When Tony Veverka, chief executive of Ultralase, says laser eye surgery changes lives he speaks from experience.
When Insider spoke to Ultralase chief executive Tony Veverka, he was adamant the fundamentals of his Leeds-based laser eye surgery business were sound. He was candid and upfront about some of the financial issues that faced the holding company, Ultralase Financial, controlled by 3i. As is the case of many highly leveraged private equity investments, the debt burden had proved too great and the equity stake was “under water”.
So, in late February, a prepack administration of the holding company saw 3i hand control to a group of banks including The Royal Bank of Scotland, Bank of Ireland and Barclays. It’s not the ideal outcome, but it actually strengthens the business for the future and removes a level of uncertainty. The banks now have some considerable skin in the game and recognise the value of Veverka’s idea and the fundamentals of his business.
The obvious question is did 3i overpay at the top of the market? “You would have to ask 3i that,” comes Veverka’s diplomatic response. “Hindsight is a wonderful thing, and I think the timing could have been better. We bought at the top of the market and clearly there has been the devil’s own recession since then. It’s probably an easy call to say we overpaid, but it doesn’t change the fundamentals of this business, which I think make this a good investment opportunity for anybody.”
“Last year was significant for Ultralase and has helped us set firm foundations for future growth,” says Veverka. “With this additional multimillion-pound investment the business is ideally placed to strengthen its market-leading position. The restructure will have no impact on our customers.”
In business circles it’s such a familiar story but no less powerful for it. Namely an entrepreneur spotting a business opportunity from a first-hand experience.
“I liked the treatment so much that I bought the company. It changed my life as it does for people,” he says.
Veverka bought at the height of the market in a £175m management buyout in 2008 and, despite the “brutal” downturn, has big plans for growth. He joined Ultralase in 2000 when it was still a cottage industry, he says. The business had just received backing from private equity firm Granville Baird to challenge this perception and create a trusted corporate brand. In 2005 it was sold for £30m to Corporación Dermoestética.
“The company maybe bought us for the wrong reasons. It was not a provider of laser eye surgery and didn’t profess to understand our business. It was very good at cosmetic and aesthetic surgery, and was looking to expand further into Europe,” says Veverka.
“We were attractive, not so much because of the business we were in but because we had a clinic network and they saw that infrastructure as a place to roll out their cosmetic surgery.
“It didn’t really gel and it was a difficult two to three years in that respect. It didn’t stop our core business doing OK, but they never got the cosmetic surgery off the ground within our model, so it really wasn’t core to them. It wasn’t where their heart was.”
Under 3i the business grew to a network of 31 clinics across the UK and Ireland, compared with just four under the former ownership. And Veverka is confident of these fundamentals in the long term, although the recession has bitten.
“Nobody is inventing a pill that means you don’t have to wear glasses,” he says. “People will have refractive error; it’s a way of life and this is a safe way of reducing your need for glasses.“
The penetration rate of people who could benefit from the surgery in the UK is small. Only 2 to 3 per cent opt for surgery, compared with 10 to 11 per cent in countries such as Canada, the US and Spain.
“There’s still lots to go at. If somebody doesn’t buy it this year because of the economy, they’re not saying never. It doesn’t mean we can’t sell it again like an airline seat or a hotel room,” says Veverka. “We saw a downturn in the industry in 2003 because of negative media coverage that was ill-informed. When it came back there was an element of people who had deferred it for a while just to wait and see. That will happen again.”
But the recession has hurt. In 2008 turnover grew 15 per cent and the company expects to report flat figures for 2009. While the business has gained market share via acquisitions and opening more clinics, fewer people are spending on treatment.
“The downturn has been pretty drastic. This year it’s probably 20 per cent down on 2008 so in two years the number of people having the surgery has fallen by 35 to 40 per cent overall in the market,” he says. “We’ve had to accept the fact that even though we’re adding more sites, we’re going to get less volume.
“We took some costs out, which was difficult. The business was growing for a long while in all ways and people are engaged in it. People love this business because you’re truly making a difference to people’s lives.”
Ultralase’s positioning has put it at an advantage. “Our natural customer is of the higher demographic order where some of our rivals rely on low pricing to draw volume. This has played into our hands because our demographic base has maybe been a little less affected by it,” says Veverka.
“Keeping our margins, and market position at a premium point is important. We justify the premium because we’re investing in new technology all the time and developing new products.” Its latest technological development is expected to have a big impact on the market. Traditional treatment corrects refractive error, where people have problems from an early age because of a misshaped cornea. The deterioration of sight connected to getting older is a condition called presbyopia, caused by the weakening of the eye muscles. The business has just launched UltraRenew, a procedure being offered at its clinic in Hammersmith, London, to address this condition with a view to rolling it out nationwide.
Veverka says this increases the market of people who could benefit from treatment: “It is a growth area. Our market to date is people who need glasses all the time but this is for everybody.”
With a large baby boom generation just reaching middle age, this is a timely invention. Ultralase works closely with its suppliers who do the research and develop new technologies, based on what the market needs and as a corporate partner. Ultralase has a big impact on the development of new technology, advised by its clinical services team. This allows the business to pioneer new procedures, such as Ultra Elite Wavefront, which removes imperfections from the cornea to improve vision. It was launched in July 2009.
The business also increased its market share last year by acquiring Eye Laser Ireland, increasing its presence in the Irish Republic with three more clinics. Veverka has plans for international expansion, but says: “We’re well placed to fill the gaps in other countries and we will, but at the moment I’m a little loathed to distract our management team from what we have to do here.”
The management team is continuously improving the internal workings of the business as well as launching products and diversifying into invasive surgery.
“We have a bit to go at just in our existing model, but we are looking at some markets overseas, mostly in Europe. But the timing will depend. In 2010 possibly not, but in 2011 probably.”
Veverka has learnt to take on what he can carry. “Moving from a small business and a subsidiary of a listed company to a private business has meant we’ve moved from what was a simple business to taking on acquisitions and opening clinics,” he adds. “And we have moved into the private equity environment with different stakeholders. It’s been a learning curve and it has been challenging. But this business is much better than it was two years ago.”
And Veverka intends to keep it that way.
Also in: March 2010
-
Public-private showdown
As the pre-election temperature rises in Whitehall and the talk of swingeing public sector cuts grows louder by the day, one important element of this debate is getting a bit lost. Namely, just what will happen to the great spirit of public private collaboration we have seen over the past 20 years or so?
-
The end of the affair
The regeneration agenda is disappearing before our eyes. With crippling public sector cuts looming, Kurt Jacobs asks: is there a future for public-private partnership?