We are generalist investors, and focus on investing in growing, niche businesses, whatever the sector. Our skillset is in facilitating entrepreneurs. Assisting them to implement the infrastructure, processes and people to allow them to grow and achieve their ambitions. Whether that’s working with a group of London based cocktail bars, or a painter of luxury yachts in Majorca, the same core principals apply.
Typically, our buyouts are primary transactions. As a result, the businesses are often cost and people lite which means everyone, and everything is over-stretched. Part of our role is to identify the internal inhibitors to growth, address these and help facilitate growth. This often means a business goes backwards before it goes forwards from an EBITDA perspective, as it requires an investment in the cost base. However, this is something we are more than comfortable with, having worked in the lower mid-market for over 15 years now. Provided the overall investment strategy is well thought out, this is only a short-term issue.
Inevitably being a relatively young fund there are some areas we have more experience in than others, such as consumer, financial services and oil & gas services, but we assess opportunities in a wide spectrum of industries. We think this diversity helps us continually improve our ability to add-value to our portfolio companies.
There are a number. I come from a family of vets and doctors and hence have a natural interest in the medical sector. I have been considering a roll up in the veterinary space in particular for a while now. This has recently been a fruitful sector for PE and the macro-dynamics (highly fragmented, humanisation of animals, high average spend, strong margins etc) do not look like changing any time soon so watch this space.
There are several others on the radar too but given the competitiveness of the market right now, I don’t want to divulge too much on this.
We pride ourselves on being sensible and nice human beings first and foremost. We want to make sure that whenever we come out of a meeting, even if the entrepreneur doesn’t ultimately choose us, they say “LCP are decent people and I would enjoy doing business with them”. This goodwill will pay off for us in the medium to long term as our reputation and brand awareness grows. But being consistent and straightforward is key to that and at the heart of everything we do as a firm.
Alignment with entrepreneurs is key. One of the big sells for us is; we don’t make any money unless we grow equity value. We don’t charge NED or monitoring fee’s or any day one arrangement fee for putting funds to work, and hence we are completely aligned with management and the other shareholders to grow equity value. This resonates with management and vendors and as a result (advisors look away now!) we are rarely the highest bidder in a process but our straightforward approach and proven track record of being deliverable, means we are often the preferred buyer.
Simmons is exactly the sort of business Lonsdale should be investing in. It is a 12 site London based cocktail chain with an extended happy hour offering and a relaxed, house-party atmosphere. It is run by a 30-year-old entrepreneur, Nick Campbell. He is a very impressive chap, and understands the bar world, particularly in London, inside and out but needed some help to develop the back-office to continue to grow as well as capital. He has grand ambitions for the Group with plans to create a national chain, eventually expanding outside of the capital. However, when we invested, the business leadership team was pretty much just him and a handful of relatively junior head office staff.
Key to all our investments in this part of the market is a backable management team. A half decent business and a very good management team trumps a very good business and a half decent management team every time. In this instance it was just Nick we were backing, but at completion we brought in a very strong CFO (Tom Henry, ex-Casual Dining Group) and Chairman (Roy Ellis, Founder of Revolution Bars). These new hires were made in collaboration with Nick, who is working closest with them going forwards, and have been instrumental in the development of the business post-MBO.
One of the other key attractions to the business was the low new site opening costs. Capex for a new site is typically only around £30k which is unusually low for the sector. The Simmons concept is also very flexible and the business has inhabited old bars, pubs, restaurants and retail spaces to date. This is helpful in the context of the evolution of the high street, with a variety of locations coming to the market all the time, a large number of which are viable for Simmons. Given our ambitions to grow to at least 30 sites in London, this removes some of the potential roll out risk.
We also like the Simmons ethos. It is not trying to be the coolest bar in town, which is always very difficult to achieve, not to mention expensive, and typically attracts a very fickle consumer base. Simmons aims to create a fun, relaxed, party atmosphere where people can go and let their hair down with a good selection of cocktails and like-minded people. We like the simplicity of this, and believe it has longevity for the students and young-professionals who make up the bulk of our consumer base.
We’ve always enjoyed working in the lower mid-market, which we define as businesses making between £1.5 million and £5 million of EBITDA. As previously eluded to, we are typically executing primary transactions which brings with them a number of challenges, and opportunities. Some of the usual challenges we see are; incomplete management teams, a lack of investment in overheads, poor monthly reporting procedures etc. However, these are all addressable with sufficient planning, and hence we see it as noise. As long as it’s a growing, niche business with a backable management team, we will tailor a deal to suit the business and mitigate against the remaining risks.
As a result of the aforementioned challenges, you tend to see lower multiples where we operate than in the traditional mid-market. When we acquire an asset an awful lot of work is required in the first 12 months, and this often means the Lonsdale investment team get involved in helping to run the business while we implement the required change. This is not easy, and not for every PE house but it’s something we enjoy and it helps us understand the assets better.
Alongside this, traditionally PE houses raise bigger and bigger funds each time they close a new vintage. This means lots of funds in the traditional mid-market (£200m to £1bn), which is massively over-populated but results in less competition for us. We are focused on money multiples, and when I retire I will look back at all the 3x money plus deals I completed, rather than whether I earned 2% of £500 million. Our view is that buying well is key to achieving significant money multiples, and that’s currently easiest in the lower mid-market. We want to be selling to the next tier of PE and achieving the associated multiple arbitrage by doing the hard yards with businesses early on.
I also think there is a much more human element to investing in the lower mid-market. It’s as much about personalities as it is about price and structuring which is a dynamic of the deal which I think is often underestimated. I really enjoy meeting and getting to know entrepreneurs, and the challenge of convincing them that we are the right partners for their business and always will. We have no desire to move out of the lower mid-market in the foreseeable, this is what we are good at.
Not currently, no. Europe is a huge area with lots of opportunities, particularly in our part of the market. We are continually developing our network in mainland Europe and identifying people who can be our trusted eyes and ears in key territories. These will then feed leads into the deal team who will work with them when a relevant new transaction is identified. This will be the model going forwards rather than opening expensive offices all across Europe.
We have only really scratched the surface on Europe, and for now will focus on developing this rather than trying to go too wide too early.
Getting into PE was one of the largest challenges I’ve faced, and the one which I am most proud of overcoming. Being from a medical family, the world of business was pretty foreign to me, and I had few contacts in any relevant industries. As a result, it took a lot of rejection, determination and single-mindedness to land a role. But as I preach to my children, if you want something enough and work hard enough for it, you can achieve anything.
Moving from PwC to Catalyst Corporate Finance was a game changer for me. I have been involved in sport for as long as I remember, and love competition and being part of a team. When I was at PwC, the organisation was so large that I struggled to really see my place, it felt like I was just another cog in the wheel and wasn’t the right environment for me. However, when I moved to Catalyst it was a much smaller office (only around 30 people at the time) and as a result everything I did was very noticeable to everyone, both good and bad. I wanted to be seen as a great corporate financier, I didn’t want to be found wanting and I wanted to beat my peers to promotion which drove some very positive habits.
This change in mind-set, helping me bring the skills from my sporting background to the work place, has been pivotal in my development to date.
My parents always preached to me about the values of being a decent human being; treating others the way you would expect to be treated. This has served me very well over time. In its simplest form, it’s treating the cleaner with the same respect as the partners, this is something in which I am a great believer.
Favourite app – LinkedIn, sounds sad but it’s the best networking tool I’ve ever used and I’m on it every single day of the year.
Favourite book – I’ve recently read a book called “Skin in the Game” by Nassim Taleb (“Black Swan” and “Fooled by Randomness)”, the basic message of which is if you don’t have skin in the game then you shouldn’t be in the game. It covers a lot of areas from politics to finance and a lot of the underlying philosophies really resonated with me, particularly with my PE hat on.
Favourite holiday destination – Ibiza, it’s close, warm and good fun, I am a regular there with the family (and occasionally without).