Northeast
Passion, ability, drive, determination and fun
As is the case in Scotland, the cohort of qualifying PE-backed businesses in the Northeast is comparatively small, with just 16 companies having shown Ebitda growth between FY20 and FY22. Of those, specialists in the manufacturing and business services sectors dominated the list, with 10 between them.
What’s more, three of the four highest-growth businesses in the region are active in the business services area. Heading the list is Synova-backed Pacifica Group, a provider of outsourced support services to the electrical appliance and domestic heating market, which has seen exceptional Ebitda growth during the period (more than 300% year on year). Winn Solicitors, backed by Souter Investments and JZ Capital Partners, has also grown exponentially in the last three full financial years.
Meanwhile, manufacturing companies such as Sterling Pharma Solutions (Partners Group, GHO Capital, et. al.), The Expanded Metal Company (EIH Capital Advisors) and Paralloy Limited (Nimbus) all feature in the fastest-growing companies in the region.
For Kieran Lawton, senior investment director at Palatine, investing in the Northeast is all about the people. “I am biased – my grandparents had pubs across the Northeast and I met my wife at Newcastle University – but with my business hat on, Palatine backs people, both teams and individuals. We’re looking for likeminded people. For me, when I think about the people in the Northeast, I think of passion, ability, drive, determination, hardworking and fun. Those traits are the same as Palatine’s, so this region really resonates with me both personally and professionally.”
Furthermore, the region has a wealth of attractive businesses. “In terms of what we’re looking for, this region ticks all the boxes. From a sector point of view, through our buyout fund we look at tech, businesses services and financial services. And from our impact fund, we’re looking for commercially-driven businesses that have a positive impact,” explains Lawton.
“All of those opportunities are here. For example, the Biosphere in Newcastle Helix presents opportunities in the region for talent and specialist areas in tech, life sciences and healthcare, which is all interesting to us. There’s also good activity in the energy, offshore/onshore renewables space, which links to our impact fund. The region is also strong in fintech and financial and professional services. And for business services, you have the likes of our portfolio company Lucion."
When I think about the people in the Northeast, I think of passion, ability, drive, determination, hardworking and fun
Indeed, one of the top-performing businesses is Lucion Group, a UK market leader for accredited hazardous material testing, surveying and consultancy, which Palatine backed in May 2019. On how the deal came about, Lawton says: “The founders were looking to exit; they wanted to pass the business onto management. We were introduced to the team fairly early on alongside a small number of other private equity houses.”
“I’m excited about the increased focus on ESG and the number of private equity houses becoming B-corps. It’s a positive change that helps with diversity in the industry, value creation and provides private equity with the opportunity to make a meaningful impact on society.”
Sarah Ziegler, Head of Private Equity Coverage, BDO
According to Lawton, Lucion’s management team was looking to work with a relationship-driven house with relevant experience. “We spent a lot of time with the team, working on the expansion strategy, both organic growth and buy-and-build.” Palatine’s expertise in buy-and-build as well as the strong relationship it developed with the team saw it win the deal. “It was about the relationship, the opportunity for value enhancement, M&A opportunities, and that we took ESG and sustainability seriously.”
We spent a lot of time with the team, working on the expansion strategy, both organic growth and buy-and-build
During the investment period, that buy-and-build strategy has definitely played out. “When we invested in Lucion, it had a great reputation in the market, a young dynamic team, a good facility in Gateshead and market-leading tech. So the business had a platform where we could really do something interesting.
“Our focus has been on developing that as well as expanding the service proposition into broader environmental services through both organic and buy-and-build growth. For example, we invested in the capability of the laboratory to establish a specialist chemical facility, as well as adding a mass spectrometer alongside additional expertise,” explains Lawton.
“We’ve also invested in Lucion’s tech and data, while the team behind Lucion’s proprietary ‘NexGen’ system is still based in Gateshead. We’ve continued to invest in and develop its functionality across the business, so when add-on acquisitions are brought into the group they can make use of the platform, which has helped to drive efficiencies,” he adds.
Palatine has supported six add-on acquisitions for Lucion, two of which took place in the Northeast. “Those deals all fit into the investment thesis of broadening the company’s service offerings, technical capability and geographical reach. It was previously known solely as an asbestos testing business, but now it has expanded further into broader hazardous materials testing and environmental consulting,” says Lawton.
“It's about having a clear plan, a clear strategy, delivering on that strategy and proving to investors that your strategy is deliverable, and that you'll make it work, regardless of the market factors that are ongoing.”
James Newman, Partner, Audit, PE Leadership Team, BDO
There has also been significant focus on people and talent. “We’ve strengthened senior talent and we continue to recruit. There’s been a lot of investment in people,” says Lawton. Indeed, Lucion’s headcount has almost doubled since Palatine’s investment. “When you've got a business that’s growing, it creates opportunities for people. It is developing its geographical reach but also its service offering, which creates opportunities for people to develop.”
Environment and sustainability
Social
Governance
All of the above
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