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Link, share, join, listen ...
Over the last two months I have been speaking to more Interim Managers that are getting frustrated with over complicated hiring processes that are based on a “recruitment = one size fits all” approach. It appears that these processes seem to be increasingly accepted by some hiring companies and some Interim Management providers (who I understand are just trying to secure more work for Interim Managers on their database).
I am also seeing more and more career Interim Managers that are carefully selecting a small amount of “go to market” Interim providers that know them as individuals, understand their approach and can effectively communicate their method of delivering results to clients.
Given your experiences over the last couple of years, do you think that true Interim Management is getting lost in recruitment?
Mark Kitchen is Head of Business & Support Services for Interim Partners.
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Despite fears that the UK economy is about to re-enter recession it seems that the London commercial property market remains a key destination for foreign investors looking to plough money into bricks and mortar.
According to Cushman & Wakefield, £6.3bn worth of deals were transacted in the City last year compared to £4.7bn in 2010 with at least 30% coming from overseas investors. St Martins Property, the Kuwaiti royal family’s sovereign wealth fund, are also following this strategy by selling off ‘non-core’ retail and industrial assets to free up cash to acquire more ‘trophy’, commercial assets in central London. Whether you agree with this strategy or not it all speaks positively of the London commercial property market and its desirability to foreign investors. This can only be a positive trend for the London economy and, alongside our strong Financial Services presence, will help maintain London as a global business powerhouse and reliable source of long-term return on investment.
In addition to the perception of London as a secure destination for foreign investors its geography will intrinsically contribute to push prices upwards as demand outstrips supply. With space at a premium in central London, development of any kind is limited and will inevitably lead to a bidding war. Furthermore, landmark developments like the Shard and the Walkie-Talkie require such a huge financial outlay that they are restricted to only the largest of companies – so it seems likely the clamour for high-quality real estate in London will continue to drive prices upwards, especially with all eyes on London in the Olympic year.
One note of caution, however, is the declining occupancy rates of London office blocks. According to James Young, Head of Cushman & Wakefield’s City office:
“Occupiers in general remain cautious and a number of decisions have been delayed. With the current economic uncertainty, 2012 will see take-up significantly below average. A number of planned schemes are likely to get pushed out and pre-letting is still a major requisite for most schemes. Prospects for demand look more positive looking further out, due to the volume of lease expiries beyond 2013.”
We may see occupancy rates in office blocks dip as businesses shy away from committing themselves in these uncertain times but I think we can continue to expect a lot of interest in London’s commercial property sector as investors take the long-term view over strong investments yields.
What do you think – I’d be keen to hear your thoughts?
Paul Phillips is the Senior Business & Support Services Consultant at Interim Partners.
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I read numerous articles last week (and even watched a couple of BBC news reports) about employers’ reticence to give employee references. This discussion was prompted by Baroness Dech, who said that job references are ‘not worth the paper they are written on’ because of controversial data protection laws that give employees the right to see their references:
This got me thinking about Linkedin and to what extent referees will only give a positive reference on a previous employee because of the litigation risk. As the recommendations on Linkedin are requested by the employee directly and then posted on a public forum, how does a referee give a full true and accurate account of their experience?
With our data protection laws and appetite for social media are we in danger of stifling the age old practice of taking employee references?
Mark Kitchen is Head of Business & Support Services at Interim Partners.
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Sales and growth is the new cost reduction, companies are once again focussing on market share and new service lines whether that is through organic growth or acquisition.
Almost every CEO or Investment Director that I speak to recently is asking me about one of the following; sales transformation, business development or corporate development. The next question from them is very specific: Does a career interim manager who specialises in one of these areas really exist? The answer from my practice area is a resounding YES and then backed up with some of our recent successful case studies.
This apparent lack of awareness had led me to look at the market audit figures produced by the Interim Management Association, the IMA does not record the % number of assignments completed within the sales function. Is this because the number is so small that it does not warrant its own representation? I understand that sales transformation project managers may be reported under the project management function but I am still surprised that the sales function does not even warrant a mention.
So the obvious question remains; how can we increase the profile of career Interim Managers who specialise within the sales function?
Mark Kitchen is Head of Business & Support Services at Interim Partners.
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I read the article written by Richard Holden from Catalyst Corporate Finance today which was also published in the FM World magazine and thought that the subscribers to my blog would be interested. It is a good overview of private equity and how it affects the Support Services Industry.
I would of course add that the use of Interim Managers is well practiced within the private equity industry, many of the case studies that Interim Partners have produced over the years have involved us providing Chairman, CRO, CEO and CFO support to increase best value on exit.
Please feel free to share your experiences, I am particularly interested in hearing about how you see Interim Managers adding value to the private equity Industry.
Secrets of private equity
Private equity is a much misunderstood term. Richard Holden translates some of the jargon and explain why private equity can be a great enabler for businesses and make managers rich
10 February 2011
According to the British Venture Capital Association, the industry trade body, private equity is: “medium to long-term finance provided in return for an equity stake in potentially high growth companies, which are usually privately owned.”
Private equity firms are essentially fund managers who invest money on behalf of large financial institutions in private businesses with the objective of selling those businesses later for a large profit. This is usually done through a management buy-out transaction (MBO). The private equity fund invests alongside management to acquire the business from its shareholders, and helps management to deliver a high growth business plan.
Most private equity funds aim to sell or ‘exit’ after three to five years, realising their investment. In reality this is often more like four to seven years as business plans usually have at least one kink in them that can delay the exit.
So why does private equity generate such high returns for its backers? The answer is a combination of financial structuring, good business and financial disciplines, and picking the right investment (better known as a good dose of luck).
Private equity transactions usually occur because a change is needed in a business. This will usually be a change in ownership – for example retiring shareholders passing on the reins to the managers – but is often much more than that and typically heralds a step change in the business size or performance.
The management team that takes over the business will normally want to stamp its mark on the company strategy and may need investment to access a new market, acquire a competitor or develop new products. It could be recognition by the former owners that they had driven the business as far as they could. It could also be that the business had not performed to its full potential and needed a more professional set of managers with stronger financial controls.
Whatever the underlying reason, truly successful private equity investments all experience this step change in growth and as a result can normally be sold a few years later for much more than they were bought for. Without private equity funding it is likely that some businesses would never reach their full potential. Good private equity firms are those that can achieve these results across their portfolio of investments.
How do the managers make their money?
One of the key principles of private equity is that it is the management team who runs the business, and therefore the private equity executives are as much gauging the quality of the CEO and his team as they are analysing the potential performance of the company. The investors sit on the board and contribute to the high level strategy of the business, but they are reliant on the management delivering what they have set out in their business plan.
Deal structures are all about goal congruence and that means that the management team needs to be properly incentivised. This is done through equity. In other words the management team become co-owners of the business with the private equity firm. In an MBO, the management team has the opportunity to acquire shares in the company, and as shareholders, their best chance of making serious money is to increase the value of the business they run. They will be paid a decent enough salary but most of their earnings potential over the investment period is skewed to creating and then realising shareholder value by achieving the following:
- Increase the company’s profits and cash flows
- Pay down the bank debt
- Position the business as an attractive acquisition target on exit
Managers can earn many times their initial investment from a successful MBO and this is why the opportunity to be part of a buy-out is often seen as a once in a lifetime deal. Running a private equity portfolio business successfully and selling for a large sum requires an enormous amount of hard work and talent. These deals are not guaranteed successes as many business owners know to their cost.
An MBO is a leveraged transaction. This means that the private equity fund uses bank debt to ‘leverage’ its own equity funding to allow it to buy businesses but invest as little of its own money as possible. In most cases bank debt will comprise more than 50 per cent of the total funding. When a business is saddled with a lot of bank debt, its financial flexibility is much reduced and it does not take many things to go wrong (for example, a couple of large bad debts or the cancellation of a large contract) before a company can be in default of its banking commitments.
FM and private equity
There are currently around ten buy-and-build platforms operating across a range of different sub-sectors in the facilities management sector. These include multi-service FM, workplace services, cleaning, social housing maintenance and compliance.
The major issue for the FM sector in attracting private equity money today is growth. As discussed earlier, private equity depends on businesses going through a period of high growth to achieve its objectives, and the FM market is now relatively mature. It is more difficult to drive growth in what has become a highly competitive and professional marketplace with continual downward pressure on margins.
An alternative to organic growth is of course to grow through acquisition. The FM sector is very fragmented below the majors and lends itself well to the buy-and-build model – one company making a series of small acquisitions to achieve high growth. Bolt-on acquisitions now represent 60 per cent of all private equity deals in the sector.
FM buy-and-build investments have focused on two models. The first has been to create a specialist provider of scale. The second has been to merge providers of discrete services to create a bundled offering, such as combining cleaning, security and washroom services businesses. Success in building businesses in this way relies on a strong management team, early identification of targets, integration of each acquisition, investment in systems and a clearly defined exit strategy.
The real challenge is to extract synergies from each deal and to create a unified business that is strategically attractive to a larger trade buyer.
There has not been a strong exit from an FM buy-and-build investment in the last couple of years, however the likes of PHS, Europa and LPM will all be eyeing the exit door if the economic recovery can be maintained. Let’s hope they’re a success.
Richard Holden is a principal at Catalyst Corporate Finance advising on company sales, management buy-outs and acquisitions.
Mark Kitchen is Head of Business & Support Services at Interim Partners.
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You may say that this is not unusual as most Chief Executives would like to grow their business every year but this year it seams different. ln 2010 clients were speaking to me about cost reduction, margin improvement and cash, this year so far it has all been about growth, market share, new revenue streams and acquisition / integration.
It is also encouraging to see the first private equity deal of the year in Support Services with Endless investing in Liberata and the big news in the industry will be about Costain if they are successful in purchasing Mouchel.
I think that we will also see many more high profile bundled deals being won by support services companies from central and local government. This could transform the service offering of the organisations who are bold enough to break into complimentary services.
I would be interested to hear your predictions for 2011.
Do you think that private equity industry should be looking into the support services sector?
Will the government back down from its plans to outsource more services?
Where will the growth in the sector come from, acquisition or organic growth?
Mark Kitchen is Head of Business & Support Services.
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This week some of the broadsheets have stated that the FSA is now understood to be looking at whether board members – including Chief Executive Garvis Snook – understated the scale of ROK’s problems for the benefit of themselves and the company.
With the redundancy figure approaching 3000 my opinion is that the FSA should investigate out of respect to the unemployed workers who will be left without an income. This not withstanding it is clear that mistakes concerning governance were made and the shareholders should be aware of what caused the very sudden loss of their money.
I am interested what the Interim management community think about a potential FSA investigation at ROK, will it add any value to the Support Services Industry?
Mark Kitchen is Head of Business & Support Services at Interim Partners.
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It is clear after digesting the many articles published after the government spending review that the support services industry is to expect a wave of public sector outsourcing deals in the medium to long term.
Although a recent article published in FM world seems to contradict this theory; “Even with public sector influence, the result is a marginal deterioration in the FM market since mid 2008. The market for outsourced bundled services and “total facilities management” (TFM) was valued at almost £14.2bn in 2009. The market is forecast to stabilise and reach £14.9bn by 2014.” In terms of this quote I am not quite sure how to define the difference between outsourced bundled service and total facilities management, whatever the breakdown is £14.9bn is a very large pie for my clients’ to take a slice of.
In my opinion outsourced bundled services should lead the service offering to the client and include FM as a service line. A great case study for this is Serco who have managed to perfect the art of outsourcing regardless of the service line, this expertise has grown from a maintenance contract that was won in the 1960’s. TFM as an Industry has proven that it is very good at managing an often critical service and is also an expert at transferring the contractual rights of staff using the TUPE process, surely this is a platform that can be extended to contact centres, finance and accounting services, shared service centres etc. The only missing component is service line knowledge and technology – both of which can be hired in initially and perfected.
My question is; Will the major FM companies be able to respond to the governments increasing need to outsource everything that is non core?
Mark Kitchen is Head of Business & Support Services at Interim Partners.
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It seems that every time I open the broadsheets someone else is attacking the Support Services Industry. Recent examples have derived from the profit warnings at Connaught and ROK and not satisfied with the fact that public sector spending on services is set to fall in the short term, the focus for criticism seems to have changed to governance related issues and the interpretation of accounting policy.
Questions have been asked about the way that long term contracts are accounted for with many leading analysts calling for a change in accounting standards to help separate the good from the bad. It seems clear to me that it is not in the best interest of the long standing CFO or Audit Partner to highlight such grey areas as that in turn will reflect badly on them and may lead to the FD’s sudden departure as we have seen recently at ROK.
I have two questions for our Interim community;
1. How can the Chairmen and Chief Executives of Support Services companies ensure that the results that they are communicating to the City are not based on accounting policy grey areas?
2. How can the Support Services companies who manage long term contracts build confidence with the City analysts?
Mark Kitchen is Head of Business & Support Services at Interim Partners.
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In the first half of the year many companies in the services sector
have been focussing on the front office especially within the following areas; headline growth, new revenue streams, profit contribution, operational and customer service excellence.
In the second half of the year I am expecting a focus on the back
office in particular finance and other high profile projects that require board level sponsorship.
The reason for this is that many companies are waking up after the recession with an over leverage problem that needs to be resolved. As the five year bank facilities that were negotiated in 2006 / 2007 are approaching renewal, paying down existing debt will become the prioity yet again in the service sector.
As most of my regular readers know; I operate as a generalist across all functions and my knowledge of finance is much broader than it is deep. I would be especially interested to hear contributions from any Interim Finance Directors that have experience of refinancing under difficult circumstances and would consider themselves experts at managing cash.
Mark Kitchen is Head of Support Services at Interim Partners.
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