Investec Comment: A smooth ride post management buy-out

Mark Cornford, managing director of Integrity Print, and Gary Edwards, Growth & Acquisition Finance at Investec, discuss the support that companies need from their bank following a management buy-out (MBO).

 

MC: Managers can become over-confident with what they can achieve in the marketplace. I always had belief in myself as a manager, but had never done an MBO before. After the deal in 2008, our shift away from the print management business meant that our competitors could become our clients and the marketplace opened up really quickly. We had 10 to 15 per cent growth in areas we could only have dreamed of doing well in. But since then, the print industry has been a challenging environment. 

 

As a printer of business forms, producing millions of bank statements, not only have we faced a general downturn in the economy, but our customers – banks – have encouraged their customers to view statements online, so demand has fallen. Before the MBO, we had a roadmap. We knew we wanted to be the last man standing in a dying industry, and that we had to diversify. 

 

GE: Mark was having to change the wheels on the bike while he was still peddling. His new business constituted the non-core assets of the public limited company, and some of Integrity Print’s core offerings were in terminal decline. That meant the firm was going to have to adapt and invest in new markets, but we didn’t know what the pace of attrition would be. So we put a debt structure in place which allowed the business to have room to breathe as the market changed.

 

MC: Investec lent us £13m for the MBO, and its support with increased funding has continued ever since. We’ve invested in new equipment and made acquisitions, like A1 Security Print, a data-transaction business, and labelling company Topflite. 

 

Investec provided us with a capital expenditure model consisting of a receivables revolver and term loans, rather than an amortising loan, which would have impeded our transformation plans. The bank can give me the okay over the telephone. And because of this lack of bureaucracy, I was recently able to spend £0.5m on new machinery, which runs 35 to 40 per cent faster than existing equipment. The ability to move quickly is allowing us to succeed.

 

GE: Most banks tend to take a one-size-fits-all approach to market sectors; they’re either performing well or they’re not. Investec doesn’t just take a cross-section of the market, or look only at last year’s balance sheet. We meet with lots of management teams and only say yes to those we really believe in – those which will out-perform their peers and which we would like to have a long term relationship with. When our MBO clients call to ask for increased funding, we ask searching and challenging questions about the investment in question and look at the potential benefits over the long term.

 

When you fund a business, you have to accept that a client’s market and customers can change over time. Nobody can design a business over a five-year period with certainty of how the market will behave over the same timeframe. A bank needs to ensure that its clients have the financial muscle to make the decisions that will strengthen them and create value. So when we support a business, there is no fixed end point to the journey ahead.