Southeast
Entrepreneurial home
The Southeast has a lot to offer when it comes to private equity deal-doing and value creation. A recent report published by YFM Equity Partners, which conducted an in-depth study of the 1.1 million entrepreneurial SMEs in the UK, found that the Southeast of England is home to 17% of all UK entrepreneurs, generating £149bn in annual revenue.
The top-performing companies in the Southeast are comprised of companies with their headquarters in the three sub-regions of Central South, Gatwick & Guildford, and Thames Valley.
On top of a wealth of young, hungry and innovative businesses, for YFM’s investment director Roshan Puri, the region’s well developed advisory community makes it the perfect place for investing. “The longstanding advisers here have cultivated long-term relationships with the business community. That history means they really understand their needs and everything is much more relationship-driven.”
The Southeast of England is home to 17% of all UK entrepreneurs, generating £149bn in annual revenue
One of YFM’s former investments in the region, and one of our fastest-growing companies in the Southeast, is Ferrabyrne, a provider of rubber-to-metal bonding components for the rail industry. YFM backed the Littlehampton-based designer and manufacturer of suspension components for passenger and freight rail vehicles and heavy-duty trucks back in 2016.
According to James Savage, a partner in YFM’s portfolio team, Ferrabyrne is a unique business, combining centuries-old processes and knowhow with modern technology. “The company designs the rubber composites in partnership with its clients – which included Alstom, Hitachi, Siemens, Skoda, the MTRC in Hong Kong and the London Underground – using computer-aided design. It oversees the whole process from design through manufacture to delivery and what attracted us to Ferrabyrne was that it was one of very few businesses doing what it does in the UK.”
The timing of the deal was interesting as it took place around the Brexit vote. Says Savage: “We felt that one of the positive market drivers was from European manufacturers wanting to access the UK rail market.”
Following the investment, YFM supported the strengthening of Ferrabyrne’s management team. “We supplemented it with an industry chair, a business development director and a new FD,” recalls Savage. “This gave the team the bandwidth and experience to weather the pandemic and bounce back strongly afterwards.”
The private equity house also supported the development of Ferrabyrne’s technologically-driven design capabilities. “We encouraged investment in these systems as well as in people. Increasing the size of the team and its expertise allowed Ferrabyrne to win more customers over the following years, which was a key factor when exiting the business,” explains Savage.
In June 2022, Ferrabyrne was acquired by Dellner Polymer Solutions, part of Sweden’s Dellner Group.
Given the Southeast’s attractiveness for investing, YFM’s Puri is positive about the next 12-18 months. “Across YFM (not just in the Southeast) we’ve seen a 26% year-on-year increase in the number of new investment opportunities that we have seen for the quarter to December 2023. This should translate into a similarly higher number of completed investments in H1 2024 – hence, we’re pretty positive on the next six months.”
The creative sector is also interesting here; on the south coast you see lots of marketing, tech and visual effects businesses
Despite being sector-agnostic, Puri outlines some of the region’s most interesting sectors: “The Southeast is a hotspot for managed IT services and unified communications. The creative sector is also interesting here; on the south coast you see lots of marketing, tech and visual effects businesses.”
Puri attributes this to the universities in Brighton. “It has a strong creative sector and Brighton attracts talent from elsewhere including London.” Puri also notes that the care industry here is notable. “Especially in Kent and Sussex. We also see a lot of interest in businesses that serve the care sector, such as training services and software for care homes.”
Indeed, one of the fastest-growing companies in the Central South is care home operator Cornerstone Healthcare. Cornerstone operates two specialist nursing homes in Hampshire (Kitnocks House and South Africa Lodge), working with the NHS to provide specialist care to older people with complex mental and physical health problems including late-stage dementia, mental illness and Huntington’s disease. The company was backed by Ignite in September 2018, marking its debut investment.
According to Cornerstone’s chair, Paul Callander, the deal was driven by the company’s original family owners seeking an exit. Ignite backed the incoming management team, comprising CEO Johann van Zyl and COO Dara Ní Ghadhra, who have a strong track record of working together in the specialist healthcare sector, having previously led the development of PJ Care into one of the UK’s leading providers of neurological care and treatment.
Following the deal, Cornerstone’s growth has been driven largely by the opening of a new home – Marula Lodge in Surrey – adding 42 beds to the existing 162. “We have widened our geographical reach towards south London, which has increased our commissioner profile as a lot of commissioners are based in and around London,” explains Callander. “The first two homes are based in Hampshire and that was our primary focus, so widening that commissioner base was important for us.”
Indeed, Cornerstone’s three homes in the Southeast region are currently operating at about 96% occupancy, highlighting the strong demand for its particular service offering; care for those with neurological degenerative conditions and mental health needs.
Ignite has also invested in the quality of the homes, but more importantly in the team and recruitment engine. In perhaps one of the hardest sectors to attract and retain staff, Cornerstone is unique in its low level of staff turnover, which is less than 20% compared with the industry average of 30% plus. “That retention rate is phenomenal in this space,” remarks Callander. “The people we recruit – nurses, healthcare workers, domestic, cooks, managers – it is hard to recruit and retain these roles but we don’t seem to have an issue.”
There is a real sense of connectedness to Cornerstone and its ethics
For Callander, this is all because of the company’s culture. “It’s the organisation’s ability to connect with every member of staff. The danger of care homes is that they become their own entities. But Cornerstone’s three homes feel very connected. They have their own identities but there is a real sense of connectedness to Cornerstone and its ethics.”
Under the leadership of the new CEO, Paul Hayes, who started in January 2024, Cornerstone’s geographical reach is set to widen even further in 2024 with the opening of two new homes: Cale View in Somerset, which will add 74 beds; and The Burren in Bristol, bringing a further 80.
“Our growth strategy is to extend geographically. It’s about stretching out not just for the talent pool, but also for commissioners and where the need for our services is. We’re also very aware of the resident’s families, ensuring that they can access the homes regularly,” adds Callander.
“Private equity remains a really exciting industry. It is complex, but at the heart of it, it’s all about people. You cannot underestimate the value and the experience of people working in UK private equity.”
Catherine Jones, Partner, Tax, PE Leadership Team, BDO
The Southeast’s proximity to London makes it a prime location for homebuyers who work in the capital. And Surrey-based Antler Homes, a well-known house builder in the region and one of our top-performing companies, has clearly benefited from its prime location.
The company received backing from Literacy Capital in June 2018. The deal was led by Antler’s now managing director Andrew Rinaldi and his business partner Dane Houlahan. “The company was around 50 years old and the founder wanted to retire but there was no succession plan. It is a great brand with a great product so we were very excited by the opportunity to buy it in early 2018 and then sought an investor to back us,” recalls Rinaldi.
Literacy backed the deal because of the company’s positive market fundamentals and the pair’s plans for the business. Says Rinaldi: “We had some good interest from potential investors we worked with. We were looking for someone credible, which Literacy obviously is, and beyond the financial backing we also wanted to leverage their expertise. We would like to take the company public one day and the key Literacy team members have a good track record of doing that.”
But one of the most important deciding factors for Rinaldi and his business partner was the alignment of both parties’ values. “Literacy donates a portion of its profits to literacy charities, which they are very passionate about. To be associated with a group that takes that so seriously was important to us,” adds Rinaldi.
Furthermore, Antler has significantly expanded its home-building output. “Antler sold 24 private homes in 2018 and did not have a land bank, whereas this year we expect to sell 90 homes, including 60 private homes. In addition, we have built a land bank to build 750 homes across 27 sites, which we will deliver over the next four years, and our revenue forecast for this year is £48m, compared with £17m in 2018.”
Another point of pride for Rinaldi is Antler’s support for emerging talent in the space. “We implemented an apprenticeship programme, which we run with Portsmouth University. We currently have three apprentices working with us who are studying to be quantity surveyors and technical managers. That has been a fantastic experience; they do a great job for us and they are getting excellent work experience.”
Over the longer term we are bullish – all of the market fundamentals are strong
Thinking about Antler’s Southeast location, given the economic turbulence in the UK in recent years, this region has struggled in terms of house price growth compared with the rest of the country. “But things are picking up as the economy stabilises. And over the longer term we are bullish – all of the market fundamentals are strong. We are building differentiated, high-quality homes in areas that people want to live in. The manageable commuter distance to London is our sweetspot and the Southeast has so many great places to live,” concludes Rinaldi.
Thames Valley-based businesses make up about a third of all the PE-backed growth firms identified in the wider Southeast sample. Together, the 31 companies generated almost £600m of Ebitda on sales of nearly £2bn in FY2022. The 25 most successful firms within the Thames Valley recorded average compound Ebitda growth of 44% during the period covered.
Like the other Southeast sub-regions – Central South and Gatwick & Guildford – businesses in the Thames Valley benefit hugely from both proximity and strong transport links to the global business and economic hub of London and – via the airports of Heathrow, Gatwick and Luton – to the rest of the world.
For the Thames Valley in particular, the transport links have improved further in recent years, with the centre of the region, Reading, benefiting from a major expansion of its rail hub, as well as the opening in 2023 of the Elizabeth Line, providing direct underground or overground access to both the West End of the capital and its financial hub in the City of London.
For Reading-based BDO partner Duncan Lamb, this is one of the keys to the strength of the Thames Valley deal-doing community: “We see a huge amount of interest from PE investors coming out to the region, but there are also sponsors that have set up dedicated offices in Reading such as LDC, NVM and, more recently, Maven and YFM.” As he explains, Reading also boasts an exceptionally well-established local advisory community, comprising both M&A and legal practitioners.
We see a huge amount of interest from PE investors coming out to the region, and there are sponsors that have set up dedicated offices in Reading
One of the most striking features of the Thames Valley cohort in the sample is the strength of the technology, media and telecommunications (TMT) sector in the region, with more than a third of qualifying growth businesses operating in this sector. Furthermore, a number of the businesses in the sample that are defined as being in the business and professional services sector are mainly providing digital and tech-related services.
Among the star TMT performers is Reading-based FSP Consulting Services (originally known as Foundation SP). The digital transformation consultancy originally raised a multimillion-pound minority investment in December 2020 led by LDC’s southern team, before upping the ante in February 2023 with a major new investment from CBPE and additional support from LDC, which allowed it to acquire cybersecurity consultancy Savanti. According to our figures, the business generated Ebitda growth of more than 200% between FY20 and FY22.
“IT and technology more broadly is what the Thames Valley is best known for. There are a number of major technology businesses with operations in the area such as Microsoft and Oracle and that tends to attract the talent and interest. And then there is the ecosystem of smaller businesses that feed into the wider tech area,” says Lamb.
We have Oxford and Reading universities on our doorstep: high-quality institutions that are feeding these tech businesses from a graduate perspective
And, as he points out, it’s not just IT/TMT: the Thames Valley is also home to the ‘Formula One Triangle’ – a region in which many of Formula One’s main teams have their headquarters and that creates a wealth of more niche, specialist tech operators such as Inflexion’s former investee Xtrac, which designs and manufactures the transmission systems used in motorsport and automotive industries; and BGF portfolio business Polar Technology Management, which develops, among other things, the ‘Halo’ systems used in F1 and other motorsport classes. It’s businesses like this that add to the depth of patent and R&D expertise that is represented in the region.
Of course, as Lamb points out, to feed that expertise it is essential to have access to quality talent: “We have Oxford and Reading universities on our doorstep – really high-quality institutions that are feeding these tech businesses from a graduate perspective. And of course, there are quite a lot of high-calibre professionals moving out of London to the high-quality homes in areas that people want to live.”
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