In an exclusive interview, Billy Allan tells Sara Bean what prompted him and his partners to launch Aliter Capital, a new private equity investment firm focused on the support services sector, and why he believes it is uniquely placed to benefit the FM market
Back in March of this year a new £92 million fund, Aliter Capital 1, was launched to invest in small and mid-sized support services businesses across the UK. What made this announcement intriguing was that the group of entrepreneurs behind the fund are all big hitters in the support services field. Between them, Billy Allan, Greig Brown, Andy Galloway and Andrew Busby have years of experience in building businesses in facilities management, electrical and mechanical engineering, logistics, laboratory services, IT networks, fleet management and environmental services.
Billy Allan Greig Brown Andrew Busby Andy Galloway
Aliter also disclosed that its first investment had already been agreed with Edwin James Holdings (EJH), a Glasgow-headquartered technical services provider operating across Scotland, which employs 360 staff and has revenues of £37.5 million. So what could this private equity investment firm offer EJH and other ambitious firms within the support services industry?
“I believe we’re the only fund that is exclusively focused on this sector, and there are two reasons for this,” explains Billy Allan. “One being that three out of the four partners have worked extensively within the UK support services sector, so it is an area we know intimately. The second reason is that we think it is a great sector, incredibly strong and has huge potential for the future.”
Greig Brown also began his career at Stiell, and after its sale became a Director of McAlpine’s Business Services division. This was followed by a move into a UK Managing Director role at Emcor. He joined Europa Support Services as CEO in 2008, which, after a period of growth, culminated in the sale of Europa to Bilfinger in 2013.
Chartered Accountant Andrew Busby has managed a number of private equity investments through the cycle from initiation to exit, and has served on a number of boards – including Europa Support Services, where he met and worked closely with Aliter’s other founding partners.
Completing the picture is Andy Galloway, who bridges the finance and commercial spheres. Coming from an engineering background (he joined Stiell as an apprentice), he has held Commercial Director roles at Stiell, Alfred McAlpine and Europa Support Services. Latterly, he has been involved in the due diligence process in over 40 acquisitions, working closely with legal and financial professionals.
Aliter is targeting the support services market, but will concentrate on technical services companies rather than looking to invest in soft services providers. Explains Allan: “There is a place for soft services, but we’re less likely to invest because the opportunity for differentiation is much lower, as is the opportunity for innovation. It’s my belief that a building doesn’t function because of soft services, it does because of the hard services and engineering. By investing in engineering businesses, and particularly high end ones which are involved in condition-based maintenance, we can look at the entire asset performance.”
He explains: “If you look at the cost of facilities management versus property, versus the people who occupy the space, typically, the cost of rent, rates, heat and light will be ten times the cost of the facilities management service. Yet FM providers are often fixated on reducing the cost of the service when they should be working on the efficiency of the space and the effectiveness of the person performing their function in that space. If you’re simply focused on, for example, cleaning three rather than five days a week, and if you regard that as innovation, you’re wrong. You’ve got to look at the space and the person in that space, and how they perform. It’s got to be about engineering, that is, heating, lighting, and the effects these have on human function, absenteeism, sickness rates and the energy efficiency of the building.”
He points out that if you take a building which was designed for 2,000 personnel, but the organisation needs to expand, instead of reconfiguring the building you can simply compress the space, whether it is reducing the desk size, increasing the ventilation to improve the air flow, or improving the fire safety by creating more fire escapes. “That means the client doesn’t have to rent additional space but can instead get the extra staff into the building in a more efficient manner. That’s how you solve a problem for corporate clients, not by locating them into a new building.”
BUILDING A PLATFORM
As well as bringing a level of expertise to its investment portfolio, Aliter will differ from a typical private equity fund, which would typically have 10 to 12 platform investments, by concentrating on just four. The first is EJH, within the technical services space; the second is in the utilities and infrastructure space, with investment in utilities services firm Ipsum Group; and platforms three and four will come from the broader support services sector.
Says Allan: “Initially, for building a platform we’re looking for a profit level of £1 million to £5 million, but once we’ve established the platform, as in the case of Edwin James Holdings, we would quite happily look at bolt-on acquisitions of a smaller size. So we’re happy to scale down and write smaller cheque sizes. We might look at something that’s generating profits of a few hundred thousand, and because we have an infrastructure and a management team established, we can begin to bolt on other investments. For EJH we’ve bought the Midlands-based mechanical and electrical engineering firm WT Parker, so that now gives us a combined business that offers us UK coverage.”
Of course a major issue for any firms looking to access the fund is the level of day-to-day involvement of its investors. Allan maintains that while the Aliter team will continue to invest even when times are tough, roll their sleeves up when there’s a problem and stand alongside as shareholders, they won’t interfere with their management. “When we sold the Stiell business to McAlpine, we were left to get on with it and it grew threefold in a short period of two and half years. We’re cognisant that for any management teams who are smart enough to build their own business, what they want from us is to help them continue that growth – and what they don’t want is for us to run the company.”
He continues: “With the Europa business we invested with in 2007, I wasn’t hands on – Greig was the Chief Executive, I was the Chairman. Over the last 10 years I’ve been used to much more of a hands-off chairman-type investor than being hands on. So while our natural inclination in the past would be to run the company and make decisions for it, we couldn’t do that across four platforms. What we can offer, given our experience, is being a touch point with the ability to see the bigger picture from our experiences of what’s happened in [FM] in the longer term, and work with our investments to develop their strategy.
“Hopefully people will start to read articles [such as this] and see that Aliter is a different investor. We are not a traditional private equity investor; in every respect we look and feel like them in terms of institutional capital, the disciplines around investment are the same and the levels of governance – but behind that is our knowledge of the sector and a deep understanding which no other private equity firms share.”
Allan believes that with the support services market being increasingly commoditised, there is a real danger that corporate clients may begin to look at an insourcing strategy, and that is why the sector must develop new innovations and new methods to compete. One of the big issues for many support services firms is the challenge of training and developing their people.
“We know there are management teams out there that are frustrated about the lack of innovation, understand the market is changing and want to do something about it,” he says. “They are the kind of people we want to come and talk to us, irrespective of size. They know that the business can be run better, that there is a better way to train and develop their engineers, and it might be simply that the people they get from the universities and colleges are fine at grassroots level, but they want to take the quality of that technical personnel to a different level. We want to hear from companies like that.”
He adds: “We will be investing in this space over the next few years to be a partner with the best technical engineering firms out there, who are using new technology and new IT systems in a way we haven’t seen before, but who may be having issues about access to the best investments to grow their business, want to be part of a larger platform and have access to greater sources of brainpower and capital.
“We want to connect them with that opportunity. We want to talk to them.”