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THE POINT Issue 9 May 2006
THE
POINT
Intelligent investing in Europe
from Bridgepoint
The art
of seduction
Winning over the fickle consumer
Issue 9 May 2006
If consumers do not
find what they are
looking for in one
business, they simply
move to another.
The loyalty ‘or inertia’
that characterised
past generations has
been replaced by
promiscuity.
Contents
Ins & Outs 2
Bridgepoint investments and
exits across Europe
Analysis 7
From red to green
The end of cheap energy
Active Ownership 12
Scenting success
Driving value at Nocibe
Face to Face 14
Chemical balance
Dieter Engel on drugs, pills and country music
Talking Point 19
Loyal blues
Seducing the fickle consumer in a
changing world
Regional focus 23
Lure of the East
Eastern Europe kicks off its cowboy boots
In my opinion 28
Peter Mandelson on trade
Europe has given enough
Inside story 30
Taking care of the future
Nursing homes a la francaise
Bottom line 32
All in a day’s work
Neil Collins wants more stress
From red to green
www.bridgepoint.eu
www.bridgepoint.eu
Bridgepoint Capital Limited is authorised and regulated by
the Financial Services Authority.
Maximising energy
efficiency in a rising market
Fair trade
www.bridgepoint.eu
Mandelson stands up
for Europe
Contents
Ins & Outs 2
Bridgepoint investments and
exits across Europe
Analysis 7
From red to green
The end of cheap energy
Active Ownership 12
Scenting success
Driving value at Nocibe
Face to Face 14
Chemical balance
Dieter Engel on drugs, pills and country music
Talking Point 19
Loyal blues
Seducing the fickle consumer in a
changing world
Regional focus 23
Lure of the East
Eastern Europe kicks off its cowboy boots
If consumers do not
find what they are
looking for in one
business, they simply
move to another.
The loyalty ‘or inertia’
that characterised
past generations has
been replaced by
promiscuity.
In my opinion 28
Peter Mandelson on trade
Europe has given enough
Inside story 30
Taking care of the future
Nursing homes a la francaise
Bottom line 32
All in a day’s work
Neil Collins wants more stress
Bridgepoint Capital Limited is authorised and regulated by
the Financial Services Authority.
FOREWORD
Survival of
the shrewdest
The notion that consumers have given up
completely on loyalty is not as odd as it first
sounds. We know as longstanding investors in a
range of consumer-facing businesses that
narrowing the distance that exists between
companies and their customers matters, because
it is often a key determinant in the successful
outcome of any value creation strategy.
Even if, as a business, you know what your customer wants, how determined are you
to deliver it, especially if you have to balance the generation of short-terms
contribution with building long term customer commitment? These are the issues we
explore in our lead feature ‘Loyal blues’ on page 19, which shows how best practice in
achieving better consumer insight inevitably results in the ‘survival of the shrewdest’.
Since our last issue in November, Bridgepoint has acquired and exited a number of
investments, detailed in our regular Ins & Outs section on pages two to five. In fact,
taken as a whole, 2005 was an active year for us: we committed over €800 million
in eight new investments, completed 12 major realisations and a number of releveragings which allowed us to return over €1.2 billion to our investors.
THE
POINT
May 2006
Issue 9
Published by
Bladonmore Media Ltd
Editor
Joanne Hart
Design
Bagshawe Associates
Reproduction, copying or
extracting by any means of
the whole or part of this
publication must not be
undertaken without the
written permission of the
publishers.
The views expressed in
The Point are not necessarily
those of Bridgepoint.
www.bridgepoint.eu
Being able to exit businesses successfully is central part of the art of successful
private equity investing. Insight into what it takes to do this is provided in two
features about ‘active investment’ involving two businesses Bridgepoint acquired in
the French market: the first, on Nocibé, a French perfumery business we sold at the
end of 2005 where careful refocusing of its consumer strategy led to increased
market share and turnover as well as its ultimate successful realisation; the second,
on nursing home operator Médica, where a number of value creation initiatives have
already allowed us to refinance the business successfully and to position it for sale.
Finally, in our regular analysis slot, we tackle a subject that is fast moving up the
agenda for all businesses: the cost of energy. Despite deregulation, prices are rising
across Europe and companies are now having to face up to some stark choices.
The Point looks at what is driving these changes and what companies across
Europe need to do next.
As ever, The Point seeks to stimulate interest in private equity and provide insight
into emerging topics that will face corporate Europe. I hope that you enjoy the read ■
William Jackson
is managing partner of Bridgepoint
1
INS &OUTS
BRIDGEPOINT
investments & exits
across Europe
Green light
for ERM
The world’s leading provider of environmental consulting services has joined the
Bridgepoint portfolio in a transaction worth more than $530 million (€445.8 million).
Environmental Resources Management (ERM)
has over 100 offices in 39 countries and its
clients include such blue-chip names as BP,
BHP Billiton, ConocoPhillips and Pfizer.
The company had
gross revenues of
$425.4 million
(€357.8 million) and
Ebita of $38 million
in the year to March
31, and the deal is
the largest leveraged
buy-out ever undertaken in the UK
professional services sector.
“ERM is a unique business in the
marketplace,” says Bridgepoint partner Kevin
Reynolds. “Its only competitors tend to be
large engineering firms with a multi-service
platform where environmental issues tend to
get less focus. But this is a pure
environmental services play,” he says.
“We think it’s a great company with an
excellent position in a very attractive sector.”
ERM’s history dates back to the early 1970s,
but the company was the subject of a
management buy-out in 1991, when current
executive chairman Robin Bidwell and chief
executive Peter Regan invested in the business.
Through the 1990s and the early part of this
decade, ERM made a number of acquisitions
and expanded its operations worldwide.
2
It now focuses on five core areas:
contaminated site management; compliance
assurance; planning and environmental
impact assessment; M&A and strategic
environmental advice.
“The environment is at the heart of
international, national and local government
legislative agendas, so environmental and
social liabilities are receiving increased
attention from all major corporates,”
says Bidwell.
Under the terms of the Bridgepoint deal,
employees will own 42 per cent of the
business and the private equity firm will
hold the balance. Prior to the transaction,
400 employees owned 48 per cent of ERM,
and a large number of them have
reinvested in the company.
“In Bridgepoint, we have found a firm that
both supports our business plan and has a
profound insight into the complexities of
running a people business,” says Bidwell.
Reynolds adds: “Historically, this was a
collection of individual businesses. Over the
past few years they have become more joined
up, but they are only beginning to see the
benefit of this approach. We intend to support
this strategy and help the management take
ERM to the next level, where it is a fully
integrated global business” ■
Through
the
Finnish
line
Bridgepoint has expanded its reach in Scandinavia with the acquisition
of A-Katsastus (A-K), a leading northern European vehicle inspection
company based in Finland.
Under Finnish law, inspections and certifications are required for all light
and heavy motor vehicles over three years of age. This is A-K’s principal
line of business and the company operates its inspection services
independently of the vehicle repair sector. A-K is also licensed to provide
statutory drivers’ examinations and is the market leader in Finnish
vehicle registrations.
The company employs more than 1,400 people, and in the year to
December 2004 had sales of €81.3 million. The group has also
established a strong platform for international growth, with operations in
Russia, Poland, Latvia and the recently deregulated Danish market.
“A-Katsastus is a well-run business with a strong, scaleable domestic
platform that it can develop across northern Europe as other countries
open up to competition and as the breadth of testing requirements and
compliance rates increase,” says Bridgepoint partner Graham Oldroyd.
“A-K will also introduce new activities that are complementary to the core
inspection business. We expect the company to become a regional
consolidator, developing both organically and by acquisition,” he continues.
The firm also believes that environmental and safety pressures will increase
the breadth of test requirements and so accelerate market growth.
“We believe there are significant opportunities to extend our services in
Finland and beyond,” says Lasse Korppi, chief executive of A-K.
“Bridgepoint, with its experience of roll-out strategies for growing
companies, will help us to achieve our objectives.”
The company was state-owned until 1983, when it was acquired by
Finnish private equity firm MB Funds, a group of other financial investors
and management ■
Lloyd Webber goes solo
Impresario Andrew Lloyd Webber has become sole owner of a string of London’s bestknown theatres, after buying out the 50 per cent stake previously belonging to his joint
venture partner, Bridgepoint.
The group of buildings, known
collectively as Really Useful
Theatres, comprise: the
London Palladium; Theatre
Royal, Drury Lane; Adelphi
Theatre (in association with
Nederlander International);
Palace Theatre; Her Majesty’s
Theatre; Cambridge Theatre;
New London Theatre; and the
Gielgud Theatre.
Lloyd Webber is also
acquiring the ticketing arm
of Really Useful Theatres,
See Tickets, which is one of
the largest concert and
festival ticketing companies
in the UK.
Bridgepoint first entered into
partnership with Lloyd
Webber’s production and
management company,
Really Useful Group, in 2000.
“The West End theatre plays
a vital role in London life and
I am totally committed to its
future. I have pledged £10
million for the renovation
and refurbishment of my
theatres over the next five
years,” says Lloyd Webber.
“We welcome the
announcement by Andrew
Lloyd Webber of his plans for
the continued development
of a unique set of theatre
assets and we wish him and
his team every success,” says
Bridgepoint ■
3
Heaven scent
INS & OUTS
Wind of change
in Spain
Bridgepoint has sold its stake in
Spanish wind farm developer
CESA, following an offer for the
entire business by Spanish
construction and energy group
Acciona.
The deal values CESA at €1.47
billion and comes less than two
years after Bridgepoint bought a
23.75 per cent stake in the
company.
At the time CESA had 300 MW of
net installed capacity, but last year
it bought fellow wind farm operator
Terranova, adding another 135 MW
of capacity. The Spanish group now
has more than 500 MW of net
installed capacity with a further
125 MW under construction.
Bridgepoint partner José Maria
Maldonado says: “CESA has
become one of the leading
companies in the European
renewable energy sector and has
been a successful investment for
us. The potential we first identified
will continue under the new
ownership as the CESA
management team strives to
achieve even greater success” ■
Bridgepoint has exited French perfumery business Nocibé
after a three-year investment.
The company is number two in the French perfumery and
cosmetics market, and has a 16 per cent market share. It was
sold to Charterhouse Capital, the UK private equity firm.
Bridgepoint acquired a majority stake in Nocibé in 2002,
intending to consolidate the company’s market position and
pursue growth opportunities.
Over the past three years,
Nocibé’s turnover increased by
30 per cent to €460 million and
the number of stores owned or
franchised expanded from 285
to 359. Bridgepoint also helped
Nocibé to diversify its activities
with the acquisition of Euro
Santé Beauté last spring. This
allowed the company to
position itself in the so-called
parapharmacy market –
principally health and beauty
creams and vitamins.
Chief executive Xavier Dura and
his management team have
invested in the business
alongside Charterhouse Capital
(see page 12) ■
£80 million sale for residential
care specialists Robinia
Specialist residential care group Robinia has been acquired
by Barclays Private Equity for £80 million. The business,
which provides intensive support services for adults and
young people with learning difficulties, was sold by
Bridgepoint earlier this year.
Robinia was founded in 1995
and is an established provider
of care and support to people
with complex conditions such
as autism and Asperger
Syndrome. It is also one of
the few companies to offer
help to adults with autism.
The company is the third
largest operator of residential
facilities for people with
learning difficulties, having 79
homes and 539 beds.
Glen von Malachowski, chief
executive of Robinia, says:
“Over a million people in the
UK have learning difficulties
and 200,000 are profoundly
disabled and likely to require
4
support throughout their
lives. However, there are only
62,000 residential beds in the
UK. We are looking to
improve the range of support
and accommodation options
available by developing
responsive services that cater
for individual needs.”
Robinia was acquired by
Bridgepoint in September
2003 ■
INS & OUTS
Top in the middle
Bridgepoint was named European mid-market firm of the
year in a wide-ranging survey of private equity
practitioners, advisers and experts in the sector.
The award was given by the specialist website
PrivateEquityOnline in conjunction with its sister publication
Private Equity International.
Results of the Global Private Equity Awards 2005 were
obtained through a poll of the magazine’s readers, conducted
earlier this year. The response to the survey was extremely
strong, with votes coming in from across the world ■
New track for Hydrex
European
bonanza
The total value of deals in the European buyout sector rose
to more than €100 billion for the first time ever in 2005 and
mid-market transactions dominated activity.
According to the European Buyout Review from Incisive
Media and Bridgepoint, the value of deals in the €25 million to
€500 million range rose 17 per cent last year to €42 billion.
The number of transactions increased by 18 per cent to 360.
More than 30 deals were completed in the €500 million to
€1 billion range and there were 28 buyouts worth more than
€1 billion.
Denmark saw the greatest increase, with the value of deals
surging from €940 million to €9.1 billion, while the total value
of deals in Spain rose more than five-fold, from €2 billion to
€11.7 billion. And in France, the value of deals almost doubled
to €20.6 billion, while volumes rose by more than 52 per cent,
to 133 transactions.
Specialist hire company Hydrex Group has been sold by
Bridgepoint in a transaction totalling £106 million.
Hydrex supplies mobile“Since we first invested four
operated equipment and
years ago, Hydrex has been
support services for the UK
successful in effecting a
rail and materials handling
buy-and-build strategy that
sectors and has been
has allowed it to expand
involved in a number of highservices and geographical
profile infrastructure projects.
coverage and at the same
time reposition the business
Bridgepoint first invested
to take advantage of the
£15 million in the business in
outsourcing trend in its
March 2002, supporting a
sector,” says Bridgepoint
£36 million MBO. The firm
director Alan Payne.
subsequently provided
funding for two bolt-on
Hydrex has been acquired by
acquisitions, which have
the private equity firm
helped Hydrex secure
Quilvest and the Saudi
strong regional positions in
Arabian engineering
its core markets.
specialist Shoaibi Group ■
The company’s customer
base comprises specialist
infrastructure maintenance
and track renewal
contractors, as well as
aggregates and waste
handling. Many of these
businesses are now
outsourcing their specialist
equipment needs under
long-term contracts and
Hydrex has been a
beneficiary of this trend.
Families and private vendors accounted for 38 per cent of all
activity in Europe. The most popular sectors were industrial,
engineering and chemicals ■
5
Analysis
FROM
RED
TO
GREEN
Energy prices are rising across Europe –
and particularly in the UK. Why is this?
And what is the prognosis for the future?
It may be hard to believe these days, but the UK usually enjoys some of the
cheapest energy in Europe. The market has been deregulated and companies
can price their product with little fear of government interference.
7
Analysis:
From red to green
That very liberalisation, however, has contributed to the problems
UK energy users are experiencing at present. Most of the UK’s electricity comes
from gas, so higher prices have been reflected almost immediately in the cost of
energy to end users.
Continental Europeans have been partially shielded by regulation, but
prices in the UK have soared for both industrial users and individual households.
According to the independent watchdog Energywatch, UK gas prices rose by 40 per
cent in the two years to the end of 2005 and electricity prices by a third. Suppliers
have warned of further price rises and big companies, which often negotiate longterm contracts for their electricity, are as much at risk as small firms.
Chill in China
Businesses as diverse as steel producer Corus and ceramics maker
Churchill China have already begun to cite energy prices as a problem. Chemicals
companies have been hit with a double whammy, as many of their raw material
inputs are derivatives of oil.
By 2010, business customers could face electricity price increases of
between 23 and 28 per cent. So companies should forget
the notion that high energy prices are a blip and start to
find ways of lowering their energy bills
Of course, if the gas price drops again, British users will benefit once
more from the liberalised market. And the European Union has promised faster
and more effective liberalisation of the energy market in other member states,
which could benefit the UK by removing market distortions. For the moment,
however, life is tough and there are other, longer-term pressures that will contrive
to keep energy prices high: concerns over global warming persist and the rapid
industrialisation of China and India will suck in much of the world’s oil & gas
supplies for decades to come.
Strike a light
An analysis published by the UK’s Department of Trade and Industry
found that by 2010, consumers can expect to be paying 12 per cent more in real
terms for their electricity than in 2004. Business customers could face price
increases of between 23 and 28 per cent for their electricity during the same period.
So companies should forget the notion that high energy prices are a blip and start
to find ways of lowering their energy bills without massive disruption to business.
Some companies, covered by the European Union’s greenhouse gas
emissions trading scheme, have already come under regulatory pressure to reduce
energy use. The mandatory scheme – the first of its kind in the world – started in
January 2005, forcing about 11,500 industrial installations across the EU to have
their emissions monitored. Companies are issued with allowances for the amount
of carbon dioxide they may emit, which they can trade with one another.
Businesses with surplus allowances can sell them, and companies needing to emit
more must buy spare allowances in the market or face fines of €40 per tonne of
carbon dioxide.
The sectors covered under the scheme include: electricity generation;
oil refining; iron and steel production; cement, clinker and lime production; glass
manufacturing; brick and tile manufacturing; and pulp and paper production.
8
Analysis:
From red to green
Businesses across Europe
waste more than £3 billion a
year by failing to take basic
measures to save resources
An energy audit helped UK
high street chemist Boots
save £1.35 million a year on a
bill of £18 million
Energy saving tips
1 Turn off computers at night
2 Turn off lights, heating and air
conditioning when offices are
not used
3 Abandon air conditioning and
open the windows
4 Use long-life light bulbs
5 Improve insulation
6 Pump up the tyres on company
cars to cut petrol use
7 Drive slowly in built-up areas
8 Don’t rev at the traffic lights
9 Involve staff in your
environmental efforts
10 Commission an energy audit
The first phase of the scheme runs to 2008, and the second from
2008 to 2012. During that period, the amount of emissions available to companies
will be reduced and the scheme may be extended to other industry sectors, such
as aviation, shipping, chemicals and aluminium.
As the European Environment Agency explains: “Emissions trading
works better if the number and diversity of sources under the scheme is larger, and
if technological requirements for individual sources of emissions are less stringent.”
Effective efficiency
The EEA is not alone in its views. Late last year, the Carbon Trust, a UK
government-funded body with a remit to help business reduce its greenhouse gas
output, submitted plans to extend carbon emissions trading to the service and
commercial sectors – and to many smaller businesses. Along with the public sector,
these industries make up about a fifth of the UK’s total greenhouse gas emissions.
The proposals are being given serious consideration by the
Department of Trade and Industry and would affect all companies with electricity
bills of more than £20,000 a year. James Wilde at the Carbon Trust says bluntly:
“We have analysed lots of different alternatives, and this is the simplest.”
The ideas may sound alarming, but they would certainly encourage
many more companies to save electricity and could thereby make a big difference
to corporate greenhouse gas emissions. In addition, the scheme would not
necessarily involve corporates in extra expenditure and could even result in cost
savings. The UK government may choose, for instance, to give companies a
substantial rebate on their climate change levy, in return for entering the scheme.
And more efficient energy use can save companies money, no matter
how big or small they are. The Environment Agency calculates that British
businesses waste an astonishing £3 billion a year by failing to take basic measures
to save resources. And estimates indicate that companies could cut costs by around
5 per cent by being more efficient in their use of energy, water and materials.
9
Analysis:
From red to green
Counting the cost
There are some obvious steps to take. Instructing employees to turn
off their computers at night could save British business more than £120 million a
year, according to Fujitsu Siemens, the computer company. Turning off lights and
heating or air conditioning when employees are not working is also helpful.
Companies could even reconsider air conditioning – might it be easier to open
some windows instead? Better insulation cuts energy bills too, while replacing
high-energy light bulbs with longer-life bulbs instantly reduces usage.
Running a basic audit over energy bills or having them broken down
in detail by suppliers can be extremely beneficial. Companies can then put in place
a few basic energy-saving techniques and see what effect this has. Involving staff
in the effort tends to work too – people are increasingly environmentally aware,
and if they feel they can make an environmental difference, that may motivate
them as much as (or more than) a desire to save company money.
Businesses that want to save money on company cars are advised to
pump up their tyres. Vehicles with tyres at the proper pressure use much less
petrol. And give your drivers a few tips, like not revving at the lights and driving
more slowly in built-up areas.
Any UK company can ask the Carbon Trust for free help with cutting
their energy usage. Its advice appears to work. In a single recent scheme, a total of
50 companies saved £24 million a year on energy bills, following an audit from the
Carbon Trust. One was the high-street chemist chain Boots, which saved £1.35
million a year on a bill of £18 million. Smaller companies can benefit too: even an
office with fewer than five employees and an annual energy bill of less than
£5,000 can save between £500 and £1,000 a year.
Strength in numbers
Bridgepoint’s BAPS scheme, which allows companies in its UK
portfolio to aggregate buying power when negotiating with suppliers, can also
help businesses cut costs. As well as providing bulk buying power, BAPS offers
guidance on grants and tax allowances from the UK government and advises
portfolio businesses on energy-efficiency services.
Bridgepoint director Patrick Fox cites portfolio business Holmes
Place, which undertook an energy audit last year. “Thanks to the audit, the
fitness club group has cut energy usage year-on-year at all but a handful of its
locations,” he says.
Companies can even consider generating their own electricity.
Government grants are available to help with the costs of installing renewable
forms of electricity, such as solar panels and wind turbines. These may sound
expensive now, but for companies that want a hedge against the possibility of
even higher electricity prices to come in the future, the investment can repay itself
within a few years ■
10
ACTIVE
OWNERSHIP
The sweet smell
of success
French perfumery business Nocibé was acquired by Bridgepoint
in 2002. At the time, competition was increasing
and customer numbers were declining. But active
ownership led to a shift in strategy and an
increase in profitability.
Nocibé’s history stretches back several decades. Originally a family
business, the company evolved over time into a specialist cosmetics and perfume
retailer. By the time it joined the Bridgepoint portfolio, the group had 236 ownbrand stores and a further 60 franchised outlets in France
The business was acquired in 2002 via a €282 million deal from the
Dutch drugstore chain Kruidvat. Before the transaction was completed,
Bridgepoint conducted an extensive amount of due diligence, analysing Nocibé’s
financial strength, its management team and the market in which it operated.
Even at that early stage a strategic plan for the business was created and a list of
possible future bidders was drawn up.
The analysis indicated that the French cosmetics sector was set to
undergo significant change, providing Nocibé with an opportunity to grow its
market share both organically and through acquisition. This would give the
business greater scale and the ability to source better offers from manufacturers,
thereby increasing margins and improving cashflow.
Way out layout
The research proved far-sighted, but before Nocibé could begin to
expand it had first to tackle the issue of an eroding customer base. Customers who
were familiar with the chain could be persuaded to increase the number and value
of their purchases. However, new customers wanted their shopping experience at
Nocibé to be enlivened.
At the same time, management at Nocibé made some immediate
changes, focusing on making the point-of-sale images, posters and stands more
distinctive. The intention was to provide greater signposting to individual
products. The board hoped that, rather than expensively re-designing the stores or
changing the layout significantly, they could achieve the desired results simply by
using what they had more effectively.
Value-added make-up
Besides improving signposting, management initiated another
significant change. Valérie Texier, a partner at Bridgepoint’s Paris office, says: “We
12
Valérie Texier
“Conventional wisdom has it that the most effective way of rolling out
a concept quickly is to have a dedicated team focused on expansion”
wanted customers to feel that they were enjoying more “Retailing is an
of an experience. We invited suppliers to provide more
inherently cashin-store promotions and events. We increased in-store
generative industry,
demonstrations in cosmetics with make-up specialists
and businesses that
who would give customers bespoke makeovers.”
get it right can
This achieved two results. Existing
expand using the
customers began to spend more time in the stores and
proceeds from
buy more goods and, more importantly for Nocibé, a raft existing stores”
of new customers emerged and started spending money.
Financial performance steadily improved. Since retailing is an
inherently cash-generative industry, businesses that get it right can expand using the
proceeds from existing stores. A virtuous circle ensues, as Nocibé ultimately proved.
Good complexion
Once the in-store concept had been refined, the company and
Bridgepoint decided to develop the format with a plan to boost the number of
stores. Many retailers flounder when they expand quickly, as the process can
divert management attention from existing stores. Conventional wisdom,
therefore, has it that the most effective way of rolling out a concept quickly is to
have a dedicated team focused on expansion. Bridgepoint and Nocibé did just
that, boosting the resources of the specialist store-opening team and programme.
Additional emphasis was also placed on stricter working capital management,
ensuring in the process that appropriate stock levels both in-store and inwarehouse were maintained.
The team looked at acquisitions as well as organic growth. Working
with Bridgepoint, they bought Euro Santé Beauté in March 2005, a chain of
stores in the centre of Paris, that helped to broaden the company’s reach in its
French heartland.
An increased rate of growth and improved financial performance
enabled the business to be refinanced in August 2005. A process then began,
which culminated in its sale last December to Charterhouse Capital Partners. By
that time, the business had grown its market share in France to 16 per cent, it had
359 stores and turnover had increased by more than 30 per cent since 2002. Sales
for 2005 reached €350 million and the company attracted bids from both trade
and financial buyers.
Texier says: “Active ownership is about working with the management
team to add value to the business. It is not about financial engineering but thinking
through what you can do to boost the fundamental performance of the business.
Nocibé is a great example of how it can work in practice”■
13
FACE
to
FACE
Chemical
balance
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
German chemist Dieter Engel is chief executive of
contract pill manufacturer Swiss Caps.
A man of boundless energy, he
finds time for the odd game of
tennis in between developing his
business into a world leader.
14
C
lose to the Swiss-German border is the small, picturesque village of Kirchberg.
Although the town looks like many others in the area, it is home to one of the
few companies in the world with the know-how and licence to make capsules
for prescription drugs.
Swiss Caps was founded in 1984 by Peter Greither. His family had been involved
in the health and nutrition industry for several generations, and just one year
after he set up the business he was joined by fellow German, Dieter Engel.
“At the time, there were only about 25 people in the company and I was put in
charge of product management and quality control,” says Engel.
We were reluctant to sell the company to a big
pharmaceuticals business because there would probably
have been some swingeing job cuts
Today Engel is chief executive of Swiss Caps. The business turns over more than
€160 million annually and makes 14 billion capsules and tablets a year. The pills
range from painkillers to vitamin supplements to specialist medicine. They are
sold in about 100 countries and manufactured from five production facilities in
Switzerland, Germany, Romania and the US.
“We have grown hugely since the 1980s, but we still have some clients from that
time. In fact, most of the clients that have disappeared have done so through
M&A activity,” Engel continues.
A chemist by background, Engel began his career in a German hospital
laboratory. He then spent some time at the German pharmaceutical giant
ALTANA Pharma, before working as a biochemistry researcher. After joining
Swiss Caps, he rose through the ranks, moving from quality control to sales and
then to general manager, before becoming CEO just over ten years ago. “The
business went through a period of rapid growth in the mid-1990s and there was
an organisational restructure, after which I became chief executive,” says Engel.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Name:
Biggest lesson:
Dieter Engel
Don’t procrastinate. Fastgrowing companies need to
focus on structural
development as well as
revenue growth
Age:
50
Nationality:
German
Family:
Married with two children
Education:
Biggest mistake:
Waiting too long to
reorganise Swiss Caps as
the business expanded
Studied chemistry at
Mannheim University
Car:
First job:
Life ambition:
Working in a hospital
laboratory
To create and lead a
successful, profitable and
well-regarded company
Best job:
A second-hand, black BMW
The one I am doing
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
15
FACE
to
FACE
Dieter
Engel
Engel, a dapper, sprightly man,
takes multi-vitamins and
Coenzyme Q10, a supplement
that apparently benefits the
heart, while boosting energy
and stamina
+++++++++++++++++++++++++++++++++++++++++++++
Greither continued to discuss strategic issues with
Engel but gradually withdrew from day-to-day
involvement with the business. Crucially, however,
Greither remained the single shareholder until last
October, when Bridgepoint backed a management
buy-out of Swiss Caps.
“Essentially, Swiss Caps was a family business and the
Greithers had a strong emotional attachment to it. But
none of Peter’s four children wanted to take over the
company and he did not want to split it up,” says Engel.
So, back in 2001, Greither and Engel began to
contemplate Swiss Caps’ future. “We looked at
several options. The Greither family was very reluctant
to sell the company to a big pharmaceutical business
because it would have been swallowed up by a larger
entity and there would probably have been some
swingeing job cuts,” says Engel.
“We employ 350 people in Kirchberg so we are one of
the largest employers in the region and have a good
relationship with the local authorities. There is also a
strong link between industry and politics in
Switzerland, so we did not want to upset anyone,”
he adds.
After meeting several private equity firms and other
potential investors, Swiss Caps opted for a
16
Bridgepoint-backed buy-out. “We felt Bridgepoint
shared our goals for the company and it has a lot of
experience supporting and developing mid-size
companies,” says Engel.
In the early part of the decade, Swiss Caps had also
explored the possibility of an IPO.
“However, we realised that none of our management
team had any knowledge of the IPO market.
Bridgepoint does,” says Engel. “Now we may end up
floating the business or we may follow a different
route, but it is good to know that we have a financial
backer with lots of experience.”
Engel is keen to move Swiss Caps on to the next stage
of its evolution. “Our mission is to be a worldwide
leader in soft-cap technology. We also want to become a
full-service manufacturer and business partner to the
pharmaceutical industry,” he says.
Currently, Swiss Caps divides its business between
health supplements and pharmaceutical products.
Half the revenue derives from nutritional
supplements, 40 per cent from over-the-counter
drugs and ten per cent from the prescription market.
“We want to grow our share of the prescription sector.
There are not many companies that have the expertise
FACE
to
FACE
Dieter
Engel
I like playing easy pop
songs and country
music. John Denver’s
Country Roads is one
of my favourites
+++++++++++++++++++++++++++++++++++++++++++++
In the short term, the main challenge for Engel is to
move Swiss Caps on from its family-business roots into
a modern company with transparent financial systems
and up-to-date sales and supply-chain processes.
and the necessary licences to operate in this area, but
we do.
However, prescription drugs take a long while to develop,
so organic growth is probably limited to between ten per
cent and 15 per cent a year. We are therefore actively
looking at acquisition targets,” says Engel.
The food supplement industry is quite different in
nature. “It is huge, but it is much more competitive
as there are lots more companies that can make
vitamin pills. Also, the sector is becoming much more
regulated in Europe so growth is somewhat restricted,”
Engel explains.
Not only is Swiss Caps hoping to expand its
presence in prescription drugs, it is also exploring
different ways of delivering its clients’ products.
“We focus on the capsule market, but we are looking at
other forms of intake, such as drug patches or liquid
applications for injections,” says Engel.
“Over the next five years, we want to be able to offer
more than just technological know-how. We want to
support the pharmaceutical industry from the drug
development stage right through to the finished
product,” he says.
“We were already moving down that road before the
buy-out but there is a lot more to do. Now it is important
for me to make employees understand that our future is
exciting and full of potential,” says Engel. “They are
used to Swiss Caps being a Greither family concern, and
family owners tend to be more emotional about their
businesses. Private equity firms are more focused on the
financials. That is completely understandable, but some
employees find it hard to grasp.”
Engel, a dapper, sprightly man, takes multi-vitamins
and Coenzyme Q10, a supplement that apparently
benefits the heart, while boosting energy and stamina.
He certainly seems energetic, normally working a
12-hour day, before coming home to his wife and
their two children, aged nine and seven. Sometimes,
they fit in a spot of skiing before bedtime, and Engel
is also keen on tennis and playing the guitar.
“I like playing easy pop songs and country music.
John Denver’s Country Roads is one of my favourites,”
he says.
Swiss Caps has come a long way in the decade that
Engel has been at the helm and there are more
plans for the future. Even so, there remain elements
of the Greither family’s legacy. Engel drives a
second-hand BMW. Its first owner: Peter Greither.
“He would always buy a new car and give it to me
after two years. But this is the last time,” says Engel ■
17
18
Talking
point
Loyal blues
Consumers are changing. Traditional brand loyalties are
eroding fast and people don’t want more
things, they want a better quality of life. How
should consumer-facing businesses react?
On the face of it, British consumers have
never had it so good. There is more
choice than ever before, disposable
incomes are rising and fierce competition
has kept inflation at bay. Indeed, we have
unparalleled access to goods and
services. Behind this beneficent scenario,
however, lies a strangely dissatisfied and
disenfranchised consumer.
“With our growing wealth it’s hard to
buy presents or treat yourself any
more,” says Martin Hayward, director of
consumer strategy and futures at
marketing consultancy Dunnhumby.
Christmas is a case in point. In past
decades, buying presents was
comparatively easy because relatives
and friends had a straightforward list of
needs and wants. Nowadays, it is not so
simple. People have everything already.
Even three-year-olds are weighed down
with toys and clothes.
Far from wanting to amass more stuff,
people now put time, sleep, peace and
quiet, sex, holidays and fun top of their
Christmas wish lists. “These are all
emotive, ephemeral things. So for
consumer-facing companies it is about
reconnecting at a much more human
level and helping to make life real again
for their customers,” says Hayward.
For some companies, this may sound
like so much humbug. They have
become used to focusing on process,
price and efficiency. But that viewpoint
seems out of sync with modern
customer demands, which increasingly
revolve around quality, not merely price.
A quick look at some of today’s
consumer bugbears makes the point:
Many business models are dominated by contribution, or earnings, at the expense of the
more customer-focused elements. They forget to champion their
customers (or make them feel good).
19
Talking point:
Loyal blues
call centres are loathed; school dinners are fostering a generation of obese children;
multi-buy discounts frustrate the shopper; speed cameras make people feel as if they
are living in a police state; and hospital waiting lists make people feel dehumanised.
Try to C it my way
Hayward talks of “the three Cs” – contribution, champion and commitment. Many
business models are dominated by contribution, or earnings, at the expense of the
other two, more customer-focused elements. They forget to champion their
customers (or make them feel good) and they do not sufficiently demonstrate their
commitment to those consumers who use their goods or services.
The loyalty – or inertia – that characterised past generations has been replaced by
promiscuity. Consumers will happily use a multiplicity of goods and
services and consumer-facing businesses have to work that much
harder to woo them.
Indeed, even companies that believe they are serving the consumer do so almost
unthinkingly. In the canned drinks sector, for example, 80 per cent of sales are on
promotion – and that percentage is likely to reach 100 soon. These businesses
have followed each other in the belief that they have to match their competitors’
pricing if they are to remain in the game. But there are no points of distinction, so
customers are not encouraged to stick with any one brand. The manufacturers may
want their customers to feel a sense of loyalty, but their price-cutting behaviour
does not encourage it.
Ironically, the self-image of a wide range of consumer-facing companies is starkly at
odds with consumer opinion. Some 80 per cent of companies believe they offer
superior service, but just 8 per cent of their customers agree.
This may go some way towards explaining why consumers are so fickle in today’s
environment. If they do not find what they are looking for from one business, they
simply move to another. The loyalty – or inertia – that characterised past
generations has been replaced by promiscuity. Consumers will happily use a
multiplicity of goods and services and consumer-facing businesses have to work
that much harder to woo them.
Companies that are making headway in this environment do not do so by accident.
They work hard at gaining better insights into customer needs, behaviours, actions
and aspirations. Indeed, they make “knowing the customer” a central part of their
strategic planning.
“You cannot take anything for granted. Value, for instance, is now judged by quality,
provenance, staffing, health and other factors – not just price. Embracing new data
and insight streams must become a priority. Marketing is fundamentally about
making sure that your offer matches the needs of your customers,” says Hayward.
Bridgepoint partner Guy Weldon agrees, noting that local credentials have never
been more important. “It might sound almost old-fashioned,” he says, “but the very
basic things that the old-style corner shop owner knew because of contact with his
customers are the very things that drive customer loyalty.”
20
Talking point:
Loyal blues
Custom-built
Of course, companies can embrace new business principles and develop a genuinely
customer-centric approach. Many already have.
Consumers have responded positively to the “locally produced” ethic of UK
supermarket chain Waitrose, taking note of the prevailing zeitgeist – shoppers like to
feel their supermarket acts responsibly and cares about the provenance of its goods.
Bookseller Waterstone’s, meanwhile, has introduced handwritten recommendations
from staff to its stores. Both companies have realised that customers want to feel a
sense of connection with them.
Companies’ self-image
is starkly at odds with
consumer opinion.
Some 80 per cent of
companies believe they
offer superior service
but just 8 per cent of
their customers agree
The very basic things
that the old-style corner
shop owner knew
because of contact with
his customers are the
very things that drive
customer loyalty
Even companies that have been through tough times can
win back their customers’ loyalty. Take Marks & Spencer
and McDonalds. Although Marks & Spencer is currently
making significant progress, it has seen many false dawns
over recent years. And McDonalds originally put high-fat
salad dressing on its “healthier” salads before realising
the error of its ways and changing the dressing. So there
can be slip-ups on the way – as long as a company
ultimately gets it right, customers will return.
Retailers and brand leaders are more aware than some
consumer-facing businesses of the changing face of
their customers. They do at least tend to mention the
consumer in their mission statements. Financial services
companies, by contrast, rarely name-check the customer
and the entire sector is poorly rated by consumers.
But banks are trying to gain some ground. Back in the
1980s and 1990s, they spent millions centralising their
systems. Now, NatWest is advertising the fact that
customers can call their branch direct and speak to a
real person. Other banks are introducing relationship
managers, particularly for the mass affluent.
Far from wanting to amass more stuff,
when asked what they want for Christmas
people now put time, sleep, peace and
quiet, sex, holidays and fun on their wish list
21
Talking point:
Loyal blues
The essential point is that consumer tastes change rapidly so the challenge for
business is to anticipate new trends and adapt accordingly. Doing this properly
requires knowledge, experience, understanding and the ability to look ahead, often
by several years. In this context, the brief tenure of quoted company senior directors
and the short-term investment horizons of their shareholders may be unhelpful.
“The average marketing director stays in their role for 18 months. The average
chief executive is in place for three years, four months. This hardly encourages a
long-term view or commitment,” says Hayward.
Some might say that private equity firms, who typically invest in businesses for
three to five years, are also short-termist in approach.
But Bridgepoint partner Guy Weldon explains: “We are acutely aware of the need to
create strong growth prospects. The exit multiple you get on any investment is
really determined by growth so there is no point going in with a lot of short-term
ideas and just stripping out costs. The average share in a UK plc is held for less than
a year, which encourages management to focus on quarterly and annual
performance. In this context, a four year view from a private equity firm is actually
much broader.”
Survival of the shrewdest
If consumer-facing companies are to seek out loyalty over the coming years,
discerning future trends will become increasingly important. And analysing current
behaviour is integral to the process. High staff turnover and unimaginative
outsourcing contracts are already proven to irritate the consumer, and this
frustration is unlikely to disappear. If anything, businesses that cannot keep their
employees and outsource work without thinking through the consequences will
find customers voting with their wallets and walking away.
“Outsourcing has its place but you have to focus on the impact,” says Weldon. “One
of our businesses, Holmes Place, is a great example. We have been looking at
outsourcing the cleaning, which, from a pure cost perspective, is the type of
decision we could make quite quickly. But we are very aware that the quality of that
cleaning will have a major impact on our customers’ perception of Holmes Place.
So the issue becomes much more complicated. We have decided to trial contract
cleaning at selected clubs, then compare it with in-house cleaning performance at
others. Only then will we make a decision,” he explains.
Other areas of concern include personal indebtedness, which has already resulted
in reduced rates of growth at all but the best high-street businesses, and is likely to
continue to worry all consumer-facing companies.
Environmental awareness is also expected to play an increasing role in customer
choice. There is an expectation in some quarters that unnecessary or excessive
packaging will become increasingly frowned upon by consumers and even
legislated against by the UK government.
“Data is at the heart of it,” says Hayward. “That’s what connects up the dots.
Consumer-facing businesses must continually monitor their offer. Marketing once a
year is simply not enough. There has to be a continuum.”■
This article is based on a presentation made at the latest Bridgepoint consumer seminar –
‘The polygamous consumer: what next for loyalty?’.
22
23
Lure
of the
East
Regional
Focus
Since the collapse of the Berlin Wall, Eastern Europe has
changed dramatically, with some countries advancing
faster than others, but for those investors who know
where and how to look, the opportunities are legion.
But it didn’t quite turn out like that. Instead, London – and other cities across
Western Europe – is full of Polish plumbers, Estonian software experts and
Slovene nannies. Most analysts agree that they enrich the economy and even help
to keep down wage inflation.
More than that, the accession of countries such as Slovenia, Hungary and the
Czech Republic has brought home to the financially savvy that the East is a
potential Klondike for investors. Young people in London or Edinburgh cafés are
smart, flexible, computer-literate and capable of improvisation: natural
entrepreneurs who are likely to return home to take part in the rapid
modernisation of their countries.
Economic miracles
From the Baltic to the Balkans there is an increasingly sophisticated, young market
of more than 75 million consumers. And unlike Western European economies,
their Eastern counterparts are growing fast, at rates of seven per cent or more.
“There is very strong GDP growth in the region. And since many countries have
joined, or are about to join the EU, their laws are being aligned to ours. They have
a highly educated, cheap labour force and it’s all on our doorstep,” says
Bridgepoint partner Alastair Gibbons.
Central and Eastern Europe were declared “emerging markets” in the early 1990s
and are still classified as such. But in the past 15 years the Czech Republic,
Poland, Hungary and the Baltic States have undergone something of an
economic miracle. In 1990, the essential question after the collapse of
communism was: how can you create capitalism without capital? There was a
mad scramble to privatise the economy.
Rich and Polish
In 1991, the Polish magazine Wprost published a list of local millionaires and it
remains a useful snapshot of how crude capitalism was back then. Poland’s richest
24
Regional Focus:
Lure of the East
From the Baltic to the
Balkans there is an
increasingly
sophisticated, young
market of more than
75 million consumers.
And unlike Western
European economies,
the Easterners are
growing fast, at rates of
seven per cent or more
Two years ago, when eight countries from Eastern Europe joined the EU,
scaremongering in the West reached an almost palpable intensity. Sensationalist
articles suggested that Slavic hordes were set to rampage throughout the land,
stealing jobs and threatening livelihoods.
men made their fortunes out of car dealerships or meat processing factories. Some
had been black market kings under communism, others were sportsmen with
lucrative Western sponsorships. Expatriates returned from the US and, very
quietly, former communists – the management class behind the Iron Curtain –
slipped into executive positions in privatised companies.
Small wonder that serious investors were nervous in the early days. It all smacked a
bit too much of cowboy economics – the wild east. Since then, however, the legal
structure has become more solid. Fortunes are more difficult to make, but they are
a lot cleaner than they were. The richest man in Poland, Jan Kulczyk, made his
money out of privatised breweries, but now concentrates on mobile phone licences.
Unlike the rugged pioneers of the 1990s, he is the very model of a modern
businessman: multilingual, flying from Warsaw to Zurich for supper.
Capitalism is evolving fast in the region and investors have to be aware of the
shifts. “Eastern Europe has reached a crucial point. It is on the cusp between the
development capital phase and the buyout phase. Private equity is just beginning
to show its face, but I believe there will be significant growth in the market over
the next five years,” says Gibbons.
On the town
The revival of the East is, however, an urban phenomenon. The cities of Eastern
Europe have been the traction engine of reform, but rural areas seem to be living in
another era. “There is a metropolitan corridor running from Berlin through to
Poznan and Warsaw and into Moscow and St Petersburg,” says Karl Schloegel of
European University Viadrina, based in Frankfurt an der Oder. “That is the railway
line route linking East and West. Go 60 kilometres either side of the railway line and
you are likely to find yourself in a village where there is only one shop, horses do the
hard work and the only entertainment is getting hopelessly drunk at weddings.”
Investors have to respond to this reality, not only of a multi-speed Europe but
of multi-speed societies that seem to be three centuries apart. EU membership
helps but it also widens the gap between the modernising centres and
primitive peripheries.
Before the Second World War, Bratislava, the capital of Slovakia, was an hour’s
tram drive from Vienna. The Iron Curtain made them seem worlds apart. Now
Bratislava is so closely linked to Vienna via the Austrian capital’s International
Airport that they market themselves as “twin cities”. The Viennese travel to
Bratislava on Sundays to do their shopping, while Slovaks are starting to buy
property in Austria.
Taxing decision
Slovakia was regarded as the least likely of the 13 original applicants to qualify
for EU membership in 2004. Now it has become one of the most attractive targets
for foreign investment. This is partly down to geography: western Slovakia,
western Hungary and the Czech Republic have become part of a regional hub for
25
Regional Focus:
Lure of the East
car manufacturers. But the turning point came before the enlargement deadline
when Slovakia’s political class found the will to introduce painful reforms in the
tax, pension and health systems. “As a result there was not a great wave of
frustration when we joined the EU,” says sociologist Marian Stosarik. The
Slovaks introduced a uniform tax rate of 19 per cent for individuals, companies
and VAT. The decision was brave but it is paying off: tax revenues have held up
and the country has become the first port of call for US investors. Growth
remains strong at about five per cent.
There are, of course, social problems embedded in this kind of experiment.
Architects are replacing
Unemployment is slowly coming down but is still about 16 per cent. High VAT
communist-era
hurts those on lower incomes and there is a wide gulf between rich and poor. For
monstrosities with glass
foreign investors that translates into a ready reservoir of cheap skilled labour –
palaces (that have
average wage about €350 a month – but it also creates a rather brittle
thousands of panes in
atmosphere. And investments based on the promise that wages will stay low
need of cleaning); new
for a decade now look rather unsteady; managers are already beginning to
bars and cafés have to
give in to pressure to push up salaries.
comply with EU
hygiene standards
This does not mean that Eastern Europe should be discarded as a long-term
(generating a boom in
labour source. The evolution of the textile industry in the region shows how
bathroom supplies); and
investment strategies can be tailored to wage levels. German companies started
the shift to home
decades ago to transfer labour-intensive textile work to Eastern Europe. Other
ownership is boosting
countries followed suit in the early 1990s, but China and India are now the
flat-pack furniture sales
Tailor made
favoured source of cheap textiles and many Eastern European nations have been
priced out of the market.
Nonetheless, a process of adaptation is already under way. The Hungarians and
Czechs are using their textile skills to make airbags, safety belts and seat
upholstery. The Poles are switching to fabrics for the booming furniture industry.
And investors with an eye for a good cut are moving into home-grown East
European fashion design. However, such flexibility is not uniform. Romania and
Bulgaria remain highly dependent on cheap textile sales to the EU and the capital
base of their companies is relatively weak, limiting their ability to modernise and
catch up with Chinese productivity levels.
Standing out from the crowd
Right now, the most successful of the new EU entrants are small elastic states,
such as Slovenia and Estonia. Salaries are rising – €1,100 a month in Slovenia –
and both look like sure candidates for European monetary union. But this
“normality” may make them less interesting in the long run; ultimately, they are
still very small markets. Estonia has been converting itself into a knowledge
economy. Its cabinet meets with open laptops; most petrol stations have a wireless
internet connection; there are genetic testing laboratories, and high-tech
electronics factories are clustered around Tallinn. But it is worth looking more
carefully at these shining new boys.
The Estonian property market, for example, is overheating. Between 2000 and
2005 the average price per square metre of a two-room apartment in Tallinn rose
26
Regional Focus:
Lure of the East
China and India are now
the favoured source of
cheap textiles and many
Eastern European nations
have been priced out of
the market. But a process
of adaptation is already
underway in Hungary,
Czechoslovakia and Poland
from €332 euros to €1,106, a 230 per cent jump. In relation to income, it is now
more expensive to live in the Estonian capital than in Helsinki, just across the
water. Private debt is rising fast as Estonians stock up their mortgages to free up
cash for holidays. An advertisement on Estonian television shows a bank drilling a
hole into a young man’s living-room sofa.
Suddenly an oil geyser shoots into the room. The pay-off line speaks volumes:
“Who would have thought so much money is buried in an apartment?”
Estonia, in common with the entire Baltic region, is dependent on Russian oil and
gas. This could create future instability – or encourage interesting new
constellations. Poland is already looking into alternative energy sources and may
even embark on a nuclear programme.
Economies of scale
Compared with its neighbours, Poland has the advantage of size. With a
population of 38.5 million and spending power on the rise, it is the first port of call
for British chains, such as Tesco, and German supermarkets, such as Aldi. The
country is beginning to have political clout too. If Poland chose to set up nuclear
plants, it would transform the region in a way that the Czech Republic’s modest
atomic energy programme has not. Slowly, but surely, Poland is emerging as the
regional power and a broker in the EU borderlands.
It helped defuse the crisis after the Ukrainian Orange Revolution, its Natocontrolled planes patrol Baltic air space and it is pushing for peaceful democratic
change in Belarus. Sometimes these activities thrust it into confrontation with
Moscow, but for the most part Poland is establishing itself as the EU’s
indispensable Eastern anchor. That is beginning to have a commercial impact; its
neighbours are seeing it as less of a rival and more of a mentor. Polish banks may
be mere striplings compared with the German heavyweights, but they are being
welcomed into the Baltic States, Slovakia and the Czech Republic. All of which
makes the Polish market one of the easiest for Western investors to understand.
“Apart from Poland, and perhaps Romania, the region is made up of multiple small
markets, with their own languages and culture. It’s not like setting up in China or a
big Western European state. It is a costly market to develop because it is so
fragmented,” says Gibbons.
The lie of the land
The best advice on investing in the East is to go there and talk to people.
Everything is in flux and every slight observation can translate into a business
opportunity. Eating habits are changing; time is becoming more scarce; architects
are replacing communist-era monstrosities with glass palaces (that have thousands
of panes in need of cleaning); new bars and cafés have to comply with EU hygiene
standards (generating a boom in bathroom supplies); cheap airlines are making
once-obscure cities fashionable; the shift to home ownership is boosting flat-pack
furniture sales; and Polish supermarkets positioned near churches have doubled
their sales on Sundays. If in doubt, ask the waitress in your local pub. Chances are
that she has a good nose for Eastern Europe and certainly better than anyone who
cocoons themselves in air-conditioned hotels on quick, fly-in, fly-out visits.
27
my
“ In
opinıon...
Harvest
for the world
Europe has long been depicted as a big bully standing in the way
of global trade justice. Peter Mandelson argues
that this point of view is naïve and wrong.
The Doha Round of negotiations to lower trade barriers around the
world have reached a critical phase. But we will not make any real progress if
continued pressure is imposed on the EU to offer more, in the absence of
significant moves from anyone else.
At the beginning of 2006, Australian foreign minister Alexander
Downer was reported as saying that a “fair system of international trade” depends
on access to EU farm markets. This makes no sense. The EU has already proposed
sweeping cuts to its farm tariffs. Highly competitive farm exporters such as
Australia may want greater access to our markets, but that is not necessarily
synonymous with a fair system of international trade.
Before we allow Europe to be painted as a farm fortress that stands
between the developing world and trade justice, we should recall that the EU has
granted completely free, 100 per cent access to all products from the least
developed nations and for most exports from some 30 developing countries as well.
Now is the time to break the politically correct fallacy that developing
countries are all alike. The G20 group of advanced developing countries and the
G90 group of poorer African and Caribbean countries do not have identical
interests and capacities in trade. Brazil and India are major economic players and
exporters on the world stage; the poorest African countries need all the help we
can give. There has to be a policy of differentiation here. Given that the greatest
potential to create new global trade lies in opening markets between developing
countries, the strongest shoulders among them must carry the heaviest burden.
28
Europe is ready to give more than others. But it is not
willing to get nothing in return. That is not negotiation;
it is capitulation
But agriculture is not the whole story. The bulk of developing
countries’ trade is in industrial goods – as are most of the tariffs they pay.
Trade in services and more openness to foreign investment must be part of any
development initiative as a strong economy is built on strong financial,
telecommunications and transport sectors.
Regrettably, too many NGOs and anti-reform ministers in developing
countries prefer to argue that protectionism is the answer to development. This is
a short-term, self-defeating view. Ask India. It does not work.
So how do we construct the grand multilateral bargain that will bring
about an ambitious outcome in the Doha Round? Some feel, or claim to feel, that
the EU has not put sufficient farm concessions on the table. But Europe has. We
are ready to eliminate our much-criticised export subsidies, which will put export
markets out of reach for many of our farm producers. Other forms of domestic
subsidies that distort trade will be cut by 70 per cent, leading to lower production
in Europe. We will also cut our average farm tariff in half to just 12 per cent – the
current US level. Even for so-called sensitive products, we are prepared to accept
significant tariff cuts and expand the quotas that provide access for these goods.
In other words, tariff cuts in every single farm product.
In return we have been offered nothing. Europe’s economy is built
on the trade in services, but there have been few significant offers to liberalise
the market, even from the developed world. Europe is a big industrial exporter,
but even in the handful of emerging markets such as Brazil, where we have asked
for limited new access, there have been no credible offers. Without these offers,
the Doha Round risks stalemate or collapse. Any developed or advanced
developing economy that comes to the Doha table empty-handed must expect to
go home the same way.
Now is the
moment to break
the politically
correct fallacy that
developing
countries are all
alike and have the
same interests
Too many NGOs and anti-reform ministers in
developing countries prefer to argue that protectionism
is the answer to development
Europe is ready to give more than others. But it is not willing to get
nothing in return. That is not negotiation; it is capitulation. Europe has asked
nothing from the poorest, and little from most other developing countries, beyond
what it feels they can give. From advanced developing countries we have asked for
moves in services and industrial products that reflect their growing weight in the
global economy. This, ultimately, will be the balance that will make the Doha
Round possible ■
Peter Mandelson
is European commissioner for trade
29
INSIDE
STORY
Taking
care of
the future
Nursing homes are a growth business: people are living longer, and
many need to be cared for later in life. French company Médica has
found itself benefiting from the demographic shift.
When the nursing homes business Médica France was first put up for sale in
2003, one key player remained in the dark – Jacques Bailet, the man who ran it.
Even though he had worked for its owner, the French financial conglomerate
Caisse des Dépôts et Consignations (CDC) for 12 years, it didn’t tell him about its
plans to pass on the company.
When Bridgepoint bought the business, it had 87 homes and
some 7,000 beds. Now it has 8,311 beds, 106 homes, including
11 in Italy, and Ebitda has increased 46 per cent to €48.9 million
Three years on and the situation has changed dramatically. Médica is now
part of the Bridgepoint portfolio, Bailet plays a key part in decisionmaking and the business has been transformed from a small regional
operator to one of the three largest nursing homes groups in France.
When Bridgepoint bought the business, it had 87 homes and some 7,000 beds.
Now it has 106 homes and 8,311 beds. Turnover has risen from €210 million to
€270 million and Ebitda has increased by 46 per cent to €48.9 million.
There are two sides to Médica: nursing homes, which account for about 80 per
cent of revenue, and post-operative healthcare homes. Worldwide demographic
shifts and an ageing baby-boomer population make the company optimistic
about its prospects.
“The trends are in favour of our business. And the industry appreciates wellstructured, well-managed operations like ours. We also expect that the National
Health Service and local authorities will continue to put money into the system,”
says Bailet.
Regulation and expansion
The sector in which Médica operates is regulated in such a way that it is difficult
for new competitors to enter the field. Fresh openings are limited by the
financing constraints on regional authorities and demand is expected to outstrip
supply. The regulatory nature of the market also makes it highly fragmented, so
larger deals can be difficult.
“Our expansion has been largely on a unit-by-unit basis,” says Bailet. “There is a
lot of competition when a nursing home comes on the market, so we have to
30
Inside story:
Médica
move quickly. But we are also cautious and always
make sure that we buy quality businesses, because
that is imperative in our industry.”
There has been one larger deal outside France: the
€8 million takeover last year of Aetas in Italy, which
runs a chain of similar homes in the northern part of
the country.
Jacques Bailet
Looking at the yield
Expansion isn’t the only way to create value, either.
Bridgepoint has actively helped Médica develop in
other ways, according to Vincent Briançon, a director
in Bridgepoint’s Paris office. “We have helped
management promote stronger sales and marketing
as well as implement appropriate monitoring systems. We also introduced yield
(revenue per bed) as a key performance indicator rather than occupancy rate.
These initiatives helped improve the performance of the business,” he says.
Médica has a high-powered board and Bridgepoint introduced the group to two
highly experienced outside directors – Graham Smith and John Du Monceau.
“ Worldwide demographic shifts and an ageing baby boomer
population make the company optimistic about its prospects”
Smith founded the UK care homes company Goldsborough Healthcare and has a
wealth of experience in the industry, while Du Monceau is senior vice-chairman
of the management board of Accor, one of the world’s biggest hotel groups.
“There are similarities between the care homes and hotels. This is an example of
how our contacts and understanding of other industries can benefit our
investments,” says Briançon. “When we go into a company, if we find there are
good ideas we can bring from other industries, then we will do so. It’s all part of
the added value we bring.”
Bridgepoint was also able to make people available from its Milan team when
Médica tied up the Aetas deal. “We introduced advisers and helped with the due
diligence process. We provided support to Jacques and helped close the deal,”
says Briançon.
Friendly rewards
Médica has worked well for Bridgepoint and the company’s management.
Briançon, who is on the Médica board, explains: “We have already recovered more
than 100 per cent of our original outlay through refinancing.” For Bailet too, the
relationship has proved rewarding: “They are involved in the business,” he says.
“They know the sector and they know how a company should operate. There is a
very close contact between the London and Paris Bridgepoint teams, and we have
representatives from both on the board. They are able to react quickly and it’s easy
to settle things with them. They are professional, but there’s no formality. On top
of that, we have a very pleasant and friendly relationship,” he adds.
Further expansion into Europe is on the cards for Médica, although Bailet will
continue to take a cautious approach: “We will study it country by country, but
our first goal is to develop our business in France and Italy,” he says ■
31
THE
BOTTOM
LINE
All in a
day’s work
These days, it is hard to open a newspaper or magazine without finding
some columnist whingeing on about how much we all have to work these
days and how important it is to find a proper work-life balance.
Professional curmudgeon Neil Collins thinks it’s all a lot of nonsense.
When I tell people that there’s not enough
stress in my life, they tend to move away,
as if I’d said I was the carrier of some
contagious disease.
Stress! People think it’s the curse of
modern life. If only we had less of it, how
happy we’d be, they say. Phooey, say I. The
stress we endure is trivial compared with
earlier, poorer generations, and anyway, a
life without stress would be no life at all.
Just imagine it; your every little worry
removed, your existence a picture of
tranquillity, and no need to do anything
you don’t want. It sounds like living in a
luxury hotel and, for most of us, a
fortnight is about the most we could stand
of such a pampered, sanitised existence.
We may not be prepared to admit it, but
after a couple of weeks of sybaritic
wallowing we are grateful to get back to
work. After all, it beats the alternative.
I don’t mean unemployment, but the
prospect of being at home all day. That’s
more than most of us or our partners can
bear. Work is organised, hierarchical and,
in offices, where most of us work, is
relatively calm and spacious.
Home alone is grim, while home with
family is chaos. Nobody’s in charge, there’s
no room to escape, and you’re expected
to do things you’re really no good at, such
as fixing the dishwasher. Plenty of time to
bodge that at the weekend – but only
when you can claim you’re too knackered
from working all week.
No wonder we spend so long at the office.
Forget that endless bleating about the
work-life balance. Millions of us love our
jobs: the professional who balances his life
with a 40-hour working week is essentially
part-time – and probably in the wrong
32
business. Indeed, as many spouses of
bankers, businessmen and even journalists
have discovered, if invited to choose
between job and marriage, many would
choose the job.
Journalism, for instance, is a splendidly
stressful occupation. The challenge of
producing words that are right, bright,
light and tight to a daily deadline is hard to
beat. And you get your exam results on
the breakfast table the very next morning,
when you can see how you did against
your competitors.
I used to do it every day. Now I only write
two columns a week. Some “life coaches”
might say I am in a perfect position, but
they’re wrong: after 30 years of the daily
grind, I need more stress in my life – and
the right kind of stress too. Staying at
home with the kids is not my idea of worklife balance and most sane people
wouldn’t blame me.
No. Allan Leighton got it right. When he
left Asda, he told the world he was “going
plural” and almost got knocked down in
the stampede of offers. Now, he’s
chairman of Royal Mail but still manages
to fit in a string of other jobs – and you
don’t hear him talking about needing to
spend more time with his family.
The rest of us may not be as lucky or as
talented, but as the clock swings round to
7 pm, we workaholics can always fall back
on the ultimate reason for ignoring the
work-life balance: when you’re working,
you’re not spending money ■
Neil Collins
was City editor of The Daily Telegraph
and is now a columnist for the London
Evening Standard
Contents
Ins & Outs 2
Bridgepoint investments and
exits across Europe
Analysis 7
From red to green
The end of cheap energy
Active Ownership 12
Scenting success
Driving value at Nocibe
Face to Face 14
Chemical balance
Dieter Engel on drugs, pills and country music
Talking Point 19
Loyal blues
Seducing the fickle consumer in a
changing world
Regional focus 23
Lure of the East
Eastern Europe kicks off its cowboy boots
If consumers do not
find what they are
looking for in one
business, they simply
move to another.
The loyalty ‘or inertia’
that characterised
past generations has
been replaced by
promiscuity.
In my opinion 28
Peter Mandelson on trade
Europe has given enough
Inside story 30
Taking care of the future
Nursing homes a la francaise
Bottom line 32
All in a day’s work
Neil Collins wants more stress
Bridgepoint Capital Limited is authorised and regulated by
the Financial Services Authority.
adjust spine to fit
THE POINT Issue 9 May 2006
THE
POINT
Intelligent investing in Europe
from Bridgepoint
The art
of seduction
Winning over the fickle consumer
Issue 9 May 2006
If consumers do not
find what they are
looking for in one
business, they simply
move to another.
The loyalty ‘or inertia’
that characterised
past generations has
been replaced by
promiscuity.
Contents
Ins & Outs 2
Bridgepoint investments and
exits across Europe
Analysis 7
From red to green
The end of cheap energy
Active Ownership 12
Scenting success
Driving value at Nocibe
Face to Face 14
Chemical balance
Dieter Engel on drugs, pills and country music
Talking Point 19
Loyal blues
Seducing the fickle consumer in a
changing world
Regional focus 23
Lure of the East
Eastern Europe kicks off its cowboy boots
In my opinion 28
Peter Mandelson on trade
Europe has given enough
Inside story 30
Taking care of the future
Nursing homes a la francaise
Bottom line 32
All in a day’s work
Neil Collins wants more stress
From red to green
www.bridgepoint.eu
www.bridgepoint.eu
Bridgepoint Capital Limited is authorised and regulated by
the Financial Services Authority.
Maximising energy
efficiency in a rising market
Fair trade
www.bridgepoint.eu
Mandelson stands up
for Europe