Dealmakers: Building momentum
The expansion journey continues for Inspired Energy. Acquisitions have played a key role in the group’s development into a national market-leading consultancy.
That buy-to-build strategy shows no signs of running out of energy, with the bolt-on deal it completed in March showing its continued appetite for acquisitions.
The Kirkham-based AIM-listed firm bought Businesswise Solutions and General Energy Management (GEM) in a deal funded from its successful £31.3m placing and open offer completed last July.
Nelson-headquartered Businesswise is an energy consultant which provides assurance optimisation to corporate customers in a broad range of sectors. It currently works with around 340 customers and holds an order book of around £10m.
Inspired has paid an initial £6m, which could rise to as much as £23.5m if Businesswise can hit financial targets.
GEM provides energy assurance services to corporate customers in a range of sectors, with a strong presence in food manufacturing and distribution. It recorded a £250,000 pre-tax profit in the year to March 31, 2020.
An initial £1.5m has been paid to shareholders for that business, with deferred consideration of £250,000 payable at the end of this year. A further £250,000 will be considered if GEM also achieves growth.
Inspired’s chief executive Mark Dickinson describes the latest additions to the group as “highly complementary”, which is vital to its buy-to-build approach.
Organic growth takes a lot of time and one of the best ways to accelerate could be with an appropriate M&A deal
He says: “Both acquisitions increase our market share for energy assurance services, broaden our customer base and significantly increase our units of opportunity.”
Inspired Energy is not alone in taking this route to growth. The number of private equity buy-to-build transactions in the North of England rose by 30 per cent during 2020.
Research by Rickitt Mitchell, the corporate finance boutique, in partnership with Experian Market iQ, revealed that a total of 63 bolt-on transactions were completed involving Northern businesses in 2020 – up from the 48 in the previous year.
The North West was the North’s most active region, with a total of 30 transactions in 2020 – third behind London and the South East nationally.
Kaine Smith, director at Rickitt Michell, says: “Private equity houses are looking to bolster their existing portfolio companies via bolt-ons, doubling down on their existing understanding and success in certain sectors, particularly in those such as SaaS and ed-tech where acquisitions are often easy to integrate.
“Valuations in these markets are at an all-time high, making such approaches extremely attractive to vendors considering an exit or sale in the near future.”
He adds: “It is a proven effective way to drive significant growth over a period of time. Often, when a PE house makes an initial investment, a buy-and-build strategy will sit at the heart of the long-term plan for the business.”
Steven Kingham, partner and head of transaction services for EY in the North West, agrees. He says: “It’s a very popular route to growth, particularly amongst businesses that are private equity backed or have aggressive growth strategies. It can also be used to build up the value of a business.”
He predicts: “We are likely to see more of it in the post-covid world where organic growth is hard to find. People will naturally look towards bolt-on deals to fill the gap in growth.
“Private equity houses also have large amounts of money they are sitting on and want to spend. It is easier for them to spend that on building existing investments than starting on entirely new ones.”
Buy-to-build is also used by companies to acquire specific capabilities or technologies they don’t already have. Steven says: “It can be a quicker route than developing these in-house. Sometimes it is to expand into new territories and markets.
“Some businesses are looking for synergies to increase profits. Cross-selling is a big feature of a lot of businesses now.
“When making a bolt-on deal, you need to get to grips with the business you are acquiring and really understand what it does and what it is all about.”
Inspired Energy’s Mark Dickinson says: “First and foremost you need to think about your organic growth. Once you’ve got plans in place for growing your business organically, the question becomes, ‘how can you accelerate?’
“Organic growth takes a lot of time and one of the best ways to accelerate could be with an appropriate M&A deal.”
He says that in a fragmented market, growth through acquisition can be both more cost and time effective and accelerate an increase in market share that would take years to reach organically.
Other attractions to the strategy include the way acquisitions can also bring in more talent to an organisation.
Mark adds: “The key thing is you need to have a way of building a pipeline.” He describes Inspired’s approach as like that of a football scout with the business tracking and keeping in regular touch with possible future targets.
He says: “We know our market and we have a very structured process to make sure we are reaching out to businesses that are of interest. Businesses we are interested in now may be looking to sell in 2025. It is about keeping the dialogue going.”
He stresses due diligence as “massively important” and adds: “You’ve got to look at the culture of the business, we look at things like staff turnover rates, what their values are and how they deal with employees.”
Inspired will remain on the acquisition trail. Looking ahead to next year Mark says that the business is likely to set its sights on overseas targets with European expansion in mind. “It’s very much a case of watching this space,” he adds.
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