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GROWTH STORY FIRSTPORT

The (buy and) building project

Tim Swales and Isabella Boman-Flavell tell PLATFORM how Equistone is helping property management group FirstPort to unlock earnings growth through a buy-and-build strategy and transformative IT infrastructure project.

BEFORE THE INK had dried on Equistone’s acquisition of property management company FirstPort in late 2019, discussions began around key acquisition targets, and within the first year of ownership, the company has already completed its first large add-on acquisition. The purchase of Mainstay was completed in September 2020, and this was followed by the purchases of Chamonix Estates at the end of 2020 and Arcturus and Freemont in November 2021.

“M&A was a core part of the investment thesis from day one and we knew that it would drive upside to the base-case scenario,” says Equistone’s Isabella Boman-Flavell. “The market is fragmented and there are clear benefits to being a scale player.”

Equistone provided significant resource and support for the Mainstay deal – the largest the company had undertaken. Establishing an in-house M&A capability to fulfil FirstPort’s buy-and-build ambitions was a priority. (The business had only ever completed two add-ons prior to Equistone’s investment, and there was a concern that managerial capacity may become over-stretched as the rate of activity picked up).

“It’s quite hard to forecast what you’re buying and when you will buy it, and what size it will be,” says Isabella. “So the assumptions in the business plan were relatively high-level. We pushed the management team to be more proactive on M&A, and CFO Ouda Saleh really stepped up. But it was crucial for us to support them.”

FirstPort recruited a respected M&A Director to work alongside the CFO, and the business formed a structured approach to adviser relationships, origination, and due diligence internally. As a result, says Isabella, FirstPort is now a “proven buy-and-build platform.”

Isabella joined Equistone in February 2019 and within weeks of starting, she was brought onto the FirstPort deal team, led by Equistone Partner, Tim Swales. For Tim, integrating these new add-on acquisitions is a priority and “will go to value” when time comes to exit.

“An effective buy-and-build platform must be able to originate, execute and integrate. Integration is the third leg of the stool,” says Tim. “If you get to an exit and you haven’t integrated, it will be a value detractor. You need to integrate properly and the FirstPort management team has demonstrated that they can deliver integration.”

An effective buy-and-build platform must be able to originate, execute and integrate... If you get to an exit and you haven’t integrated, it will be a value detractor.
Tim Swales

Digital drive

Digitalisation is the other pillar of the Equistone value creation plan for FirstPort and after two-and-a-half years of Equistone’s investment period, the business is nearing the completion of a new IT system implementation.

“In due diligence it became very obvious that the property management industry was still quite analogue, but also that it was difficult to build a system that can deliver what is required to manage blocks at scale,” Isabella says.

Despite the upfront investment and complexity involved in systems-overhaul, Nigel Howell, the chief executive, was convinced of the value and return on investment that new technology would drive across the business.

With Mr Howell driving the project, Equistone has supported FirstPort in the roll-out of a “best-of-breed” software platform combining and integrating four industry-leading software applications covering property asset management, third-party procurement, customer service and sales, and accounts and finance.

“The idea is that by integrating all these things, you have an automated property management tool that combines the key aspects of property management,” Isabella says. “It makes reactive repairs quicker and more streamlined, enables proactive ongoing property maintenance, and ensures clear, real-time reporting and communication.”

The project has involved significant capital investment and any digital systems upgrade of this scale comes with risks. To mitigate these, Mr Howell has been heavily involved in the project, and the modules have been rolled out gradually to make the switchover more digestible. FirstPort was also introduced by Equistone to Phil Tyler, who has been brought in as Chief Digital Officer to support the transition and drive improvements in the underlying systems.

There is genuine passion across the business to push [digitalisation] forward and there is no one else in the market who has anything like what the business has.
Isabella Boman-Flavell

“There is still more work to do – several iterations and upgrades to implement. There is genuine passion across the business to push this forward and there is no one else in the market who has anything like what the business has,” Isabella says.

On completion the IT implementation will not only have delivered significant gains in efficiency, customer service and profitability, but also opened up new channels for growth. “One aspect of the system is communicating with the residents in every building,” says Tim. “If part of the system is on a resident’s smart phone, providing essential leaseholder services such as giving them their accounts, you could also offer other value-added services. FirstPort has a huge amount of opportunity, and it could drive the next phase of its growth.”

FirstPort's Chief Digital Officer, Phil Tyler, CFO, Ouda Saleh and Equistone's Sebastian Leusch.

A solid foundation

FirstPort was initially put on the market by Epiris and Chamonix Private Equity in mid-2018. Equistone was invited to participate, and Tim met with management early on. FirstPort was an appealing prospect, with resilient recurring revenues and long-term year-on-year growth. But there were complex issues to analyse, and the process was crowded and being run on a short timescale. Equistone decided to walk away.

“There were a few factors that saw us opt out of the auction,” Tim recalls. “We liked the business, but there were some key operational issues that we wanted more time to interrogate. The company was marketed widely, with high price expectations, and we felt that we wouldn’t have been able to do the work we needed in time to meet the bid deadline.”

But rather than wash their hands of the opportunity, Tim was able to stay ‘in the loop’ through his long-standing relationship with the company’s sell-side advisers.

It can be easy to look to the next opportunity when you decide not to go for an asset, but we had sensed that the FirstPort situation was fluid, so we kept an eye on developments.”

This judgement paid off a few months later when the initial sale process had not gained sufficient traction. Moves to establish a bilateral discussion were made and Equistone was granted a period of exclusivity to undertake the work required.

“Trust, personal relationship and Equistone’s reputation all came to the fore. Counterparties know that we are a straightforward bunch, that we don’t play fast and loose, that we tell you where we stand and that we treat people as we would like to be treated when information is shared with us,” Tim says.

Securing access in a bilateral-like scenario gave the team the time to get under the skin of FirstPort and deploy initial buy-side resource with the confidence that the probability of securing a transaction was much higher.

Due diligence flagged a number of issues that needed working through, and so the team asked Sebastian Leusch to join the effort. The lengthiest question to unpick was the company’s service, which had garnered some unfavourable customer reviews online – but closer inspection showed significant recent improvements under the company’s new CEO.

“We found that FirstPort’s operations were sophisticated, professional and well managed, and the business’s extremely low loss rate of properties was in no small part due to the efforts of the whole business to deliver a good customer experience,” says Isabella.

We found that FirstPort’s operations were sophisticated, professional and well managed.

Another key strand of the due diligence process was IT and digitalisation, with Intuitus brought in to review IT infrastructure and the scope for a digital transformation programme.

“The business was relying on legacy systems, and management wanted to undertake a capex programme to upgrade its platform, so that was also thrown into the mix and a key area to top up on,” Tim says.

Less than three years into the hold period, with FirstPort’s market-leading technology programme well underway and a cluster of strategic acquisitions under its belt, Equistone’s ability to get under the skin of a deal target appears to be paying off. 

A full version of this article appeared in PLATFORM 06, Winter 2021/22

Since publication, Equistone has announced that FirstPort is to be acquired by Emeria, the European leader in residential real estate services. See press release.