In late August, Hat Trick Productions launched two new shows, an animated comedy, Bromwell High, and He's Having a Baby, which is being screened on BBC ONE.
Bromwell High follows the exploits of three teenage girls in a below-par London secondary school, and is running on Channel 4. The series, Hat Trick's first animated show, has taken six years to produce. "The creative ideas have to be developed in conjunction with the broadcasters," says Andrew Hartley, managing director of August Equity. "Bromwell High's concept took a long time to develop because it's a more complex programme to produce due to the animation components and the voice-overs." Hartley describes Bromwell High as the UK's answer to South Park. The series has already been sold to French broadcaster Canal+.
He's Having a Baby, for BBC ONE and BBC THREE, in which host Davina McCall makes her first appearance on the BBC's flagship channel, follows eight first-time fathers as they get to grips with parenthood. Hartley believes there is potential to sell the show overseas: "That's the holy grail for this business: to find an international hit. Hat Trick had it before with Whose Line is it Anyway? If you find a hit that really works, then you've got long-term potential."
Over the past couple of years, Hat Trick has diversified into producing drama via its series Bodies, which aired on BBC TWO. It is also producing a new sitcom pilot for ITV and has also expanded into merchandising opportunities, such as Father Ted greeting cards and a Have I Got News for You? board game. The company has won commissions from other broadcasters, including Channel 5 and ITV. "The business is developing other revenue streams from existing brands and creating new brands and ideas to exploit," Hartley says. "There's a lot of innovation at the moment."
Hat Trick has also opened an office in Manchester, called Hat Trick North. The goal is to develop regional talent, which is in line with the BBC's desire to source regional programming and the relocation of substantial operations to the city.
Changes at the BBC can have a positive impact on independent producers such as Hat Trick. The BBC, under new management, has recognised the need for significant changes. These include more new and original programming ideas and less of a focus on London. The BBC recently reported its intention to widen the opportunities for independent producers by sourcing up to 25% of its output through the 'window of creative competition' initiative.
"It's an opportunity for Hat Trick," says Hartley. "We may open offices elsewhere or develop new genres in partnership with them."
Mergers and acquisitions have always been one of the most glamorous aspects of business, promising fantastic future performance. Yet statistics from a range of consultancies and academic studies tell a different story. Productivity losses in the first six to eight months are experienced by 50% of companies undergoing integration (Fisher College of Business, Ohio State University), 47% witness top management leaving within the first year (Accenture) and 62% show zero growth over a three-year period (McKinsey). In the words of Jim Forbes, former chief executive of Scottish & Southern Energy: "Deals don't solve problems, they create problems."
However, if executives can get the post-deal integration process right, there are fantastic opportunities to grow and shape a new business, to offer more customers more choice, and to serve both new and existing ones more effectively. So what's the key to getting the integration process right? In a word: planning. "A company must have all of its plans in place before the acquisition is completed," says Richard Green, joint managing director at August Equity.
"Planning is absolutely essential," agrees Steve White, chief executive of Durrants, the UK's largest media-monitoring agency, which acquired the news division of Xtreme News Information Services for £17.5m at the end of May 2004 and has been backed by August Equity funds since a management buy-in in April 2000.
The buy-in enabled Durrants to make a significant investment in technology, giving it far greater scope to add clients and provide new services. Durrants then began looking for a potential acquisition target. A heavy recession in the marketing services sector, and the resulting scarcity of potential vendors, meant this process took almost two years. Durrants had identified a target but, backed by advice from the August Equity team, was prepared to wait for the right price. White was grateful for the assistance: "As always with the August Equity people, they were very supportive and very interested in our progress without being cloying."
After identifying a large number of potential synergies, Durrants continued to court Xtreme, and the deal was completed in May 2004.
Although Durrants' senior management has considerable experience of acquisitions, the company encouraged by Richard Green, decided to engage Deloitte to assist with the integration process, and it was Deloitte that brought home to White the importance of planning.
The process began with a two-day meeting for the senior management from both Durrants and Xtreme two weeks before the acquisition completed, when the advisers from Deloitte helped both sets of managers design a detailed plan. The integration process was divided into 12 "workstreams" and gave two managers, one from each company, responsibility for each of them. These workstreams each dealt with a key aspect of the business, such as HR or client management. At the end of the two days, the group had produced a to-do list and deadlines, and had also determined any interdependencies between the tasks. "This plan became the bible that drove the process forward," says White.
Durrants has met most internal deadlines and completed the integration process in a remarkable 13 months. White puts this down to the plan enabling the company to make a lot of "early wins". As Angus Knowles-Cutler of Deloitte makes clear: "If you can get the initial planning done well before the exchange of control of the companies, have a smooth day one, and get the first 100 days right, then you've probably got the integration cracked."
Durrants focused first on exploiting the "hard synergies", such as moving all employees to one site, and making appropriate reductions in overheads. It then focused on integrating the technological processes and, finally, the introduction of an integrated overnight media monitoring service in April 2005. There were some glitches, but most were solved by June - in fact, a large government client that had threatened to cancel its contract during the company's difficult May period has signed a two-year contract ahead of schedule.
Reflecting on the successful integration, White admits: "During the acquisition phase, there's intense financial pressure to get the deal done. There's always some little devil on your shoulder saying 'Ignore that, just do it, just get the money out', but you have to resist that and plan as thoroughly as possible."
Asked what he has learnt from the process, White quips: "Not to do it too often." But it is clear that he is very satisfied. "Financial results are a useful scorecard, but well-run businesses are always professional, alert and adaptive. What's nice about this company is that, at the end of the integration, we are more sympathetic to our clients' needs than we were 18 months ago. There are a lot of people in the company who feel better about themselves, about what they can achieve and what they can do in their careers. Seeing the company buzz and achieving the financial results is really satisfying."
Due to a marketing services recession in the early 2000s, Durrants had to be patient in securing an acquisition target. It identified two players but had to wait a considerable period until it could make an acquisition at the right price.
Richard Green, says: "Rather than make two simultaneous acquisitions, Durrants decided to acquire what they thought was the 'best' of the two businesses. That is, best in terms of the following four criteria: the potential for integration; the client fit; the 'synergy fit'; and the potential to gain maximum value from the deal."
Steve White, chief executive at Durrants, agrees that the best strategy is to be patient: "There are different pressures when acquiring within a large corporation, but on the whole it's much more forgiving. In the private equity world you have very strict limits on what is financially viable. That's a kind of restrictive girdle, but an extremely attractive one, it forces you to be a better business person."
'There is no sight more impressive than a Scotsman on the make' observed playwright JM Barrie, author of 'Peter Pan'. One wonders if he ever met a Yorkshireman in a hurry to build a business.
Richard Clough, chief executive of Healthcare Homes Group (HHG), is just such a man. He wants to build a business, and fast. Organic growth will go some way to satisfying his ambitions, but acquisitions are very likely. Having completed the £17m purchase in early August of Abbot Healthcare, a group of four care homes in Cambridgeshire and Bedfordshire plus two additional bolt-on acquisitions, with equity backing from an August Capital fund and debt provided by HBOS, he and his board are eager to do it again.
"The care homes sector has seen a surge of corporate activity recently, reflecting the UK's high growth potential," says Philip Rattle, who led the HHG investment. "HHG is an exciting investment for us as it ties in well with our expertise in the sector. We are also delighted to be supporting Richard Clough, Graham Lomer (finance director) and David Bates (operations director) in their plan to develop HHG. In an industry not known for its in-depth managerial expertise, their track record demonstrates that they have the strategic, commercial and operational skills to run a successful care group."
"We have resources of up to £37m available, which still leaves around £20m that we want to put to good use," adds Richard Clough. Would-be sellers, though, need to know that only quality applicants will be considered. "We are keen to do the right deals at the right price. However, we have a demanding set of acquisition criteria, and if a home doesn't meet them, we will quickly move on."
Clough and his senior management team are respected in the sector, having built specialist care provider Care UK Plc to a Stock Exchange valuation of more than £100m. Their experience in, and awareness of, the healthcare sector is second to none, particularly in the market sub-sector of caring for the elderly mentally infirm (EMI), in which they are now carving out a niche.
EMI care presents inherent operational challenges. Social and regulatory requirements dictate staffing levels and other standards, meaning that certain key planning elements and certain metrics are beyond management control.
The niche does, however, also offer concomitant rewards. The average stay is longer and the annual return per bed is higher than in non-specialist elderly care. "The fundamentals of the sector and our own business model are strong," says Clough. "The demographics mean that the market is growing faster than other areas of elderly care and the business is strongly cash-generative post the initial capital investment. The very nature of the contracts with local authorities underpins the business by guaranteeing a strong, long-term income stream."
In addition to further acquisitions, HHG will be targeting organic growth through home extensions that will increase the number of beds available on the first purchases by around 20%, with only a marginal increase in staff costs. Clough will also be looking to his team to exercise tight control over staff costs, which currently account for between 45% and 55% of total costs in the industry. As the team is unable to do this by merely reducing staff numbers because of regulatory restrictions, the central plank of the strategy is to hire and train more permanent staff.
"The sector has traditionally relied on agency staff to meet short-term needs, but these cost some 40% more than permanent staff," he says. "The market is more suited today to the corporate approach to running care homes than traditional 'mom-and-pop' operations, and this is especially true when it comes to being able to afford to train staff better. We will plan staff recruitment to ensure we have as many of our own staff available as possible. That will increase quality, which will ultimately increase returns for investors."
Increasing bed occupancy is another route to growth, but as HHG purchases are already around 92% full, against a target of 93%-94%, possibilities here are few. Careful consideration of its aims and claims demonstrate that buy-and-build is the most sustainable way forward for Healthcare Homes in an unusually fragmented market, "hovering up" smaller providers as it goes. "We have the capacity to do more deals, and we want to grow quickly," concludes Richard Clough.
A good deal of "hoovering" is in prospect.
UK window hardware solution specialist Securistyle has announced the launch of two new products aimed at consolidating and expanding the company's foothold in the burgeoning markets of China and the Middle East. The growth opportunities in both markets are expected to increase the percentage of group exports at Securistyle during 2005.
"China and the United Arab Emirates are big opportunities for us," explains Nigel Thompson, sales director at Securistyle. "Traditionally strong areas such as Hong Kong and Singapore are being overtaken by these new markets that are enjoying huge confidence at the moment and the rapid development of new buildings that can use our products."
China has been the biggest growth area for Securistyle over the past two years. "We are working with a very good distributor there. We've really got our eyes trained on the Middle East and China," says Thompson. The company's new Excluder window lock, which will be available from April, is fabricator-friendly, economically priced and made of the highest-grade stainless steel, says Thompson.
It is also labour-saving - an essential attribute for replacement and new-build purposes in these rapidly growing markets. The second launch is an enhancement to the company's Defender range of hinges and is set to hit the market in July. Thompson believes that both products will help to build on its previous success in its target markets.
It began at the World Professional Darts Championship in Lakeside, moved west to cirque Du Soleil at the Royal Albert Hall, meandered throughout the UK regions, took in concert with Jools Holland at Hampton Court and culminated in an away day for the August Equity troops on HMS Belfast.
That's just a snapshot of the unofficial guide to 2006 at August Equity. Large amounts of thought goes into the group's events programme to ensure the firm appeals to the mind, body and soul of key contacts within the private equity and corporate finance community. Whether it is hosting a Deal Club or CurryClub event, the onus is on showcasing the firm's personality and determination to do things differently from other UK investors.
The official review of 2006, meanwhile, must include the fresh investments in Imagine Publishing, Rixonway Kitchens and Planit Holdings, plus three bolt-on acquisitions for Healthcare Homes. There were re-capitalisations for InterMed, Securistyle, while The Logic Group received a follow-on round of financing. Exiting from the group's Covent Garden headquarters were Discovery, ETT, Kangol and five smaller exits, thereby ensuring 2006 was an outstanding year for August Equity.
Aside of the deal roll-call, the year also saw the birth of a new name for the business, a new set of investors and some new team members joining the experienced professionals now primed to write the next chapter in the growth story of August Equity. "The evolution of our personality is a very good umbrella theme for 2006," says Andrew Hartley, joint managing director of August Equity. "Changing our name was the defining moment for me and 2007 will mark the business coming of age."
It seems apt, then, that the last Deal Club event of the year was focused on the value of brand building - August Equity itself provides a textbook example of how to execute the re-launch and development of a brand.
But 2006 was about much more than self-examination and development. "The number and quality of our deals in 2006 made it exceptionally memorable for me," says Richard Green, joint managing director. "Discovery is probably the key exit but we had two refinancings, Securistyle and InterMed, that provided strong returns for investors. It has been one hell of a year - the busiest one from a transaction perspective since 2000."
Away from the glare of the publicity associated with the name change and the development of innovative marketing campaigns, such as a series of award winning portfolio films, the year was distinguished by other successes. The team that looks after operational performance and driving improvements inside the portfolio, for instance, has established itself as a powerful force.
"Internally, we have made changes that are focused on improving the performance of our portfolio and refining our existing portfolio management team is just one aspect of that," says Ian Grant, who leads the team. "The exits of ETT and Kangol, plus the follow on financing for The Logic Group, are manifestations of this unit's work."
It demonstrates continuous improvement in practice. The portfolio management team provides two distinct advantages to August Equity. Firstly, it frees up the investment team to spend more time sourcing deals, by managing the historic portfolio. Secondly, it can provide a fresh and objective perspective on the state of the market and the merits of a potential deal within the investment committee.
This is another fruit borne of the vast amount of work undertaken in 2006 to generate a larger platform for future growth. "Entrepreneurs have a passion for growing a business," says Hartley. "What drives them is achievement and success - and the team here at August Equity is no different."
The arrival of new team members such as investment manager Keith Davidson and Denise Gallagher in the marketing department has bolstered and improved the shape of the organisation. Davidson, who joined from pricewaterhouseCoopers, has a particular focus on originating and executing investments across all four sectors.
At the time of writing there was still hope that the firm would close one final investment and complete another exit before the year is out, which will keep the team busy right up to the end of the year. But what does the future hold?
Next year is set to witness August Equity strengthening its relationships with key corporate finance intermediaries, executives within its shadow portfolio and other senior figures in its key sectors. "This year is going to be about deepening our partnerships with key audiences," says Hartley. "We are getting the message across. This is partly due to the personality of the firm and partly as a function of our team and collectively making things happen. We have the right team and the right brand and it should be an exciting year ahead."
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