Brexit or not, economically Britain still matters
The UK is the world’s 6th largest economy, with a GDP exceeding $3 trillion. British SMEs account for 61% of total employment and 54% of total turnover in the economy (source).
The large number of high quality industrial SMEs is not a revelation. Swedish serial acquirers such as Lifco, Indutrade, Lagercrantz and Teqnion have known this for a long time – and acted on it.
What’s surprising is how long it has taken for sizable UK based repeat acquirer / decentralized business models to emerge.
Sure, the UK hosts the largest number of technology focused serial acquirers anywhere on the continent, especially insofar as PE backed platforms are concerned.
Much less so on the industrial side. Businesses like Judges Scientific (which we covered in a recent article) and CorpAcq have clocked up decent ROICs since being established in the early 2000s – and yet neither arguably has scale in a global sense. Judges is sub $200M in revenue. CorpAcq is a touch below $900M. On the other hand, Lifco is $2B+. Danaher is $25B+.
Is there room for another UK acquirer?
Enter n industries
I posed this very question to Jonathan Bates-Kawachi, the CEO of n industries, an emerging acquirer of British industrial SMEs. Jonathan has 13+ years experience investing in industrial businesses as an equity investor, and he’s partnered with heavyweights like Duncan Penny and Paul Simmons as advisers.
Who are they exactly?
As the CEO of XP Power for a 17 year period, Duncan helped compound EPS at a 20% CAGR. Paul comes from Halma, a highly successful decentralized serial acquirer. As Halma’s Safety Sector CEO until 2020, he was responsible for c.50% of group revenue.
Duncan and Paul share Jonathan’s conviction that there is room for a UK based scalable repeat acquirer targeting £2M to £15M revenue industrial businesses.
The elevator pitch
n industries’ target IRR is “at least” in the high teens excluding any multiple expansion – driven in no small part by Jonathan’s belief that the portfolio will deliver above-GDP organic growth rates, with cash flow reinvested into carefully selected high-returning operational investments and M&A.
Both Duncan and Paul have a track record of delivering high organic growth in their careers and n Industries has positioned itself to target higher than GDP market segments/niches within the UK industrial market. The team believes that higher organic growth in high return markets creates a flywheel of greater cash flow and balance sheet capacity for even greater growth going forward.
This approach aligns with the playbook of Judges Scientific, an established UK serial acquirer, as per the recent interview with the founder and CEO David Sicurel.
For business owners, n industries offers multiple attractive reasons to partner with them:
- Autonomy to continue strategies that have made the business a success
- Succession management/long-term partnership
- Permanent capital and willingness to invest in well thought out growth strategies.
- Operational know-how
- Ability for managers to share in continued success of business through retained ownership model
- Sharing of best practice across the group
How big is the opportunity?
According to Jonathan, the investable universe comprises 10,000+ companies. He and his team have spent recent months building a proprietary database and reaching out to prospects.
I am excited to see which businesses will join n industries!
The plan is to acquire 25 to 30 businesses on a 6-7 year horizon, with a combined EBITDA of £35M (c.$45M). This will require meaningful capital. If you are interested in becoming a shareholder, please reach out to Jonathan!
