Neil Ackroyd

Welcome to Corporate Finance Television. My name is Neil Ackroyd. Today we are giving you theknowledge to choose by speaking to Guy Davies of Westbridge Capital about Westbridge Capital,their funds, how they operate and how businesses can make themselves more attractive to funding by Westbridge. Welcome Guy.

Guy Davies

Thank you very much.

Neil Ackroyd

Guy, do you want to give me a little bit of background on yourself, on Westbridge and what you guys are about and how you are different.

Guy Davies

The Westbridge team are a group of four partners who have been working in the private equity industry for an average of 20 years each. We really focus on investing in businesses that have been making a profit of £1m-£1.5m and turning them into businesses which are making £3-4m. We have just raised a new fund, our fund is about £30m with an additional co investment from our industrious network and I can take to you a bit more about that later. The kind of businesses that we invest in are established, profitable businesses that are operating in specialist niches but really need more than money both in terms of experience and a little bit of support with introductions to potential customers as a way to help them scale those businesses.

Neil Ackroyd

So what types of businesses, what types of sectors are you really interested in.

Guy Davies

Well I suppose a good example would be the one of the transactions that we completed about
8wks ago now which is a manufacturer of components used in the aerospace sector. It was avery interesting business it provided components that go onto both the Dreamliner and the A3-18 including a number of other civil aircraft. That industry has got very predictable and visible order books. Components are only supplied by one manufacturer and therefore you have got a very predictable order stream in that business. The management team there had been working for an owner who was no longer involved and they had done a very good job of developing that business and building its revenues and profits but also it has embedded growth. Therefore it was a very easy business for us to back because of the quality of the team and the quality of the niche that the business was operating in and the fact that it was a leader in that niche.

Neil Ackroyd

You have spoken to me about a phenonemum that I know that you are interested in which is owner managers who want to exit pre-credit crunch and who profitably spent that time maybe building a second tier management. Do you want to talk a little bit about that?

Guy Davies

I guess about a third of the opportunities that we are seeing at the moment that we would Interested in learning more about are exactly that. They are people who have, probably with hindsight should have sold their business in the back end of 08 who have bought in a second tier team, the business is performing very well in their niches, they are 5 or 6yrs old than they were before and they are keen to find an exit recognising that the economy probably won’t recover in any meaningful way for a number of years. They are of a size where other private equity houses might not be interested in them because they are worth £6-7m but they are just our bread and butter in terms of develop them, support the management teams, bring more than money to the businesses. When you are investing in businesses that are worth £5-8m, things are much more intensive, you need to develop the management team, you need to work with them and support their growth and you can’t really do that unless you have got experience and grey hairs to help grow that business so those management teams are effectively de-risking their growth path to a £20m business because they have got some more hands on support and ambitious teams that really want to grow to a £20m but also recognise their weaknesses and where they need help are the teams that we are very keen to back because we bring more than money, we bring that experience and that skill to help them on that growth path.

Neil Ackroyd

So if somebody is watching this and they have got a business and they are thinking about selling it, maybe not now but in the future, what can they do to make that business more attractive to someone like you Guy?

Guy Davies

They need to make sure that they are investing in the second tiered team who are going to take the business forward. One can’t expect somebody like us to buy a business from them and all the intellectual capital and the skills that have been delivering the performance walk out the door as soon as we’ve completed. I think that they should look at their niche and make sure that they don’t take their foot of the gas. It is very easy as you are coming up to retirement to think that you’ll take things a little bit more easily, I won’t continue to grow the business as aggressively. What we don’t really want (0545) invest a business, it might have been at the leading part of its niche but has fallen back over the last couple of years as the owners have become less ambitious.

Neil Ackroyd

And that is tempting isn’t it? From an owner managers perspective there are all sorts of criteria that people run their business on and it is quite a common point that when an owner manager gets to a point where the business makes enough money that he is comfortable there is a certain tendency to switch off and what you are saying is that you should be pushing that and pushing as if you are going to grow much further and it will phenomenally help your exit. Am I understanding that right?

Guy Davies

I think that’s right. I think that a good business will always attract a buyer but it is about the pricing of that exit and it is about making sure that we are not investing in an under-invested business because that’s always going to hamper the rate of growth of business and as you know all private equity firms looks to hold business for between 3-5yrs and we are no different in that. Therefore what you don’t want to be doing is spending a year cashing up the investment that is not being done
in a process leading up to sale.

Neil Ackroyd

Guy, thank you for taking the time to speak to us and I look forward to speaking to you again really soon.

Guy Davies

Thank you very much.