Barclays Private Equity
|"There is no gap in our message. When we say
'yes we can do it', that's what it means." —Tom Lamb
"In our business, winning deals is not necessarily a matter of writing out the biggest cheque," says Tom Lamb, Co-Head of Barclays Private Equity. Although our money is the same as everybody else's, the difference is in the transaction process and what comes with it. When we look at potential investments, we have a very clear idea as to what sort of deals we want to do and how we do them. So there is no gap in our message. When we say 'yes we can do it' that's what it means."
This clarity of behaviour also extends through the deal-negotiation process. So for all its transactions, there is an investment committee, with three people at its core.
"For instance," adds Lamb, "if someone from our team is considering an investment opportunity, we can arrange a committee meeting at short notice, where we sit down and make a decision. Our sanctioning process doesn't get twisted around in some hierarchy where one would need to wait weeks for an answer."
As the due-diligence proceeds, it isn't just a simple 'yes' or 'no' decision. There are lots of twists and turns. Things change, new factors come to light and so on. Typically, when Barclays Private Equity gets a business plan that looks interesting, the investment executives working on the deal have a preliminary internal discussion at an early stage with the investment committee, which looks at the various aspects of the deal, such as the price, the strengths and weaknesses and areas that need to be worked upon.
Explains Lamb: "At this stage our people who are running the deal go back to the vendor and the buyout team and inform them as to approximately what we would be willing to pay, our terms and what our key issues are. Our people then compile a detailed investment report, having done all the due diligence, including the market, the financials, detailed interviews with the management team and the main legal aspects of the transaction. Although this might involve four to six weeks of actual work, it often takes longer due to various factors such as waiting for information, or a response from the vendor, etc. Sometimes there are issues regarding the concentrations of skills in a few people, for example the sales director might control all the important sales relationships or the managing director might have particular relationships with key suppliers and so on. So there are different aspects and challenges in terms of getting to understand the business. Getting the deal done often seems like a huge mountain to climb in a relatively short timeframe but it is, in fact, merely the start of a relationship that carries on for a number of years. Therefore, for us, it is important to agree with the management team on the objectives regarding the strategy development of the business as well as the exit plan, before we invest. Even within the management team there are usually people with different priorities. There may be someone close to retirement and somebody else who wishes to stay with the business for many years. So we need to take all their personal and business objectives into consideration and see how they can be aligned with ours."
"This is why," he further adds, "it is important for the management team to pick an investor and, more particularly, people that they feel comfortable with. For instance, when managers of a team is looking for private equity, they generally evaluate a number of different offers but should usually be able to get the best deal from the person they really want to work with. If you get five offers and you go to the private equity house you like best and tell them frankly: 'your offer is not the most attractive but we prefer you as people, and this is what you have got to do to win the deal,' in most cases the private equity house would be willing to go that extra mile. In our business we are all using the same IIR models and targeting approximately the same returns. So winning the deal, particularly in the mid-market, is more about the relationship than anything else."
Within this mid-market, which extends to companies with a value of up to €500 million, Barclays Private Equity's core investment focus is in the range of enterprise values of between €25 million to €250 million. The firm has been active in this 'lower' mid-market since the mid-1990s and that is also the area in which it has developed its people-skills.
Says Lamb, "When we talk about the UK and the Continent, our core business is management buy-outs and buy-ins, essentially divestments from large corporations and transactions involving privately owned companies or helping to resolve succession issues. We focus principally on countries where we have an office-in the UK we have four offices, and one each in France , Germany and Italy. Occasionally we look at deals outside these territories, but in our business we need to have local people who understand the culture and are in close proximity to the companies we invest in."
Currently it is operating two funds. The first mid-market fund, with a size of €1.25 billion, is nearly fully invested. In February this year, the firm closed its second European fund of €1.65 billion. In the three years since the first fund was established, Barclays Private Equity has completed more deals than any other private equity house in its target market. The second fund will have a similar investment profile and, in the next four years, will be invested in up to 50 companies in the UK , Germany , France and Italy, among others.
In terms of divestments, one of Barclays Private Equity's most publicised exits has been that of Admiral—the direct motor insurer. The company went public on the LSE in a € 1 billion flotation in September 2004. Barclays Private Equity achieved a total return of 15 times its original investment and an IRR of 87% over nearly five years.
Barclays Private Equity is what the industry calls a semi-captive, in the sense that its parent, Barclays, is one of its major investors. Historically, many institutional investors have shied away from semi-captive private equity houses. Barclays Private Equity, however, considers that its institutionalised management structure and corporate governance which, as a semi-captive it is obliged to adopt, is now better appreciated by the LP community
"The ratio between money from Barclays and from other blue-chip external investors is roughly fifty-fifty," says Lamb. "One of the advantages of our structure is that because we are part of a large bank, we have a more institutionalised management structure than many of the independent funds, which tend to be dominated by particular individuals. They raise the money and drive the decision-making. We, on the other hand, have an internal corporate governance system that is extremely robust because our management team is directly accountable to our parent company in terms of how we run the business. This eliminates most potential conflicts of interest and in cases where there could be a conflict, such as when we occasionally buy or sell companies to Barclays, we make a full disclosure to our investors."