In 2000, the Government launched its Decent Homes Initiative, which aims to raise the standard of the social housing stock to a "decent" standard by 2010. Given that 34% of these five million homes were deemed "non-decent" in 2004, Rixonway Kitchens - a leading supplier of kitchens to local authorities, purchasing consortia and social housing refurbishment contractors - is set to reap the benefits.
The buy-out of the business, completed in May, was led by Rixonway sales director Paul Rose. Robert Horvath, a veteran of many private equity-backed deals, has been introduced as chairman by August Equity.
The investment in the Yorkshire business is the eighth from the August Equity Partners IV fund. Rixonway was originally established in 1979. "Being the only UK kitchen manufacturer dedicated exclusively to community regeneration, we believe we are in a strong positon to strengthen our market position and develop new avenues," says Rose.
Philip Rattle, who led the deal for August Equity, says the August team has spent considerable time with Rixonway management and shares its ambition. "We are confident that Paul and his team have a very clear vision for the business and will be able to build on the company's strength to take it to the next level."
The European private equity market is booming. According to recent figures from business information provider Incisive Media, 2006 is on track to be another record-breaking year, with the total value of deals in the first nine months standing at £119 billion. The figure represents a 27 per cent increase on the same period in 2005 and is close to the full-year figure for 2005 of £126 billion.
But for private equity houses, this success has a flip side - it can lead to tougher competition and higher prices for the best deals, with firms struggling to differentiate themselves. This places extra emphasis on originating and maintaining the flow of deals - the lifeblood of private equity firms. Many are looking for ways to develop the art of deal origination into a precise science.
August Equity has been working hard to develop a systematic and organised approach to deal origination, with the goal of generating stronger deal flow. And the hard work has paid off, as exemplified by the investments in Imagine Publishing and Rixonway Kitchens.
"Our job is to identify the best targets that fit our investment criteria, then focus our resources on the most fruitful opportunities," explains Andrew Hartley, joint managing director at August Equity. "Time is our most precious commodity. So we have to use it productively and accurately to originate the best deals - with effective due diligence - and maximise returns for our investors."
The central pillar of that strategy is its focus on the firm's key sectors. Hartley says the discipline of defining the opportunities the firm invests in helps deliver a concise and differentiated message to the market: "That, in turn, helps us to find the best available targets and opportunities at the time and to build a deal pipeline for the future."
Regular meetings with key advisers and dealmakers in each sector and region ensure that August Equity's investment focus is well-known. This part of the deal origination strategy takes two forms: numerous face-to-face meetings with advisers; and a number of regular events - such as Deal Club, evening dinners and sponsored awards - to further spread August Equity's four sectors message.
But the purpose of the deal-origination strategy is also to increase the proportion of deals August Equity generates from within. A key part of this is the focus on the "shadow portfolio" - a collection of potential targets that meet the team's investment criteria, but where no deal opportunity currently exists. Team members look to develop long-term relationships with the management teams and shareholders at these companies. "If a deal opportunity then arises, we already have a relationship in place, so hopefully the management team comes directly to us, thus bypassing any competitive process," says Sam Watkinson, investment director at August Equity.
This is exactly what happened when a deal was struck between August Equity and media company Imagine Publishing last year. The strength of the existing relationship was the key to cementing the transaction in two weeks.
August Equity's deal-origination strategy is also guided by its geographical focus - on the South, the Midlands and the North. "We are committed to developing our relationships in the regions and we're constantly visiting key people and maintaining individual relationships, rather than just showing our face every now and then," says Philip Rattle, director at August Equity.
As well as nurturing individual contacts, the team works to develop regional networks and support the local business community through dinners, sponsored awards and events. August Equity also makes a point of using local lawyers, advisers and other parties when concluding a deal, adds Rattle.
This regional approach proved fruitful in the case of kitchen manufacturer Rixonway Kitchens. Founder Curtis Wright was looking to pass on the company reins in 2005 after 23 years at the helm. The competitive bidding process ended in an amicable management buy-out by four members of the existing team, backed by August Equity. But what made the win a real coup for August Equity was that the process was run from Rothschild's Manchester office, with London-based August Equity one of only two non-regional bidders.
The success was also down to the fact that the MBO team felt comfortable with the August Equity team and, importantly, felt they would be able to work with them. Keith Davidson, who recently joined August Equity as investment manager, says he has always found the environment welcoming: "We're a very personable team, which provides another differentiating factor with the management teams we back. It's important to build rapport and understanding on both a professional and personal level. It's something we do very well at August Equity."
The strategy is about being more organised and systematic, developing long-term personal relationships and optimising the team's limited time. But most of all, says Hartley, it is about hard work.
"Deal origination is about doing the difficult things well. Ninety-nine per cent is perspiration," he says. "It's easy to wait for an information memorandum or a phone call, but if that's the first time we've heard about an opportunity I consider that a failure on our part."
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