverage. Car
park landlords want to know their chosen supplier is
a substantial player with a good track record.”
See Spotlight on Nordic Region, p7
NEWS
Exit Birmingham Airport
PTPs mean business
Macquarie Airports Group, a private equity airport investment fund, has
bought Bridgepoint’s 24 per cent stake in Birmingham International Airport for €134.4m.
The sale marks the exit for an investment first made by Bridgepoint in
February 1997 when it invested alongside Aer Rianta and gives Macquarie
Airports Group a substantial shareholding in one of Britain’s key regional airports.
Anthony Kahn, Macquarie Airports chairman says: “We are committed to
being a long-term shareholder in the airport and the investment signals
our continued confidence in the long-term growth of the aviation sector. We
look forward to working alongside fellow shareholders Aer Rianta and the
district councils together with the management and employees in supporting the continued successful development of the airport and the Midlands.”
Andrew Burgess, who coordinated the sale for Bridgepoint, reports that the
firm achieved a ‘very healthy return’ on its initial investment.
When a company de-lists from a stock exchange and
becomes private again it is a serious business. Now it
looks like the recent spate of UK public-to-privates,
as they are called, or PTPs could well be set to establish themselves on the private equity scene in Europe.
Looking at the UK market where, since 1996, over
84 PTPs worth more than €1.8bn have been completed
with the majority backed by private equity, PTPs
appear to be a permanent fixture.
Bridgepoint itself has completed 11 PTPs during
this time, including the most recent €206m de-listing
of WT Foods, the manufacturer and distributor
of ethnic foods, and the €371m PTP of Norcros, the
building materials and adhesives group. Why did these
transactions become popular?
Many of the companies taken private during the
mid-late 90s were smaller company stocks, typically
capitalised at under
€800m, and in most
“It looks like
cases operating in sectors
out of favour with the more European
City, such as engineering and manufacturing.
companies will
A de-listing, with
backing
from
a turn to PTPs as
financial buyer, enabled
a sensible way
these firms to raise
additional capital for to fund the
expansion, to explore
acquisition opportunities expansion of
and to incentivise a
their business”
greater number of the
management
team
through equity participation in the business. This way
management could see a r e t u r n f o r t h e i r equity
as opposed to a declining share price.
Although the rate of PTPs in the UK has started to
slow since 1999 (when it peaked with 46 PTPs in that
year), it still remains a viable form of funding for UK
quoted companies.
And in continental Europe, PTPs are on the
increase: since 1996, there have been 54 worth
€10.5bn with the highest proportion of these in
France (18) followed by Germany (9). However, the
overall size of PTPs in Germany has considerably
exceeded that of France with PTPs worth €1.2bn
completed in Germany between 1991 and 2001
compared to €543m in France.
Many smaller and mid-cap continental European
companies are suffering a similar fate to that of their
UK counterparts: some operate in ‘unloved’ sectors,
notably in German manufacturing and automotives,
many have seen their share price decline or stagnate,
many are unable to raise further capital for growth
from existing shareholders and it is clear that they do
not have the economies of scale for expansion as
a single entity.
Despite certain obstacles to PTPs in continental
Europe – notably rules governing the market for
corporate control that need to be liberalised to make
PTP practice more accessible – it looks like more
European companies will turn to PTPs as a sensible
way to fund the expansion of their business.
And while there will be differences between the various
European financial markets, the companies in question
will have one thing in common – management
teams keen to explore ways of growing their business.
Branson sells to Bridgepoint
Sir Richard Branson
has sold a majority
stake in his health and
fitness clubs business
Virgin
Active
to
Bridgepoint Capital
for €65.28m plus a
further €20.8m to
fund future growth.
The deal, valued at
€176m, sees Bridgepoint
take a 55 per cent stake
in the company while
Virgin remains a size- Healthy alliance: (L-R) Moores, Bucknall and Reed plan global expansion
able minority shareholder with 36.6 per as a research consultant and later
cent. The company’s management to launch his Virgin-branded
owns 7.9 per cent of the shares with health clubs business.
In 1996, Bridgepoint also made a
Heller Financial, the senior debt
€78.8m growth capital investment
provider, holding 0.5 per cent.
Virgin Active is to use the in Holmes Place, now a listed company.
Rob Moores, Bridgepoint director
Bridgepoint investment to fund a
global expansion of its business. explains: “We made three times our
Currently the group owns nine clubs in money on Living Well. Via an introthe UK and 76 in South Africa where it duction from Frank, we then met the
management at Holmes Place. This
is the clear market leader.
The planned expansion will see a roll- is a sector we know and like.”
out of eight more clubs in the UK,
“This deal will allow us
including three in London this year, and
development of the Virgin Active brand to roll out the concept
in Europe, North America and Asia.
around the rest of the
Frank Reed, Virgin Active chief exec- UK and the world”
utive says: “Since Richard and Virgin
Virgin Active is positioned at
backed us in developing Virgin Active’s
unique health and leisure concept in 1998, what Moores describes as the
we have taken the market by storm with “affordable end”of the health club
an unbeatable combination of quality market selling full memberships
clubs and a value-for-money offer which for €64 a month.
has already attracted over 350,000
The clubs are bigger than many
members in the UK and South Africa.
branded health clubs – typically
“This deal will allow us to roll out the they are between 50,000 and
concept around the rest of the UK 60,000 square feet – and have a
and the world.”
distinct family focus.
The Virgin transaction marks the
Moores adds: “We’ve followed
second time that Bridgepoint has this business from the drawing
backed Reed and his finance director board through to its first clubs and
Matthew Bucknall. In 1994 the firm on to its roll-out because of the
invested £27.2m in a management buy- relationship we’ve had with its
out of Living Well Health and Leisure, management. In some respect it’s a
the fitness business run by Reed. Living slightly earlier stage investment
Well was sold to Stakis in 1996.
than we would normally make but
The following year Reed left Stakis we have a high level of comfort
and was recruited by Branson initially with the individuals involved.”
THE POINT
5
NEWS
Canadians back
new fund
The Canada Pension Plan Investment
Board has become the latest institutional
investor to earmark a percentage of its
holdings for private equity investment.
It has chosen to back Bridgepoint’s
latest fund to gain exposure to mid-market
European buyout deals.
A growing number of experienced
investors are deciding to back alternative
assets such as hedge funds and private
equity funds.
News of Canada Pension Plan
Investment Board’s commitment has
helped Bridgepoint beat its original target
of a €1.6bn fund.
The investment by the State Pension
Fund is an endorsement of the European
private equity market and is likely to
encourage other North American funds
to invest in the region.
Finland Post lands Eurocom
An unusual cross-border deal involving
the sale of a private equity backed German
data storage company to Finland Post was
completed earlier this quarter, nearly four
years after the business was first bought
out from a listed UK company.
Eurocom Depora, a German specialist
data storage and output products provider,
bought originally by Bridgepoint’s UK
office from Microgen for €17m has been
sold to Finland Post, the Finnish national
postal operator for an undisclosed sum.
Over the lifespan of the investment,
Bridgepoint offices in Germany and
Scandinavia were also involved in developing
the Eurocom business.
The deal is the second transaction
between Bridgepoint and Finland Post.
The Finns had already bought the Capella
Group of Sweden from Bridgepoint in
August 2001.
Eurocom Depora, currently employs
200 people, operating mainly in and
around Frankfurt and Duisburg. Its service
range, principally to the insurance and
finance sectors, comprises microfilming,
electronic management and filing of mass
information, retrieval systems and
document management and printing
services. The business, which was founded
in 1970, had sales in 2001 of €21.1m.
According to Finland Post, the combined
group will be able to offer major international organisations, such as financial
institutions and industrial groups, end-toend services that utilise cutting-edge
technology, all the way from the reception
and processing of electronic data to
printing and filing services.
Analysts are expecting the national
postal companies across Europe to develop
new products and services in a bid to
counter the competitive pressures from
internet and email services.
Niche businesses like Eurocom that
have developed innovative communications
and data storage products will become
increasingly attractive as possible acquisition targets for the state owned operators.
Data storage: key to postal services
Deal triggers for middle market buyouts
Where do deals come from? It's a question everyone involved in the private equity business
needs answered. The two charts below show the number and value of buy outs by deal source
done during 2001 in western Europe that fall into the €30m-400m bracket.
Number of deals by source
Value of deals by source
€ millions
CPPIB made its decision to invest in
Bridgepoint’s fund on the strength of
the firm’s track record in building
businesses and creating long-term
shareholder value.
Graham Dewhirst, Bridgepoint’s head of
investor relations says: “Our aim is to apply
our pan-European infrastructure and
resources to invest in domestic businesses
that can be transformed into international
groups, particularly through buy and
build opportunities.
“In this way, we are able to release latent
value in the middle market businesses
we buy.”
6
THE POINT
50
7000
49
40
6000
45
5000
30
5731
4000
27
20
3000
3186
2000
3632
2896
15
10
1000
0
0
Family
private
Public
to private
Institutional
parent
Local
parent
Family
private
Public
to private
Institutional
parent
Local
parent
Source: Initiative Europe
NEWS
Spotlight on...
Bridgepoint takes Hydrex stake
Nordic Market
Bridgepoint has increased its exposure
to the booming equipment hire business in
the UK with a €24m investment in the
Bristol-based Hydrex Group, a company
specialising in the supply of heavy
equipment and operators to the rail and
construction industries.
The deal sees Bridgepoint become the
majority stakeholder in Hydrex by buying
out existing shareholders 3i and Brian
Davies, the firm’s founder who started the
company 17 years ago. The company’s
executive management who own a stake in
the group remain at the helm.
Hydrex has grown rapidly over the past
three years as a result of increased public
sector spending on infrastructure and the
development of the rail industry.
Bridgepoint’s €24m investment will be
used to expand the company’s fleet and to
make acquisitions. Andrew Simcox, chief
executive of Hydrex believes the
investment will allow the company to
expand all three of its divisions: rail,
industrial services and construction.
“Our markets are showing strong growth
and the Bridgepoint investment gives us
the firepower to keep pace with the
available opportunities,” he says.
Becoming an expert on the
Nordic car park market is
probably not something
Graham Oldroyd would have
put in his career plan when he
started out in the private
equity world.
But today, as head of
Bridgepoint’s business in the
Nordic region – a market that
covers Denmark, Finland,
Norway and Sweden – where
the company’s biggest invest- Oldroyd: region's expert
ment is Nordisk Parkering,
one of the area’s biggest car park operators, Oldroyd
is a genuine authority on the subject.
He is the man who orchestrated Nordisk’s first
acquisition, that of Scanpark AS, a privately held
Norwegian business.
Oldroyd knows perhaps better than anyone why
Bridgepoint’s decision to start investing in the region
in 1995 and to open a Stockholm office last year has
proved a smart move.
“The Nordic market represents about eight to
nine per cent of European private equity
transactions above €10m,” he says.
“The economies are well developed and have a
highly educated workforce with the highest percentage of graduates in the world. Mainstream European
accounting standards are well established, English is
the main business language and there’s a pretty
strong work ethic.”
For Oldroyd, the emphasis on high-quality goods
and services is also important. “The small size of
domestic populations forces most companies to be
export oriented.
“There’s an appreciation of the importance of
quality and value-added because if exporting
goods is critical to your business, you’ve got to
offer something someone wants to buy,” he explains.
As well as Nordisk Parkering, Bridgepoint’s
primary investments in the region are Huurre, a cold
store manufacturing company, and Aura, a business
making long-life industrial lighting products.
Major investments which the company has exited
include Toolex Alpha, a Stockholm business making
CD pressing equipment which is now quoted on the
local exchange and produced an IRR of 351 per cent,
and Semcon, an engineering and IT consultancy
business also now a quoted company and one that
delivered an IRR of 183 per cent.
“The region’s four countries have distinct
economies,” Oldroyd explains.
“Norway, for instance, is an oil economy while
Denmark is a strong trading nation, a mercantile
culture that does not have a big manufacturing base.
“Companies will often have a strong domestic
market and may be selling to one of the other
countries in the region,” says Oldroyd.
“When you invest in these companies you often
have the chance to take them pan-Nordic which
in turn makes them attractive to international
players looking to get in to the region.”
While the Nordic area held up well in the
aftermath of September 11, the downturn in world
stock market values has affected the business
of investing.
“We are experiencing some problems of price
expectation,” he says. “But if you can find a willing
seller, this is a good time to buy.”
Alan Payne, director of Bridgepoint
Capital responsible for the Hydrex deal
adds: “The growth of the UK rail
market and Hydrex’s market leading
position were key attractions in this
investment. Hydrex is the only real
national player in its market and is
keen to grow the company further.
Our investment will allow the company
to continue this growth, augmented
by a selective acquisition programme.”
Bridgepoint is already an investor in
the Midlands-based Longville Group,
another specialist hire firm that is the
world’s number one pump hire business
and number two in chiller hire.
Payne says: “This transaction
demonstrates Bridgepoint’s continuing
commitment to invest in quality
b u s i nesses despite the economic
slowdown.
“We are already aware of the
opportunities within the specialist
hire market through our investment in
Longville Group. Hydrex has many
qualities we look for in an investment
a n d a d d s t o our track record of
implementing buy-and-build strategies
for progressive companies.”
NEWS by Amanda Hall and Richard Rivlin
IMO acquires Toman
WT de-lists
IMO Car Wash Group, Europe’s biggest
independent car wash business, has
acquired the Toman Group, a German
business and one-time sister company of
IMO, from Harpen AG, a subsidiary of
German giant RWE. The combined
business now has 800 car wash sites
across Europe.
WT Foods, one of the UK’s leading
manufacturers and distributors of ethnic
and speciality foods, has been de-listed
in a €206m management buy out with
backing from Bridgepoint Capital.
Guy Weldon of Bridgepoint says:
“De-listing the company will give the
business a longer investment horizon and
the resources it needs to play a full role in
the expected consolidation of the ethnic
and oriental food sector.”
See interview with Bret Holden, IMO chief executive, p12
Post arrives for Capella
Capella Group AB, the Swedish data
services outsourcing business, acquired
by Bridgepoint and management in
October 1998 has been sold to Finland
Post for an undisclosed amount.
E M P T Y
D E S K
Financial Sponsor award
The European Venture Capital Journal
has named Bridgepoint Capital its
Mid-Market Financial Sponsor of the Year
for 2001. The award, judged by industry
specialists and EVCJ writers, follows
Bridgepoint's success last year when
it was named Mid-Market House
of the Year.
“I’m on the train.”
THE POINT
7
FEATURE: BUY AND BUILD
Gunning for growth
Buy and build is an integral
part of the Bridgepoint
investment strategy
which aims to create value by
building market leaders. From
rat catchers to laboratories,
Catherine Wheatley
examines how the
strategy works
Eurogestion’s Pierre-Vincent Debatte: “Buy and build has changed the look of the entire company.”
After ten years with one of France’s leading
pest control businesses, Eurogestion
director Pierre-Vincent Debatte was both
excited and nervous when the opportunity
arose last year to acquire his chief Italian
rival Libco.
Since November 1999 Debatte and his
colleagues had bought seven French firms
and a further five Australian companies
when Bridgepoint Capital backed their
€75m management buy-out. But Libco,
with a turnover more than ten times larger
than any of their previous purchases, was a
much bigger challenge.
The deal would give Eurogestion a
d o m inant position in Italy ahead of
global competitor Rentokil, but it would
also bring management obstacles and
financial pressures.
“There was a debate about whether we
should pay a higher multiple for Libco
than Bridgepoint paid for Eurogestion. We
argued that we might risk losing value
on the group. But ultimately the strategy
is to increase the multiple you can sell
the group for, so we went ahead. It’s
changed the look of the entire company,”
Debatte explains.
Now, after a three-year programme
of acquisitions and reorganisation,
Eurogestion is itself being eyed by competitors keen to acquire the flourishing
business. In that time, the French group’s
turnover, at €130m, has increased substantially. Like other buy-and-builds, each new
purchase has been funded either from
cashflow or mezzanine finance rather than
by new share capital, so the original stakeholders take profits on any deal.
“Our strength is identifying, buying and
merging new businesses into the existing
company,” says Debatte. “A sale will be
proof of our success.”
“Ultimately the strategy
is to increase the
multiple you can sell
the group for”
For Bridgepoint, buying and building
companies like Eurogestion has become a
key part of its investment strategy over the
last three years. It is an active, hands-on
approach to creating value that maximises
returns by building market leaders in key
geographic territories. The resultant
businesses frequently make attractive
acquisitions for international players.
Around a quarter of the companies
acquired by Bridgepoint’s latest fund are
what the company calls “serious buy-andbuild candidates”, and around 10 per cent
of its cash is earmarked for adding to
existing investments.
Typically, directors at Bridgepointowned companies will spend up to five
years engineering a bigger and occasionally
dominant market position across Europe
or around the world in a bid to improve
earnings and increase values.
Since the late 1990s such expansion has
added expertise, improved best practice
and delivered straightforward scale
economies to many Bridgepoint companies.
The strategy is a response to a tough market for successful exits and a recognition
that truly successful companies are unlikely
to operate in only one country.
Acquiring big players is the obvious route
to dominance, and a mixture of luck and
judgement has allowed Eurogestion to
pick off not one, but two domestic market
leaders over the past two years. As well as
acquiring 40 Italian exterminating outlets
(everything from rats to cockroaches),
Debatte and his colleagues have also
snapped up the pest control subsidiary of
Groupe Suez, giving the company a
THE POINT
9
FEATURE: BUY AND BUILD
dominant position in Belgium.
Other companies are building in tinier
increments by picking off smaller rivals
and filling in gaps in an existing portfolio.
For example, British equipment hire
company Longville Group, which supplied
machinery for the construction of the
Millennium Dome, has made five smallish
acquisitions in the UK and America since
September 1999 when Bridgepoint backed
an €128m management buy-in. The largest
deal, at just €13.2m, added Chicago-based
chiller-hire company Nu-Temp to a portfolio
of businesses that lease equipment which
can pump water, generate power and
control temperature.
Straightforward organic growth is also
part of the package at many Bridgepoint
companies. Anglo-Dutch group Alcontrol
Laboratories, which conducts safety tests
on a range of environmental samples from
food to soil to drinking water, has recently
built two new labs in the UK following a
€112.7m MBO in December 2000.
Certain sectors lend themselves better
to a buy-and-build strategy. Functions that
bigger companies are outsourcing - laboratory testing or equipment hire - offer clear
opportunities. At the beginning of the
car-park tenants have the right to renew a
lease in perpetuity and the market rent is
set not by the highest bidder but by an
arbitration panel.
Nordisk Parkering already owns just less
than half the market across the country – a
stake it has no intention of giving up. “It’s
a very strong protection,” says chief executive Mats Kullman. “Even if a competitor
offers a higher rent the landlord can’t
throw us out.”
Like other Bridgepoint-backed companies,
Nordisk Parkering is picking up substantial
contracts for work that is being out-
Baalhuis had already purchased two
Swedish labs and a Dutch competitor
before Bridgepoint invested and while the
firm was still owned by UK water company
Kelda (formerly Yorkshire Water.)
“That was one of the reasons we were
interested in Bridgepoint,” he explains.
The strategy devised by Baalhuis and
Bridgepoint is to take laboratories that
have traditionally been run by research
scientists and introduce a more efficient,
production-driven approach.
Now, using special software, customers
can place an electronic order with a lab
“There's massive
scope for development
because outsourcing
is becoming more
10
common”
Alcontrol's Gerard Baalhuis: “A more efficient, production driven approach.”
year, for example, the Dutch government
passed a law allowing food producers to
outsource tests for BSE and other diseases
to private labs. And in the UK, water and
power utilities are being given greater freedom to appoint outside contractors.
“There’s massive scope for development
because outsourcing is becoming more
common in the construction, petrochemical
and pharmaceutical industries where we
work,” says Eric Hook, Longville’s chief
executive. “We can also add a huge amount of
value because we have specialist knowledge.”
Markets where new investors are
deterred by barriers to entry such as a high
skills-base or a dominant position are also
popular. Scandinavian car-parking business
Nordisk Parkering, which Bridgepoint
acquired in a €107m secondary buy out
last June, is particularly strong in Sweden
because of the country’s unusual property
leasing regulations. Under Swedish law,
sourced. In Sweden more than 50 per cent
of the market for car-parking spaces and
attendants is still controlled by the city
authorities, but much of the work is being
contracted out to private operators. As a
consequence, the company’s earnings rose
25 per cent last year from turnover that
was up around 15 per cent.
It is those types of mid-market companies
in which Bridgepoint specialises which are
particularly suited to the buy-and-build
approach. Many underdeveloped German
Mittelstamp businesses, for example, have
strong growth prospects. Other sectors particularly manufacturing -- are packed
with middle-ranking businesses that are
ripe for consolidation.
Before investing, Bridgepoint is clear
about the buy-and-build potential of a
company, and often the chosen strategy is
one the management has been pursuing
for some time.
At Alcontrol, chief executive Gerard
THE POINT
while a courier is dispatched to pick up the
relevant samples. The programme allows
clients to input all the data on the size and
type of sample directly into Alcontrol’s
files so there are fewer copying errors.
Information can be sifted and experiments
prepared before the material has even
reached Alcontrol’s premises. As a result,
the average time to process a sample has
been cut from seven to three days.
“Exporting our know-how will be very
beneficial,” says Baalhuis, who has made
three further acquisitions since the MBO.
“That’s how we increase value for
Bridgepoint and its shareholders – and
that’s why buy-and-build works for us.”
Transferring existing expertise to newly
acquired companies is part of the buy-andbuild process, but sometimes buying in
knowledge is just as important. In France,
Eurogestion’s acquisition of Paris-based
Sen Hygiene, which deals with commercial
clients, added a new dimension to the
FEATURE: BUY AND BUILD
Plotting a course
company’s predominantly residential pest-control services.
Another purchase, of Lyon-based group ATB, brought with it
new capabilities in termite eradication.
Clearly, bringing a high degree of experience under one
corporate roof delivers distinct market advantages. Longville,
the equipment hire company, is starting to take its specialist
knowledge of draining water from construction sites to
countries where such skills are entirely absent.
“It’s not an easy activity for others to get into. Now, we have
the largest hire fleet of pumping equipment in the world and
we bring a huge amount of value added in terms of
a p p l i c a tion knowledge,” says Eric Hook.
Finding the right acquisition targets is one of the chief
challenges facing many buy-and-build companies. Bridgepoint
itself has a substantial network of offices and many more
contacts through which it can source potential deals, but for the
managers involved, detailed market knowledge is an
important prerequisite.
Retiring owners of French and German family businesses are
often attracted by the promise of being part of a bigger firm in
their sector - especially if the company driving the buy-andbuild strategy and its private equity backers have a good market
reputation. And managers in bigger businesses are often drawn
“There are target companies
but the list is limited and
there are high expectations
on price”
by the prospect of working within a reinvigorated group where
their experience can be vital.
Sometimes, however, suitable acquisitions are simply not
available. “There are target companies but the list is limited and
there are high expectations on price,” admits Alcontrol’s
Baalhuis, who is currently eyeing three businesses in the UK
and the Netherlands.
Nordisk Parkering’s Kullman tells a similar story: “The
problem is that there’s not that much to acquire.”
Bringing together different corporate and national cultures
can be another challenge and one that is vital to grasp for
management teams. In many cases, teaching subsidiary
companies new skills or approaches will play a vital part in
building value. Alcontrol’s laboratory software and its efficient
approach to research are exported to all its new purchases,
while Nordisk Parkering’s acquisitions use the parent
company’s highly-developed financial and administration system.
Most managers know well in advance what remedial action
will be required at a newly acquired business. “It’s part of the
due diligence process to gather data so that we know what
training is needed and what changes to employment packages
are required,” says Eurogestion’s Debatte.
At most of the companies involved it will be a couple of years
before the strategy’s outcome can truly be measured. But on
the current evidence, company values are building nicely.
Tony Le Saffre has plotted a course to substantial growth
since July 1999 when Bridgepoint backed his €37m management
buy-out of French marine-equipment manufacturer Plastimo.
Over the past three years the company has acquired a broad
spread of new businesses including UK life-jacket maker XM
and French bow-thruster business Max Power in deals that
helped double turnover and boost group profits by 12 per cent
in the year to April 2001.
Plastimo’s aim is to build a pan-European brand that will
benefit from scale and distribution economies as well as namerecognition in a highly-fragmented market. Smaller companies
brought under the Plastimo umbrella are now able to export
their goods to around 90 companies across the continent
through a 50-strong sales team, and the brand name appears on
a huge range of products from wet-weather gear to anchors.
“We want to build
a logical patchwork
allowing us to
c a p ture as much
exposure in the shops
as possible. If you
start getting bigger,
the synergies begin
trickling in naturally,”
managing director Le
Saffre says.
The
company,
which manufactures
around 6,500 lines, is
already the only
international one of
its kind in Europe
and Le Saffre believes
Plastimo will be
tough to overtake.
Over the next couple of years he will Making waves: yachting supremo Grant Dalton
focus on stream- sports Plastimo gear
lining production,
distribution and warehousing in a bid to increase his price
advantage over competitors.
“We can offer discounts that others can’t but it’s a defensive
position and we have to be careful of specialists,” he says.
Finding acquisition targets requires both smart thinking and
substantial market knowledge, he admits. A number of targets
have been created and run by entrepreneurs who are close to
retirement - including one recent acquisition in Denmark
where the proprietor was 76.
“We work in a very fragmented market so we have tried to
think strategically and identify product lines that have high
potential growth,” he explains. “Rather than expecting
companies to knock on our door we draw up a shopping list,
and generally the response has been good.”
One of the chief challenges Plastimo has faced is exporting
the corporate culture to new countries and companies. The
company already has subsidiaries in at least ten European
nations as well as operations in the USA. “We have to learn to
be multi-cultural,” Le Saffre says. “We have to prove we are
good at taking care of cultures and languages and individuals.”
Catherine Wheatley is a freelance business journalist
THE POINT
11
INTERVIEW
Amanda Hall meets
Bret Holden,
FACE
FACE
T O
the all American boy
who is cleaning up
in the European
car wash market
Awash with success
Between now and the end of this
sentence, Bret Holden, a tall, dark,
41-year-old American MBA, born in
Kansas and raised in Virginia, will have
washed five cars. That’s about one every
second. Or, if you prefer, 30m cars across
Europe in the space of a year.
Holden is Europe’s car wash king. As
chief executive of IMO Group, the world’s
biggest independent car wash business
with a small headquarters in High
Wycombe to the west of London, he is a
man who prays for hot, dry summers and
cold, frosty winters with plenty of grit on
the roads. He is also a man who sends his
management team off to wash cars to keep
them in touch.
“You really want to know what I first
thought when I was approached to run
this business?” he asks in an American
accent diluted by 11 years spent in Europe.
“Why would I want to go run a crappy car
wash company?”
That was back in 1999 when Holden was
working for BP Amoco, the UK oil giant
at its London headquarters where he was
responsible for strategy and planning of
the group’s downstream operations. As a
former general manager of BP’s retail
operations in the UK with a turnover of
around €7bn and 5,000 employees, he was
hardly likely to leap at a head-hunter’s
offer to go and run a car wash business.
“It was Mike Smith, a colleague at BP
and now our chief operating officer at
IMO who said: ‘Wait a minute, let’s put a
plan together’,” Holden explains.
“We looked at the business, its merits
and what could go wrong and couldn’t find
much. The internet couldn’t wash your car
so we were safe from that; the company
was already the biggest in Europe even
though they had never spent a penny on
marketing; there was a need in the marketplace but very little competition; and it
12
THE POINT
had a low cost structure.
“So we modelled a plan of the business
to see where it could go, stressed it from a
number of different angles and still we
couldn’t see how it couldn’t be a winner.”
Holden took the job, driven by a desire
to do something new after those 11 years at
BP, and to do it in an area he knew well.
And judging by the financial
performance of the business, it has proved
a wise move for Holden, who holds a 4.5
per cent stake in the company, and for
shareholder Bridgepoint Capital which
owns the majority of the stock.
When the boy from BP joined the
company in 1999, IMO had 412 sites in
Europe and generated earnings before
interest, tax and depreciation of €21.6m.
For the year to December 2001, earnings
rose to €30.4m. In January this year
Holden acquired his German rival, Toman
Group for €130m, a deal that has taken
site numbers up to 800. Toman was
previously part of the IMO Group but
was split off in 1990 in its own
management buyout.
How has Holden driven profitability at
the business? By restructuring wash
programmes to include more profitable
‘extras’ and by refurbishing and rebranding
sites - some under the ARC name - to
make them more appealing, especially to
women concerned about safety.
“Extra options tend to be very profitable
but lots of sites weren’t selling all the
options. So we bundled programmes
together. That worked
because people like
“In Germany they
to treat their cars
describe their cars
really well - in the
as ‘the last
UK, for instance, 30bedroom of the
40 per cent of customers always want
house’.”
the ‘top wash’ and
in Germany they
“I like running
the show, I like
the absence of
bureaucracy, it’s
completely fun”
INTERVIEW
CAREER PROFILE
Bret Holden: chief executive IMO Group
Born: 8 February 1961, Topeka, Kansas, USA
Married with three children and one on the way
Educated: Degree in International Relations
at University of Virginia and MBA from the
university’s Darden Business School
Started out as: branch manager, First Virginia
Bank in 1983
Biggest break: “Being made general manager
for BP’s retail business in the UK.”
Biggest mistake: “Not linking the roll-out of
new programme pricing at our UK sites with
our re-imaging programme.”
Drives: Range Rover
Most inspired by: Michael Dell
Life ambition: “To have my kids be able to
say: ‘my father gave me a lot of himself ’. If I’m
able to do that and balance it with business,
good for me. I hope I can find a way.”
describe their cars as ‘the last
bedroom of the house’,” he says.
Today a top-of-the-line wash
at IMO costs between €8 and
€9.5 but a typical, average wash
will set you back just €3.
Another critical factor in the
company’s profitability is its
staffing policy. IMO Group has
just 175 permanent employees on
its books. Those who run the car
washes are self-employed operators who are paid a commission
by IMO based on sales. Agents
can staff up or down depending
on current levels of business.
“Agents are able to manage a
part-time workforce better than
we could from head office,” says
Holden. “When it rains we don’t
wash a lot of cars, when it’s
sunny we wash tons. Doing it
this way means we can vary
our costs.”
As a child growing up in
Kansas and Virginia, Holden had
plenty of early exposure to
entrepreneurship. By the age of
nine, he was out cutting grass,
later he delivered newspapers,
was a cook in a steak house and
worked as a lifeguard. His alltime worst job was loading raw
ingredients onto a conveyor belt
at a dog-food factory.
“Chicken necks, tripe, 50lb
frozen blocks of the stuff had to
be loaded onto a conveyor belt.
That was bad but the worst bit
was cleaning out the oven after
they’d cooked the dog food. We
weren’t poor, but if my brother
and I wanted money we had to
get it for ourselves.”
Holden’s father was in the air
force and later worked at South
Western Bell telecommunications
but his parents split up when he
was young. His civil servant
mother was transferred to
Virginia and Holden and his
brother waved goodbye to rural
life among the wheat fields
of Kansas.
By the time he had reached
university, Holden had developed an interest in all things
international. “I just liked things abroad.
My lifelong ambition was to go abroad,” he
says despite not even having a passport
until the age of 26. He studied
International Relations and Spanish at the
University of Virginia and thought about
international law.
Instead when he graduated, he went to
work for First Virginia Bank, becoming a
branch manager eventually returning to
the University of Virginia and completing
an MBA at its respected Darden School.
In 1988, attracted by the international
nature of the
business,
he
joined Sohio (preThree and a half years
viously Standard
into the investment for
Oil of Ohio) and
Bridgepoint, flotation
owned by BP.
or a trade sale of the
Holden’s 11-year
span
at
BP
company are now
included spells at
possibilities over the
London, Brussels,
next 18 months.
where he was
property director
for
European
retail operations, and back to London.
When he joined IMO, Holden’s plan
was threefold: grow the company, increase
profitability and acquire in Germany.
With those goals achieved and three and a
half years into the investment for
Bridgepoint, flotation or a trade sale of the
company are now possibilities over the
next 18 months.
For now, Holden is having fun. “I like
running the show, I like the absence of
bureaucracy, it’s completely fun,” he says.
“No matter how small a company is as the
chief executive officer you have a huge
range of things to interest you. We’re in 12
countries which means there’s a different
cultural challenge every day but the
business is still small enough to get your
arms around.”
So who lavishes most love and attention
on their four-wheel friends? The car wash
king reveals all: “The Germans are pretty
keen car washers and the Brits aren’t
unkeen. But from what I’ve seen, I think
the Spanish are the most keen. They really
care,” he says. “Put it like this, the Italians,
the Spanish and the Portuguese love their
cars. And the French love their women.”
Amanda Hall is a financial journalist
with the Sunday Telegraph
FACE
FACE
T O
THE POINT
13
VIEW
Market
Restructuring of Germany’s
cross-holdings has not ignited
the anticipated explosion in
deals for the buy out houses.
But there are signs that the
market is beginning to move
Nick Lockley reports
In the first months of 2002 it is once
again steady-as-she-goes for Germany’s
private equity market. The incoming tax
reforms have not triggered a flurry of
deals. The mass restructuring of Germany’s
cross-holdings has, as expected, not
happened overnight. The deals are not
falling from the trees into the laps of the
buyout houses.
Few private equity managers were predicting a storm of deals on the back of the
new tax changes that came into effect at
the start of the year. The reforms targeted
the banks and large corporates and were
designed to allow the unravelling of crossholdings in a zero-rated capital gains tax
environment.
They heralded a move to a more Anglo
Saxon style of capitalism away from the
protectionism of fortress Europe. It would
force corporates to focus on the creation
of shareholder value through the sale of
minority interests in other companies.
When the tax changes were first
announced, the share prices of the banks
and corporates with assets to offload
soared and many thought this would be
the key to unlock the world’s thirdlargest economy.
Initially the assumption was that it
would provide rich pickings for the private
equity community. It still may. But first
there needs to be a systematic consolidation of the minority industrial holdings.
Banks like Dresdner are quietly offloading
their industrial portfolios, bolstering
2001’s miserable results. The private equity
teams can then move to dismantle the
corporates. It is, however, still some way off.
Wolfgang Lenoir, responsible for
Bridgepoint’s German operations, based in
Frankfurt says:
“I think the quiet start is due to a number of things, something to do with the tax
reform, something to do with September
11 and the Mittelstand’s reluctance to sell in
the new price environment.”
According to the German Venture
Capital Association (BVK), the German
VIEW
Germany
private equity industry invested €4.4bn
last year. However once new members of
the industry association were stripped out
the numbers fell back to pre-bubble
1999 levels.
Holger Frommann, managing director of
the BVK, says the like-for-like number is
closer to €3.1bn. The deals have fallen
back across all stages, though buyouts rose
as a proportion of the total.
Part of the problem continues to be the
rebasing of vendor expectations - explaining
to sellers that the gravy train of ever-rising
stock markets has left the station. A new
economic environment is here to stay and,
for private equity to make a return, so are
the new prices. Germany’s Mittelstand,
however, has shaken its head and retired to
the golf course.
As one consultant says: “Mittelstand
family firms are very hierarchical and
parochial. There are probably some
750,000 Mittelstand companies. A tenth,
or 75,000, of them are said to be facing
severe succession problems. The children
do not want anything to do with the parents’ business and the incumbent has an
ingrained distrust of outsiders and cannot
grasp why his business is worth less now
than twelve months ago. You cannot win.”
Some private equity firms have all but
turned their back on the 75,000-strong
opportunity among the Mittelstand firms.
The 6,000 or so corporate orphans that
people the business landscape are unloved
by their corporate parents. Others have
altogether turned their back on Germany
for the time being. Lenoir explains:
“People are being more realistic and the hype
about the anticipated market has calmed.”
According to Alfred Herda, partner at
law firm Clifford Chance Puender, you
would need a crystal ball to divine the true
causes behind the private equity market’s
lack of dramatic growth.
He even points to the tax reforms as a
possible inhibition. Vendors are not convinced that the regime will hold good once
the new government takes control after
elections later this year.
So far the real
winners,
the
busiest players in
Germany’s private
equity market for
several years - and
the start to 2002
has
been
no
exception - are the
headhunters and
recruitment specialists. The passing
enthusiasms of the
banks’
captive
funds - and the
competitive environment - have
ensured fluidity to
the country’s private equity job
market. For every
retrenchment
back to London, a
new office has
opened. It is a
mark of the market’s immaturity.
Deal flow may be slow but for the committed there is still a strong, if fiercely
contested pipeline. Lenoir says: “In the
middle market, depending how you define
it, there are 20 deals per annum, maybe as
many as 40.”
Despite the competition, Lenoir is
nevertheless optimistic about the potential
of rich pickings by the second half of the
year. Herda cautions that in Germany
hopes have too often been taken for
expectations. “The market is picking up,
but not as fast as was hoped. It could do
better, but that is always the case in
Germany,” he says.
Like a clever but recalcitrant schoolboy,
Germany has yet to fulfil its early promise.
Another term beckons. Must try harder.
Nick Lockley is Frankfurt correspondent for Financial News
THE POINT
15
Sector watch
FEATURE
16
THE POINT
C
Health are
Enormous, diverse and growing - the
European healthcare market with its
need for reform and cost containment
ensures plenty of new markets for
entrepreneurial private firms
Paul Durman examines the best
investment opportunities
“To describe the European healthcare industry is to sketch the
outline of a near-perfect investment opportunity.
It is an enormous, diverse and growing market. It is subject to
constant technological change that necessitates heavy new
investment. The bulk of the cost falls to government which must
give the highest priority to health spending as a condition of
political survival. And the need for structural reform and
for cost containment ensures plenty of new opportunities for
entrepreneurial private firms.
The demand for healthcare services is literally inexhaustible.
Sickness will always be with us. And the advance of medical
science is steadily extending the list of treatable conditions
and diseases.
The economic soil is so fertile that Justin Jewitt, chief executive
of Nestor Healthcare, the UK’s largest independent provider
of nurses and other medical personnel, can afford to
welcome competition.
“It’s such a big market,” he says. “We need more people in it to
develop it with good ideas, good innovations and good services to
make people feel comfortable (with private provision). Otherwise,
when people think independent healthcare, they think BUPA.”
In stock market terms, by far the largest private sector
businesses involved in healthcare provision are the pharmaceutical companies. A strong tradition in medical science, particularly
in Britain, Germany and Switzerland, has given rise to European
giants such as Aventis, AstraZenecea, GlaxoSmithKline,
Novartis and Roche.
However, from a private equity perspective, the scale and cost
of modern pharmaceutical development is too great to offer much
in the way of useful investment opportunities. It is estimated that
it can cost in excess of €600m to bring a successful drug to
market these days.
Backing a biotechnology start-up might be more manageable
financially but such investments are extremely high-risk and are
best left to specialists.
Rob Moores, head of healthcare investments at Bridgepoint
Capital, says: “If it is at an early stage, it does not fit our
investment criteria. What we are looking for is an established
business with a profit stream and cash flow.”
Fortunately, there is a multitude of opportunities outside drug
development. Expenditure on drugs accounts for only a small
proportion of healthcare budgets. The bulk of the money is spent
on caring for patients and providing the back up services that
allow doctors and nurses to perform their duties effectively. In the
UK, for example, two-thirds of the €108bn spent on healthcare in
2000 went on pay.
Nestor is a good example of a substantial public company that
has grown strongly through helping the NHS to meet its personnel requirements. The company, which owns the long-established
BNA nursing agency, recently reported a 39 per cent improvement
in operating profits to €41.2m on the back of a 37 per cent
increase in sales.
Testing times in the National Health Service: Laboratories are
Nestor’s growth is being supported by
last year’s acquisition of Healthcall, a
company it bought from Bridgepoint.
Healthcall, a public company until
Bridgepoint took it private in a €105m
deal in February 1998, provides out-ofhours cover for general practitioners.
Jewitt says Healthcall provides cover for
more than a quarter of Britain’s 38,000
GPs, dealing with more than 6 million
calls a year.
Another big market exists in supplying
medical equipment and devices.
Development timetables are much
shorter than in the pharmaceutical
industry, helping to make this sector more
suitable for private equity investment.
Again, Bridgepoint’s portfolio provides
an example in the form of Alliance
Medical, a company that supplies hospitals
FEATURE
Synergy Healthcare
with imaging equipment and the staff to
operate it.
A good example of a company that
combines both medical equipment and
medical services is Fresenius Medical Care,
a German quoted business that is the
world leader in kidney care. The company
makes dialysis machines and related products and, through its international network
of 1,375 clinics, provides treatment to more
than 100,000 patients with chronic kidney
failure. As an acquisitive company, Fresenius
could also provide a potential exit for
private equity investments in its sector.
Richard Steeves could be forgiven for
walking with a spring in his step. After
years of struggling under the weight of too
much debt, Synergy Healthcare - a business
he has run for the past ten years - is finally
starting to move more freely.
After raising over €12m from a flotation
on the Alternative Investment Market last
year, Steeves has the resources to expand
Synergy more rapidly. The company is a
classic outsourcing play, taking care of
hospitals’ laundry and sterilising surgical
instruments.
Since flotation, Synergy has picked up
over €30m of contracts. It has recruited a
sales and marketing team and, most importantly of all, it has pulled off its biggest
acquisition, buying Hays Clinical Services
this spring for over €19m.
The business, part of the Hays Business
Services group, is Synergy’s largest competitor in the field of sterile services,
managing the supply of instruments for
seven NHS trusts. The deal means that 60
per cent of Synergy’s business now comes
from its more profitable sterile services
operation. Pre-deal the mix was 70:30 in
favour of laundry.
Synergy's story is a
classic example of
entrepreneurship in the
healthcare market
a prime example of the need for consolidation
In future, healthcare companies are likely
to become increasingly specialised, focusing
on a single area of disease. An emphasis on
diagnostic related groups, as they are
called, is now driving the development of
the German healthcare system. This provides opportunities for companies such as
Rhoen-Klinikum, the German hospitals
group that is spearheading an increased
reliance on the private sector.
Paul
Saper,
director
at
LCS
International, a firm of healthcare
consultants, says there are also openings
for venture capital in less wealthy
European countries, such as Poland.
“Companies are trying to look after
their staff, to help them attract the right
calibre of people. The quality of care is so
bad (in Poland) that there’s a market for
private sector providers.”
Synergy - which is not a Bridgepoint
investment - is a microcosm of the
history of outsourcing in the NHS and a
classic example of entrepreneurship in the
healthcare market. Its origins lie in a firm
called Sterile Theatre Services, which in
the late 1980s tried to build a business
supplying operating theatres with surgical
gowns and drapes. The Aids scare had
heightened concerns about the risks of
cross-infection during surgery.
Steeves says: “It was a good idea but the
NHS was not ready for it.” The company
struggled and collapsed into receivership
in 1991.
The business was rescued by Andrew
Fitton, who had been running Braithwaite,
a pump hire business that has since become
Andrews Sykes. Steeves started out as a
consultant with LEK Consulting, worked
with Fitton as Braithwaite’s corporate
development manager and was made chief
executive of Synergy in 1992 when he was
still only 30.
Initially, Steeves concentrated on promoting the use of “barrier” gowns and
drapes - those made of a breathable but
liquid-proof fabric that offers significant
advantages over the traditional cotton. But
he soon realised this was only part of
a bigger opportunity.
He says: “In 1994 and 1995, we took
a decision to concentrate on providing a
growing number of services
to the NHS.The
Government
was encouraging hospitals to
outsource
non-clinical
activities.
That expanded
the number of
markets within
the NHS that
we could operate in.”
The key moves
came in 1996
when Synergy
bought the area laundry from the Derby
Health Authority. At the same time, South
Derbyshire Acute Hospitals NHS Trust had
decided to seek a private company to take
over the running of the sterile services unit
at the Derby Royal Infirmar y and
appointed Synergy.
The business installed a new but significantly smaller clean room and today supplies
the trust’s 15 operating theatres with about
30,000 instruments a year. It has also
introduced bar-code tracking software to
allow it to trace the usage of an individual
instrument and improve service quality.
The linen services side of the business
was expanded and renamed after the acquisition of Healthtex in 1999 and the firm is
also moving into disposing of clinical waste
after buying another small business from
the receivers at the end of 2000.
Steeves says: “We go to 130 hospitals
every day now. We have the ability to offer
other services to that network.”
He says the common theme is that
Synergy’s activities are aimed at minimising
the risk of hospital-acquired infection. A
House of Commons report two years ago
found that nine per cent of patients pick up
an infection while in hospital. Steeves says
15-20 per cent of these - or up to 20,000 a
year - could be avoided simply by adhering
to existing best practice.
He adds that the study found as many as
a third of NHS sterile units failed to meet
acceptable standards. This has prompted
the Government to commit £200m to
tackle the problem.
The company is rapidly emerging as a
leader in a market that is still immature.
Synergy and other private sector companies
manage only three per cent of the 320
sterile services departments within the
NHS. The outsourcing of laundry is more
advanced but there are still about 40
NHS laundries.
This is a niche market but one that
offers good opportunities to a specialist
such as Synergy. “We are completely and
utterly focused on the health service,”
says Steeves.
THE POINT
17
FEATURE
C
Health are
At the same time helping health services
meet their staffing requirements looks
likely to remain a strong business for years
to come. More doctors, nurses and other
carers will be needed to keep with an
ageing and ailing population.
Richard Jarvis, an analyst with Nomura
International, says: “The baby boomers are
hitting 60 and getting all the problems of
elderly patients, such as prostate cancer.
The growing prosperity of Europe as a
whole is driving the expectations of
individuals as patients. People are not
prepared to put up with their symptoms or
long stays in hospital.”
Wealthier, better-educated and betterinformed patients will not be prepared to
wait around for treatment. Increasingly,
patients will want to be treated in the
home or at their local surgery or clinic.
Governments will seek to encourage this
trend to avoid the “hotel costs” of keeping
patients in hospital.
These changing demands will test all
Europe’s health systems, not least in
attracting staff. In the UK this plays into
the hands of the likes of Nestor and BNA,
adept at filling gaps in the NHS staffing
roster from the ranks of nurses on its
books who are only able to work a few
extra hours each week.
Bridgepoint is also involved in this
sector through its investment in Match
Group, the agency nursing business that
used to form the core of Sinclair
Montrose, the listed healthcare company
taken private in 1999.
Match is close to becoming a €320m a
year business, and is the clear number two
in the market behind BNA. Moores says
he hopes Match will be ready to return to
the stock market by the end of next year.
The NHS is trying to curtail its spending
on agency nurses by establishing its own
internal flexible staffing service. However,
Jewitt believes NHS Professionals will
inevitably be hampered by the salary,
overtime and pension costs of full-time
employees.
“They’re beginning to understand some
of the logistical issues they’ve got,” he says.
“They’re gaining a greater appreciation of
the need for outsourcing rather than the
need to maintain it themselves.”
The growth of outsourcing of non-clinical
operations should provide a rich opportunity for private equity investors. Synergy
Healthcare is taking advantage of the
steady realisation by hospitals that they no
longer need to run their own laundry services.
(See panel p17). It is also taking over the
18
THE POINT
running of the sterile services units that
clean and supply the instruments and
linen used in operating theatres. And
Bridgepoint’s own portfolio provides an
example in the form of Alliance Medical,
a company that supplies hospitals with
imaging equipment and the staff to
operate it.
Moores believes pathology laboratories,
which analyse blood and urine samples, are
another area crying out for consolidation.
He says: “Every big hospital has its own
path lab which is sub-optimal in terms
of value for money. I suspect standards
vary enormously between good labs and
bad labs.
“There’s no reason on earth why that
could not be outsourced. The economies
of scale must be enormous.”
Saper says that the Europe-wide rise in
market is forecast to be worth nearly €5bn
by 2005.
Keyhole surgery is another potentially
promising area. Less traumatic surgery
dramatically reduces the amount of time
patients need to spend in hospital, which
has the welcome benefit of significantly
cutting the cost of an operation. There
could be opportunities here for private
equity firms, such as in backing firms
developing the tools needed to carry out
minimally invasive surgery.
Saper says another big opportunity lies
in introducing information technology to
the provision of healthcare. For instance
in the UK, only 1.5 per cent of health
spending is on IT, compared to 6 per cent
in the US.
Moreover, health spending on IT massively
trails IT spending in other government
Cash injection: Analysts are identifying opportunities to back firms developing next generation tools
healthcare spending is being driven by the
rising cost of drugs and by advances in
medical devices. One example of the latter
is the growth in the use of stents, the
miniature metal scaffolds that are used
to support and hold open damaged
blood vessels.
The introduction of stents, which are
inserted with the aid of a catheter, has
greatly reduced the need for open-heart
surgery. The next advance will be the
arrival of so-called drug delivery stents,
which are coated with a drug to counter
restenosis, the narrowing of the artery that
sometimes occurs in response to the presence
of the stent. The drug delivery stent
departments and in other areas of the
economy.
Working with a health service as a
customer is not without its challenges and
frustrations. Purchasing decisions are
often slow to arrive, subject to political
influence and driven by criteria that are not
always obvious to private sector managers.
Healthcare firms need to stay nimble to
ensure they are not inadvertently trampled
underfoot because of sudden changes of
policy by the healthcare elephants. As
ever, good management remains the key to
a successful investment.
Paul Durman is a business reporter for the Sunday Times
MAKING THE MOST
THE POINT guide
Smart Money
High net-worth?
Richard Rivlin looks at how best to
handle your money
€
SM
When Jim Clark, the Silicon Valley billionaire and Netscape founder
realised he was employing a full-time staff of advisors just to manage his
money, he knew there had to be a better way to do things.
True to his entrepreneurial routes, Clark set up myCFO, an on-line
wealth advisory business whose board and customers include some of the
biggest and wealthiest names in business, John Doerr of Kleiner Perkins,
John Chambers of Cisco and Jim Barksdale former chief executive at
Netscape all bank at myCFO and sit on its board.
Sadly for Europe’s growing community of high net-worth individuals,
myCFO has yet to expand outside the US. But Clark’s original frustration
at managing his finances is certainly not a US phenomenon. Unless you do
it right, managing the money you have made can become a costly and
time-consuming business. So how do you avoid it?
Historically in Europe, individuals used private banks, stockbrokers and
investment advisers. Today a new breed of wealth managers inside a range
of financial institutions - high street banks like Abbey National, global
banks like UBS, specialist private banks like C Hoare & Co - offer all of
these services.
Coutts, (perhaps the most famous name in private banking), segments
its clients into nine different groups. Tim Pethybridge, who runs the
division representing senior executives, believes the onus is on delivering
products and services that work for people receiving ever more complex
remuneration packages including bonuses, share option schemes and carry
arrangements for private equity executives.
The Coutts’ offer is effectively a personal bank manager with whom
customers can have as deep or shallow a relationship as they wish. As well
as traditional retail banking services, its products include access to private
equity and hedge fund products.
Says Pethybridge: “We are the UK’s largest hedge fund provider with
more than £3bn of our clients’ assets in hedge funds.” He also recommends
that up to 20 per cent of a client’s assets should be in alternative assets.
Doing it
20
THE POINT
Further details are available from the following websites:
www.barclaysprivatebanking.co.uk
www.coutts.com
www.dresdnerprivatebanking.co.uk
www.hoaresbank.co.uk
www.investecprivatebank.co.uk
www.mycfo.com
Thoughts from the top
“I ask everyone to wake up
terrified every morning, their
sheets drenched in sweat.
Because we should be afraid of
our competitors, we should be
afraid of our customers. I wake
up every morning thinking
about how we can keep
improving the customer
experience and that’s fun.”
Jeff Bezoz,
founder Amazon
“There are those who are interested in investing and others who want
to hold on to what they have. We try and understand their personal
wishes and then make judgements together on what are the best products
for them,” he explains.
Alexander Hoare, chief executive of C Hoare & Co, one of Europe’s
oldest private banks, predicts that over the coming years the demand for
more and more specialist information on individual products is likely to
drive the banks into building closer relationships with a smaller number of
product providers like hedge fund or tax planning specialists.
Hoare says: “Our ten thousand clients
want us to remain small and not be offer“Our clients want us to ing just our own brand products. We align
remain small and not be ourselves with the clients and external
expertise to get the best products for them.”
offering just our own
This proprietary approach contrasts
brand products.
with Coutts’ service and is based upon
We align ourselves with
a belief that the best products
them, and with external c h a n g e constantly and are produced by
expertise to get the best
specialist providers.
But if all that sounds too much like hard
products.”
work, you might prefer to consider a ‘oneAlexander Hoare,
size-fits-all’ approach of the wealth
chief executive
management divisions of the global banks
C Hoare & Co
offering their own brand products. UBS
Warburg, Dresdner Private Bank and
Investec each gives details on its website of
discretionary services and investment funds.
As one offshore tax exile explains: “The best do not have one single
advisor. They pick and choose from different fields. I might use one bank
for my accounts and another for their alternative assets but I doubt if any
significant private investors would rely on just one relationship.”
“Life is about understanding
yourself and making a
few good friends and maybe,
if you’re lucky, grabbing
that Arcamedian lever
and changing the world
just a bit.”
Larry Ellison,
founder Oracle Corporation
“Never forgetting it’s all
about our customers.
Our approach has to be
innovative and personal.
Customer service has to
be our competitive
advantage. We have to talk
plainly and personally to
our customers - no
excuses or arguments.”
“Go to a beach and sit there for
three whole weeks? Only the
most secure can do that. I last
half an hour. I wanna go hit a
golf ball and see what my score
is, I wanna go play a hockey
game and try score a goal. I’m
insecure, I’m insecure. I’ve
gotta prove to me I just did
okay, that I haven’t lost it.”
“Many people dream of
success. To me success can
only be achieved through
repeated failure and
introspection. In fact,
success represents
one per cent of your
work which results
from the 99 per cent
that is called failure.”
Marjorie Scardino,
chief executive Pearson
Scott McNealy,
co-founder Sun Microsystems
Soichiro Honda,
founder Honda Corporation
MAKING THE MOST
to smarter living
Top Table
Madrid
Health & fitness
HF
Luke Johnson gets a taste of Barcelona - in Madrid
High achiever’s diet
La Fonda, Lascarga 11, Salamanca, 28001 Madrid, Spain
by Amanda Hall
Why recommend a Catalan
restaurant in the middle of a
Castilian city?
Because the cuisine of Barcelona
is very good, and they do it well
at La Fonda. The restaurant is
located in the newer part of
Spain’s capital city, to the
north-east of the centre, in a
barrio called Salamanca. It’s an
elegant district organised into a
grid system of streets, and full of
smart designer shops plus the odd
posh place to eat or drink.
La Fonda has an understated
entrance and a cosy feel, with the
wood-fired oven and grill of the kitchen in full view as you enter. Our
hotel had cocked-up the booking, but the greeter sorted out the upset
without a murmur.
Service throughout our meal was excellent. Staff speak English but
will try their best with your Spanish if you prefer. Most of the customers
seemed to be locals, with a smattering of tourists. The atmosphere is
friendly but not too boisterous or noisy, since the restaurant is divided
into sections of a few tables each.
Our dishes were almost all first-class. I ate escalivada, a classic starter
of roasted peppers, onions and aubergines; my companion had a
delicious warm spinach salad with pine nuts, ham and raisins. For main
courses we had salt-grilled veal and roasted cod with white beans. Both
were cooked to perfection and beautifully served. We drank an
excellent house Rioja and several bottles of the very salty Catalan
Vichy mineral water.
The only disappointment was the crema Catalana for pudding. It was
too runny; the fruit salad was, however, delicious. The bill for the entire
affair came to around €75 (about £25 each). By London standards it was
tremendous value for a classy meal - by Madrid standards I suspect it was
expensive but not outrageous.
The toilets were remarkable for their complimentary combs and
toothbrushes. Clearly, La Fonda’s customers like to be well groomed.
La Fonda operates such a short trading session that I rather wondered
if it makes money: it serves dinner from 9:30pm to midnight, with the
usual mad lunch session from 1.30 to 4pm. Of course Madrileños eat late,
so the place is quiet until an hour before closing in the evening. I suggest
you book since they only have one sitting.
When in Salamanca, be sure to visit a disused theatre nearby, called
Teatriz, at 15, Calle de Hermosilla. The renovation into a restaurant, bar
and discotheque was supervised by designer Phillipe Stark some years
ago, and the result is stunning. There is a handsome bar in the old foyer,
or a fine marble bar on the stage itself. There are even private dining
rooms in the stalls. It caters to an upmarket crowd of good-looking
thirty-somethings. I suggest you dine at La Fonda and stroll up the road
to Teatriz for a nightcap - but don’t bother going before midnight.
Heard of FBS? It is a syndrome prevalent amongst high achieving
business types. What is FBS all about? In a word, fat. In three,
Fat B**t**d Syndrome.
And Dr Adam Carey has encountered more FBS than most. Carey runs
the Centre for Nutritional medicine, a private business in London’s
Harley Street that specialises in helping high achievers eat
for performance.
“If you plot a businessman’s age against his weight on a chart,
on average you’ll see he will put on about a stone every ten years,” says
Carey who also works with England’s rugby union squad and
stars like Angelina Jolie.
“With that weight gain, they notice impaired performance, they
struggle to get through meetings and late nights, everything is harder
than it used to be. Few will admit it but they also suffer sexually. Most
guys have put their lives into business, sacrificing family, lifestyle and
diet - they are making buckets of money but end up miserable.”
The principle underlying Carey’s advice is that of body composition
and its impact on physical and mental
performance.
“Most guys
“We focus on bringing people into
have put their
a normal body fat range which is
between 15 and 20 per cent of body
lives into
mass. But because most see themselves as above average, once they get
business,
there, they’ll often set themselves
sacrificing
higher goals and aim to get body fat
down to an athletic 10 to 15 per cent,”
family, lifestyle
he says.
How does Carey and his team bring
and diet”
about what can be a staggering transformation? British serial entrepreneur
David Steene reduced his weight by almost eight stone in a year.
“You need a plan,” says Carey. “First we educate people about what is
driving their body composition and reduced performance. Classically
they will be doing no exercise and will have an appaling diet.” By which
he means, coffee and a croissant for breakfast, tea and biscuits in meetings,
sandwich lunch on-the-run, early-evening drinks then a late dinner.
“We get people to exclude refined carbohydrates, to eat five times a
day focusing on complex carbohydrates - porridge, wholemeal bread and on protein. And we recommend drinking three litres of water a day.”
Carey’s people will work with secretaries, families, and personal
trainers to complement an existing support structure. That way, you’ll
get an apple and almonds as a mid morning snack instead of
chocolate biscuits.
A basic consultation at the Centre costs €230 with additional charges
for screenings and other medical tests. Some clients make do with a single
consultation while others prefer regular visits.
Chris Evans, the biotech entrepreneur who sought advice to improve
his stamina and energy levels, says: “I reduced my body fat considerably
and replaced it with muscle. I can run 5-8km a day easily, can do 100
hours work in a week and still go to the rugby and polish off 20 pints! I
might have a sore head but I get back in the swing by Monday morning.”
And the success rate? Carey explains: “For those who are prepared to
change, we’ve not had a single failure.”
Luke Johnson is Chairman of Signature Restaurants
www.nutritionalmedicine.co.uk
THE POINT
21
OPINION
New rate of CGT likely
to encourage more
serial entrepreneurship
The bottom line
and give greater incentive
22
THE POINT
to provide risk capital to
early stage companies
explains Richard Rivlin
Deal-flow is the lifeblood of the private equity
business, yet the European markets in general, and the
UK in particular remain quiet.
At the recent Super Returns conference in Germany,
Jonathan Feuer of CVC Capital Partners pointed out
that fewer deals were completed in 2001 than in any
year since 1993. This is not just a sudden shift in
a c t i v ity, but part of a sustained downturn that
began in 1998.
The deal slowdown triggered fervent lobbying of the
Blair Government in the UK to provide more backing
for businessman and entrepreneurs. In a bid to win
their support, a series of new tax measures that might,
just might, lead to a boost in deals later this year came
into effect in April.
The most significant change is a new rate of capital
gains tax applied when businesses are sold. Now a maximum capital gains tax rate of ten per cent - as opposed
to a potential 40 per cent - will apply for business
assets sold after just two years.
The change is expected to encourage more serial
entrepreneurship, promote wider share ownership
among employees and give business angels greater incentive
to provide risk capital to early stage companies.
In pure financial terms a higher rate CGT payer will
now pay tax on sale proceeds at 20 per cent after one
year and 10 per cent after two. Historically an entrepreneur had to build up a business for four years before
being able to sell at the most tax efficient levels. The
move to bring the period down to two years gives the
UK one of the lowest and speediest exit rates in the
developed world.
Adrian Willetts of Bridgepoint’s Birmingham office
says: “Any entrepreneur thinking of selling their
business will be focused on after-tax proceeds. This
change in legislation is a very important development
in any decision to sell a private business.”
This view is echoed by Linda Marston-Weston, a
transaction tax partner in Ernst & Young’s Midlands
region. She says: “I am working for an individual
who is selling his business for £50m and recognises
that the CGT is at a very low level. That helps make
the deal happen.”
However the new tax rates have conditions attached.
If a company has a large amount of cash on its balance
sheet - in the example cited by Marston-Weston, the
business has £5m of cash - it can mean the shares will
not be treated as a business asset. “Ten per cent sounds
great,” says Marston-Weston. “But there is a myriad of
conditions that need to be satisfied and people can find
they fall foul of these unintentionally.”
Tax rates are just one factor influencing an
entrepreneur’s decision to sell. Martin Jenkins, a
partner at Andersen Corporate Finance in Leeds, says:
“There is always more than tax planning in a decision
to sell a business. Post April, there will be some
element of recovery in deals as a result of the changes.
But value and price still remain the major determinants
in the decision making process.”
Any government inspired move that helps business
should be applauded. However there are wider
m a c r o issues at play that are likely to ignite the
pace of deal flow.
According to Jenkins, the gap between what a seller
thinks his business is worth and what a buyer is
prepared to pay is narrowing. The technology-inspired
boom of the last few years left some sellers with an
over-inflated view of their company’s value. Whereas
six months ago disagreeing purchasers and vendors
often argued their deals out of the room, today the
emphasis is on more and more talking until the deal
gets done.
It is in this environment, where both sides do want
to do a deal, that the changes to the tax system will
come in useful as a new chip that advisers can throw
onto the table to get deals done.
The tax initiative that emanated from Number 11
rather than Number 10 Downing Street, sets a very low
tax base for sellers. Tax levels are unlikely to go down
any further and Marston-Weston believes it will prove
a watershed.
But the scalpel still needs to be taken wider to the
whole of the UK taxation system, for both individual
and commercial payers. While these latest
changes can be seen as tax law playing catch-up with
the entrepreneurial environment of the dotcom boom,
they are not enough.
The onus is now on government to produce more
transparent moves that are easily understandable and
reduce the red-tape burden for businesses.
Richard Rivlin is a director of Bladonmore Publishing
“
News
From Stockholm to Madrid:
Bridgepoint funds, acquisitions,
exits, people. Page 4
Rat Catcher
How buy and build turned French group
Eurogestion into Italy’s number one pest
business. Page 9
Face to Face
THE POINT
IN SIXTY
SECONDS
Interview with Bret Holden on cleaning up
at the car wash. Page 12
Market View
Report from Germany on the state of the
private equity business. Page 15
European Healthcare
Investment opportunities under the
microscope. Page 16
Making the Most
The Point guide to smarter living.
Luke Johnson in Madrid.
And making fat boys slim. Page 20
Bottom Line
How UK tax changes are boosting
entrepreneurial Britain. Page 22
”
THE POINT
Bridgepoint Capital 101 Finsbury Pavement, London EC2 1EJ
Tel: 0044 (0) 20 7374 3500
www.bridgepoint-capital.com
Bridgepoint Capital is regulated by the FSA