Scotland
Land of the free thinkers
Penicillin, the telephone, the television, MRI scanners, cash machines… The long list of major innovations born in Scotland sets the country apart on the global stage. And Scotland’s heavy hitters haven’t gone unnoticed by private equity investors, as our data shows, with the country having attracted local players right the way through to global behemoths including KKR and Oaktree.
As expected, some of the fastest-growing PE-backed companies here operate in the energy sector, thanks to the country’s prominence in the oil and gas market and now increasingly in renewable energy. However, the majority of the fastest-growing PE-backed companies operate within the business and financial services sector.
This includes Murgitroyd, a global provider of IP services, offering patent and trademark legal advice. The company was taken private by Sovereign Capital Partners in 2019 for £65m.
Murgitroyd CEO Gordon Stark says the company’s accelerated growth journey began back in 2001 when it listed on AIM.
The public listing was aimed at bringing investment into the business to realise its growth plans, while also reflecting Murgitroyd’s underlying entrepreneurial philosophy, which created a culture of doing things differently. “We were the first intellectual property company to list on public markets and one of the first in the legal space,” Stark recalls.
Following the flotation, Murgitroyd built out its European office network, again the first business in its field to do so. “Until then, IP at its core was focused on helping clients to attain patents and trademarks – a niche area of legal services on a country by country basis. By joining our advisor capability up across Europe we could better support our clients,” explains Stark. The company also expanded into the US and Japan, key markets for innovation, in order to be closer to clients and support them with their IP rights in Europe.
By 2019, as well as major international expansion, Murgitroyd had also acquired seven businesses, including the purchase of Chapman IP in the UK. “We could see further add-on opportunities but, as an AIM-listed company, we were delivering on a certain type of investor proposition, so we knew we needed to change our investor profile and bring in additional capital,” says Stark.
Here’s where Sovereign came into the picture. With plans for further market consolidation, the PE firm’s focus on buy-and-build was a key attraction for Murgitroyd. “Their expertise aligned to our strategic aspirations,” explains Stark. “The IP market is very fragmented and we expect the consolidation we’ve seen in the accounting and legal markets to happen in our space. We wanted to be at the forefront of that.”
Chemistry and a deep appreciation for Murgitroyd’s culture sealed the deal for Sovereign. “We had been assessing who would be the right partner for us and with Sovereign it came down to our chemistry. They understood that we’re a people business at our core. They also showed enthusiasm for the IP sector, which is fairly niche and underpenetrated by private equity. That was important to us because it was unlikely we would have found a PE house with a track record in this space,” says Stark.
Following the delisting in December 2019, value creation plans were almost immediately turned upside down with the global pandemic hitting in March 2020. “We quickly moved to virtual operations but we were fortunate to be able to continue working. The pandemic spawned lots of innovation but it also slowed up our M&A plans as we couldn’t meet with other businesses,” explains Stark.
Despite the rocky start, Murgitroyd has since acquired four businesses, increasing the company’s presence in Europe and China, two of which took place just as the UK was coming out of lockdown.
According to Stark, Sovereign has also supported the company in strengthening and building out its management team, bringing in new senior roles including a chief technology officer, chief people officer, chief revenue officer and a chief transformation officer.
We’re seeing signs of consolidation activity and businesses in our sector are now more open to investment
Murgitroyd is now halfway through its transformation plan and will continue to focus on revenue generation and technology enablement goals in building out a broader platform to deliver further scale. The company also plans to continue its acquisitive growth strategy. “We’re seeing signs of consolidation activity and businesses in our sector are now increasingly more open to investment. We’re making sure we position ourselves as lead consolidators,” says Stark.
For Stark, Murgitroyd’s Scottish roots underpin the DNA of the company, adding to a rich heritage of real innovation. “Scotland’s preeminence for innovation is driven by its network of 15 universities, which serve as hubs of innovation. A lot of our historical growth was thanks to our alignment with startups and spinouts coming from those universities.”
That bedrock of academic innovation has fostered an active early-stage investment community. “That ecosystem is strong and well connected,” says Stark. “If you need to speak to someone, you can normally get to them with just a couple of calls, which really drives a lot of early-stage innovation.
And it is because of this close-knit community that anyone investing in Scotland must develop and maintain strong relationships in order to succeed. A fantastic example of this is private equity house Aliter Capital. Founded in 2016 by four partners, three of which reside in Scotland, the firm focuses on support services and business services companies in the UK.
“We’ve all worked and lived all over the UK, but with three of us living in Scotland we have a strong network there and naturally our first deal was a Scottish business,” explains Aliter founding partner Greig Brown.
Featured as one of the fastest-growing PE-backed companies in Scotland, Aliter’s first investment was Glasgow-headquartered technical services business Edwin James. While Aliter’s strong ties to Scotland certainly helped in securing the investment, it was the firm’s sector expertise that drove it home. Says Andrew Busby, another of Aliter’s founding partners: “Our strategy is niche; we focus on a particular sector, buy-and-build and value creation. Part of that is finding interesting opportunities ourselves rather than relying on investment managers, so using our network is vital to start a dialogue.”
“And that dialogue is really valuable,” adds Brown. “As we’ve run these sorts of businesses before, we really know what it’s like to operate them – all of the challenges involved – so we resonate with owners early on.”
With three of us living in Scotland we have a strong network there and naturally our first deal was a Scottish business
Brown echoes Stark’s sentiment regarding the talent in Scotland: “The industrial heartlands of the Midlands, the Northwest and Scotland share a fantastic history and with that, expert skillsets have been built over decades. We’re all about investing in people and we have a strong track record of developing apprenticeship schemes in the companies we back.”
Aliter’s investment in Edwin James evidences this philosophy neatly. “We set up graduate schemes to build a strong talent pipeline, which is so important for the future growth of the company,” explains Brown. Aliter invested in Edwin James prior to raising its first fund; the deal was funded through personal sources of capital. The company was then flipped into Aliter’s debut vehicle.
“This immediately allowed us to provide more investment into the business. At the time, it was heavily focused on Scotland so part of the growth plan has been to nationalise across the UK, strengthen its service offering and move into more mission-critical areas within manufacturing,” says Brown.
“We have seen some private equity firms open regional offices. That’s a reflection of the need to be close to the local network. Having that presence is important to build trust and relationships with business owners who want to work with advisers and investors who know and understand their local market.”
Sarah Ziegler, Head of Private Equity Coverage, BDO
In February 2019, Aliter supported Edwin James’ acquisition of Midlands-based Parker, a family-owned, 102-year-old business. “As the family owners were looking for the right owners, that played well into our heritage. The add-on also provided national expansion, doubled the size of the business and brought it into new verticals,” explains Brown. Since then, Aliter has supported further bolt-ons as well as contract takeovers. The PE house has also strengthened Edwin James’ management team and built out more infrastructure to support further growth.
“We are looking to do more add-ons over the next few years. The management team is doing a great job with organic growth, and as more people get to know the business, they are realising how much more it does now; that value proposition has been enhanced. You can really feel the momentum now,” adds Brown.
Both Murgitroyd and Edwin James are wonderful examples of Scottish-bred companies that have grown both nationally and internationally. They are both highly cognisant of the talent needed to scale their businesses, and their Scottish bases have been crucial in supporting this. Both companies also highlight the importance of operating in active and nurturing ecosystems that are predicated on strong relationships.
But most importantly, they are both impressive additions to Scotland’s rich heritage of innovative, people-centric businesses, and it is thanks to their private equity backers’ understanding of these dynamics that their growth has been so stellar.
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