When we started the investment process, I didn’t think it at all likely that we would sell a minority stake to a private equity house. I thought we would sell ourselves entirely to a trade buyer and we had lots that were interested.
But as the process developed, my view changed significantly.
First, I hadn’t been aware before of the serious possibility of a private equity house taking a partial stake. When we met LDC, however, they were very happy to do so.
That flexibility suited us perfectly as we not only retained more control but, alongside the shareholders being able to realise a significant return, we continue to have a big stake in the business’s future.
We had never taken a penny of external capital before. When the business was started, it was just me. I worked, I did a few commissions, I got paid, and retained the earnings in the company. Then I could hire a few more people, expand and build up capital. So I’ve always thought of Capital Economics as my baby, and the independence it gave the business is a critical competitive advantage in the market – an independence we’ve been able to retain after the investment.
Second, the sale process itself affected my view of the attractiveness of private equity investment. We were having one of our flatter patches and it was directly bound up with the process of the sale. Looking for an external buyer is incredibly time-consuming: making presentations, countless meetings, providing reams of data. This meant we could put less time into the business itself.
I realised then that whatever we received from an outright sale would not have reflected the true potential of the business. If I had sold out entirely at a price that did not reflect that phenomenal potential, I’d have been sorely disappointed.
Having LDC as a minority investor was therefore a win-win. At once we have the benefit of their managerial expertise and experience in the B2B digital market, but have also been able to retain a substantial interest in the company. It’s given us a renewed confidence in the future growth of the business.
Roger Bootle, Capital Economics