Talking Point - A done deal
Earlier this year, I found myself in yet another London-based completion meeting. This time it was the largest Midlands MBO this year, that of Poundland.
This was another great Midlands success story. While the CEO Jim McCarthy insists, quite rightly, that many people contributed to the Poundland success - from its founders, Stephen Smith and David Dodd, through to the current team led by Jim - no one can deny that what has happened in the relatively short period following Jim’s arrival is anything short of spectacular.
From a business with 150 stores and a turnover of £281m when he arrived in 2006, the business when sold - for a reported £200m - had nearly 300 stores and a turnover of more than £500m and showed no signs of slowing down.
Nevertheless, Poundland’s owner Advent had reached that point in its investment cycle where it was time to exit. There was no shortage of suitors. Along came another London house, Warburg Pincus, which was keen to pick up where Advent left off and back the ambitious growth strategy of Jim and his team.
So what was Poundland’s secret? It couldn’t simply be having the good fortune to be a value retailer at the time of a major economic slowdown. The fortunes of Woolworths will tell you that.
A common response of private equity houses when asked what is the most important ingredient in their investment decision is the quality of management. One of the first things you notice when you visit Poundland is the team culture from the top to the bottom. Each member of the team believes in the company, knows where he or she fits in and, most importantly, where the organisation is going. The result is there for everyone to see. This comes from the top.
So a great Midlands success story? Certainly - but I started this piece by saying I was in yet another London completion meeting. Why? Why not Birmingham? Poundland is after all a Midlands-based business. Poundland had Midland based advisers….but the money was from London - both the incumbent VC Advent and the buying VC Warburg Pincus (well, they are American but did the deal out of their London office).
Accordingly, all the advisers on the deal were London-based save for those instructed by management. I felt a huge regret that the deal was not advised out of Birmingham. Certainly Birmingham VCs and advisory teams are a match for the London players I was working with; in fact, the lead adviser for Advent and the lead director at Warburgs were both Brummies and people I had worked with in Birmingham in a different life.
It’s a sad fact that we don’t appear to have the financial muscle to do this size of deal in Birmingham but that does not make this any the less a local success story. While this one step in Poundland’s journey involved London finance and therefore London advisers, up until that time Poundland grew and will continue to grow on the efforts of a Midlands-based management team using Midlands-based advisers.
The success is not the deal per se but the success of the business itself and that success comes from the Midlands. Poundland is a success story of which the Midlands can be proud.
Guy Green is a corporate finance partner at the law firm George Green.
