Serial success in the middle market

Paul Hick is a serial entrepreneur planning to apply strategies that worked with a jeans company to a garden equipment manufacturer. He recently teamed up with Close Brothers Private Equity to back the management buyout of Walton Garden Buildings, a UK-based supplier of timber sheds, play houses and summer houses.

“There are challenges that I have addressed at previous companies that can be applied to other businesses,” said Hick, Walton’s newly-appointed executive chairman. “My aim is to use this experience in support of the management team at Waltons as it looks to grow the business.”

Hick has two recent exits from VC-backed companies to his credit, including the sale of Lee Cooper Group, the jeans manufacturer. His involvement in Waltons is the result of a two-year relationship with Close Brothers Private Equity, which was contacted by an accountancy firm preparing the business for a sale.

Simon Wildig, one of the partners who led the Waltons transaction for Close, recognises that serial entrepreneurs can give private equity firms an edge in auctions. This is significant because competition for assets is increasing in the middle market and auctions are becoming more frequent.

“Every firm is trying to get to businesses first and serial entrepreneurs can help to build the kinds of relationships that reduce the likelihood of an auction. Alternatively, in the event of an auction, these relationships can help to get you into the position as the preferred bidder,” Wildig said.

Close has a stable of about 12 entrepreneurs, who have a track record of creating value for private equity firms and themselves. The individuals tend to be generalists, who can help management teams get off to the kind of fast-track start expected by private equity backers.

The group has been amassed through networking and introductions, which Close follows up with a period of courtship and direct referencing. Once this process has been completed, the firm and the entrepreneurs jointly research opportunity scenarios.

The collaboration is by no means exclusive, however. Hick has also had relationships with other firms, although he expresses affinity with the way Close Brothers conducts its arrangements.

“I like Close Brothers Private Equity’s approach, they don’t necessarily come at opportunities with a pre-ordained and designated plan,” he said. “They understand better than virtually any other VC the benefit of working, at a very early stage, with an entrepreneurial chairman who has run companies and understands the dynamics of family businesses.”

Hick was introduced to Close Brothers two years ago and, while Waltons is his first deal with the firm, he has been working on several projects with other partners in the interim. The association enabled Close to win out against two other private equity firms looking to acquire the company.

Close, Hick and Waltons shareholder Nigel Walton had their first meeting in August 2004. Barry Walton, one of the two family owners of the firm, had decided to retire, while his brother was supporting a buyout plan led by operations director David Wood.

“We decided to start networking with the shareholder and to involve Hick in the process from the start. This allowed us to gain an understanding of the vendor’s objectives and facilitated early access to the management team,” Wildig said.

The approach paid off when, three months later, Close went exclusive as the preferred bidder. Hick had started his own networking with Nigel Walton from the outset, gaining the crucial access to the management team in the process. “This gave us a deeper understanding of the business and the ability to establish a sympathetic rapport with the management team,” Hick said. Close’s offer was also distinguished as the only bid to propose an executive chairman. This left the post of managing director vacant for occupancy by a member of the management team within around six months. The management team also includes Lee Ashby, logistics director, and Jonathan Fairhurst, IT director.

Hick plans to spend between two and four days a week in his capacity with Waltons. He spends a further one day a week as executive chairman of Maximuscle Holdings. Going forward, he will look to support management in brand repositioning, product innovation, manufacturing efficiencies and supply chain management.

Waltons has a 20% share of the growing garden leisure market, although its real strength lies in its distribution capabilities. The firm manufactures garden equipment and delivers 125,000 units a year to independent homes. It distributes its own products but a few months ago negotiated to deliver products on behalf of retailers Argos and B&Q.

The company is also addressing product innovation. It has developed a double shed format, which takes up the same amount of space in the garden, but which is significantly higher than existing models. This provides extra storage space as demands on limited garden space are increasing.

For its part, Close is prepared to let Hick and management lead the creation of shareholder value. “Our view is that we’re financiers, we take a hands-off view and let the executive chairman and management get on with operations,” Wildig said.