The lockdown situation was also a factor in the practical aspects of due diligence. We were never going to ‘buy a business over zoom’, and so we spent as much time in-person, with Nick and his management team, as possible, which in the end was probably comparable to normal times. We typically see all physical locations and meet as many people as possible, and this clearly wasn’t possible. As a consequence , we deliberately ‘over-diligenced’ in other areas. We used a huge number of advisers and corralling them remotely was actually easier than trying to get them all into one place. We undertook extra customer-referencing and we listened into those phone calls – something we wouldn’t always do.
THE UK TEAM’S most recent investment, which completed in February, was a primary buyout in a fast-growing, founder-led business, operating at the forefront of global trade.
Ligentia is a Leeds-based international supply-chain specialist, founded in 1996 by its current CEO, Nick Jones. The opportunity came into my colleagues, Sebastien Leusch and our UK Country Head Steve O’Hare in the late summer of 2020, via Rothschild, with whom we have a very strong and longstanding relationship. Rothschild had chosen to run a tight process to find the right institutional partner to help the incumbent managers build-out the business. The nature of this opportunity immediately struck us as attractive, so we ran at it hard from the start.
Ligentia’s customers are mainly large UK and European importers that require support in the handling of supplies from Asia. It has a leading-edge technology-enabled services model and this is very important. But it’s actually the ‘service’ part that is Ligentia’s major differentiator. For customers, having a real person who can fix a problem is the compelling proposition.
For Ligentia, overall, the impact has been one of significant outperformance – and this needed to be unpacked in our analysis. In the first lockdown, Ligentia was affected by the fall in demand from bricks and mortar customers, but online customers increased rapidly. In addition, the business successfully pivoted to the healthcare sector, taking on the NHS and others as new customers to import critical healthcare supplies. Management’s ability to adapt quickly and do so at scale, provided great strategic comfort.
From the outset, we felt the founder-CEO, Nick Jones, was a really good cultural fit. He is extremely down-to-earth, and very humble. He is keen to learn and improve his business. He had never had an institutional partner and was looking for someone with a lot of strategic experience across many businesses. (This early impression has proven correct: the board meeting dynamic is really strong, and the leadership team want us to bring as much as we can in support of the business.)
Initial discussions with the CEOs are important to us, but in this case, it was central, since Nick was the founder and owner, and therefore the major decision-maker in selecting a buyer of his business and ongoing partner to work with.
In these situations, there is a real commercial imperative for us to win on the relationship. In well run sales processes, every detail counts, and so chemistry matters. But we also offer much more financial firepower than our competition, we have a genuinely international business, and a firmly management-centric investment style. For Nick, our ownership and support of Wallenborn was also an interesting case study.
A proper DD process
In the final discussions, Equistone’s investment committee focused keenly on unpicking the impact of lockdowns, and understanding our presentation of underlying earnings (which sought to exclude any one-off profits). In many ways, the business has a built-in hedge between healthcare and retail, as we are currently seeing with a retail bounce-back.
While the external picture still remains uncertain for everyone, the business is off to a strong start, with Q1 profits well ahead of plan. Most importantly, the underlying business is outperforming, with better volumes and margins. At the time of writing, we’ve just had another really important customer win, so the magic we glimpsed from Messrs Gill and Jones during the bidding process has continued. They would immediately want to point out that this has been a team effort.
Equistone has had good experiences with supply chain businesses, including German logistics business IN tIME Express Logistik, sold to trade in 2015, and our current European transport business, Wallenborn. I am sure Ligentia will be an exciting new chapter in that story. ☐
A full version of this article appeared in PLATFORM 05, Summer 2021