Setting firms on the road to recovery
By Ian Fraser
Scottish Business Insider
Deals & Dealmakers Yearbook 2008
August 2008
Symphony’s £26m fund is a welcome – and timely – addition to the help available for ailing companies in need of some financial TLC
THE timing could scarcely have been more propitious. Back in September 2007, a group of Glasgow-based turnaround specialists launched a new £26 million fund specifically aimed at acquiring underperforming companies at good value prices before reaping the rewards of nursing them back to health.
Before last September, when bank credit remained in plentiful supply, there would have been less call for such a specialist fund. Opportunities to acquire troubled companies were relatively limited. However since that date, the Symphony Equity Investment Syndicate (SEIS) has been spoilt for choice.
SEIS, believed to be the only fund of its type focused on the Scottish market, was started-up by the established Glasgow-based turnaround firm Symphony Corporate.
Symphony Corporate had built a track record of advising on, and investing in, small and mid-market turnarounds since it was established in 2002 by the chartered accountant and restructuring expert Ian Mackay. He was joined by Allan McLaughlin two years later.
Their model was basically to invest some of their own cash in businesses they were seeking to restore to health, in order to share some upside should the process go according to plan. During its first five years, Symphony Corporate had demonstrated the model worked – nine of its 11 investments worked out – and by last year it felt able to scale up with the appointment of two new executive directors, Paul Slater and Rod Mathers.
It also put together a syndicate of high net worth individuals to invest in their turnaround clients. This was effectively formalised through the creation of SEIS last September. Family offices, private equity firms and wealthy individuals injected some £6m of equity into the new vehicle, with Clydesdale Bank providing some £20m of debt.
The deal was advised on by HM Corporate Solutions (the corporate finance advisory business of law firm Harper Macleod) and by law firms Harper MacLeod and Morton Fraser. They were responsible, among other things, for obtaining the necessary FSA approvals.
Technically an “unregulated collective investment scheme”, with a trustee company and a board, SEIS is chaired by Peter Shakeshaft, formerly of the Archangel business angel syndicate and the other members are Craig McDermid, Colin Mackay and Fraser Livingston. It delegates its fund management to Caledonia Capital Managers with Symphony Corporate acting as specialist adviser.
Ian Mackay, Symphony Corporate’s managing director and one of SEIS’s co-founders, says: “This is not a conventional approach to rescuing troubled businesses, but it has proven to be highly effective. The managers of underperforming businesses all too often delay making key decisions. There are real advantages in early intervention with the right knowledge and funding to turn things around.”
“The investors all recognised the value of investing in underperforming businesses and see it as an opportunity to make good returns. The plan is to invest the fund over two years, and we are already planning a second larger UK wide fund.”
“We are constantly surprised how often existing management are unaware of their businesses’ underlying strengths, and the opportunities that can be unlocked even in a period of difficulty.” The founders invested significant amounts of their own personal capital into the new venture alongside the other backers.
When troubled businesses are on the brink of collapse or have called in the receivers, speed is often of the essence. The £20m facility negotiated with Clydesdale is therefore critical, as it means SEIS can invest tailored proportions of debt and equity in deals – and do so without delay.
“One of the key drivers was that when a troubled business needs refunding it doesn’t have the luxury of hanging around for three months to get the money, as an MBO might,” says Graham Cunning, area divisional director at Clydesdale Bank. “These are people we know and they have strong track record and we are delighted to be backing them.”
SEIC’s first fund – which intends to invest in deals in the £1m to £5m range and expects to invest in about 12 such deals over the next two years – has already notched up several investments. The first was Triscan Systems, an IT start-up that specialises in fuel management and petrol station forecourt systems.
In January it bought a majority stake in Dundee-based fire-door manufacturer McTavish Ramsay. It has already put in place a new management team and is confident this business can be quickly turned around. It has also acquired Texol Technical Solutions, a Dundee-based specialist manufacturer best-known for the anti-insect products Midgeater and Mosquitoeater. Texol had been forced into administration before it was acquired by SEIS in February 2008. Mackay said: “We were able to act quickly and decisively to secure Texol and its assets, plus save around 60 jobs.”
Ramsay Duff, a principal of HM Corporate Solutions, says: “Traditionally private investment funds in Scotland tended to focus on growth capital and venture capital for biotech and technology companies. However the Scottish corporate landscape is well populated with traditional, small and medium-sized businesses. I am confident that with Symphony Corporate’s specialist skills and the right funding, investment of this type can show attractive returns.”
This article was published in Scottish Business Insider’s Deals & Dealmakers Yearbook 2008, published in August 2008. Copyright Ian Fraser 2008
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on Aug 4 2008. Filed under Article Library, Latest Articles.
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