When Dunedin Capital Partners sealed a deal to acquire the Letts diary business in 2000, the firm already had its eyes on the Filofax brand, recognising that consolidating the Letts and Filofax brands would bring attractive synergies. The prediction was correct and Dunedin is now reaping the benefits of a lucrative exit to Phoenix Equity Partners, which hopes to extract further value from the business. Angela Sormani reports.
Dunedin Capital Partners has sold the supplier of personal organisers and diaries in a secondary buyout to Phoenix Equity Partners for £45m. Dunedin Enterprise Investment Trust plc, the investment trust managed by Dunedin, will receive £18.2m from the sale. The firm originally invested a total of £4m and will have received £24.1m in capital and income from the investment returning a money multiple of six times which represents an IRR of 52% over five years.
Letts Filofax designs and sells organisers, diaries and related accessories through its two UK and nine overseas subsidiaries. It has one manufacturing plant that produces over 22 million books per year. The business exports its products to over 40 countries worldwide.
The business started out as two separate entities, Letts and Filofax, both with strong brand names and yet both in need of a boost to extract maximum value from their businesses. Dunedin initially invested in Letts in 2000 when it supported the £17m management buyout from Bemrose, led by managing director, Gordon Presly and finance director, Gordon Raw. The strength and focus of the management team impressed the Dunedin team and the deal was completed quickly in the face of fierce competition from trade and other financial buyers.
Brian Scouler, managing director of portfolio at Dunedin, said: “The business was very cash generative and had a very good management team. Our plan at that stage was to grow the business and to de-gear it. When we did the Letts transaction we were also aware that Filofax was in difficulty and there might have been the possibility that it came up for sale and so it was on our radar.”
Dunedin acquired Filofax the following year in a £14.5m acquisition from distressed vendors, also manufacturers of calendars and planners, Day Runner. Dunedin supported the acquisition soon after the initial buyout eager to combine the two businesses to make the most of opportunity in the sector. Since the original buyout, the combined business of Letts and Filofax has seen annual profits grow by over 70% driven by a strong management team and Dunedin’s strategic support.
Scouler said: “The real driver for profitability came from the duplication of that particular business sector and from that a significant opportunity to save costs. We were also able to get a lot of operational savings from the two businesses in terms of manufacturing. The business was also very successful at generating cash. The company had de-geared by 2005, a year ahead of its sale, and so there was no debt in the business and the shareholders got all the cash.”
With Dunedin’s support Filofax was able to grow its top line management and re-invigorated the brand, introducing new, brighter colours and complementary accessories, such as handbags, and hence attract a whole new customer base. In the 1980s and early 1990s, Filofax was associated with the yuppie generation and products were manufactured in conservative blacks and browns, but with a revamped, brighter and more fun image, it is now women who make up the majority of Filofax purchasers. Students are also a growing target group for the business.
Internet sales are also doing well, says Scouler. “Once you have a Filofax user you have generally secured them for each year after that: as a brand it attracts fantastic
Gordon Presly, Letts Filofax group chief executive, said: “Since acquiring Filofax, the group has developed into a robust international operation producing excellent returns. We have invested cash, time and resource in all aspects of the company both in the UK and overseas, which has helped to generate an impressive financial performance over the past five years. We have a committed management team who are re-investing in the group and that is a very positive sign for all our customers and employees. “
Scouler still sees significant growth in the business: “The key to growing the business is to get the new, younger customers, such as the students, on board.”