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Northern Rock and a Staffordshire-based building services company appear to have little in common, but both have benefited from specialist expertise, writes Patrizia Rossi

At the end of 2006, the owner-managers of Staffordshire-based SPI Ltd, a provider of building services to the social housing sector, found themselves at a crossroads – should they look for additional investment and management expertise to take the business forward or simply sell up?

The owners chose the former, joining forces with Lyceum Capital for an undisclosed sum. The investment ranked as one of the private equity firm’s largest, and debt was provided by Lloyds TSB.

The management buy-in was led by new chief executive Steve Huxley, who had plans to establish SPI as the cornerstone of a buy-and-build strategy. A services industry veteran, Huxley had a track record of working on acquisitions with private equity house Terra Firma. His background also included stints at Cleanaway, Balfour Beatty and the AA.

Founded in 1966 as a small plumbing and heating firm, SPI had formed partnerships with housing associations and local authorities. Its order book was robust and appeared to be a “good proposition” for its financial buyers. With Lyceum’s backing, Huxley’s corporate brief was to diversify and grow revenues, tighten up costs and professionalise systems, as well as identify targets that would expand the business beyond its base in the West Midlands.

Huxley notes: “We [Lyceum Capital] spent a lot of time looking at targets, and SPI was one of the best businesses in the marketplace. The business had strong entrepreneurial and operational skills, but there was a lack of infrastructure, which hadn’t impaired growth but certainly would have if we hadn’t done something about it.”

To this end, the senior management team consulted with BIE Interim Executive and brought in two seasoned executives as HR director and procurement director to strengthen these functions. Huxley adds, “In the world of private equity, improvements need to be made quickly, and it’s easier to bring in people who are going to punch above their weight. You get much greater impact from interim managers in a short space of time.”

Interim expertise
Andrew McNeil was drafted in as interim HR director just before SPI’s acquisition of Shropshire-based Octopus Electricals in November 2007. Octopus, also serving
the social housing sector, expanded SPI’s footprint beyond the Midlands to the North West and Wales. The undisclosed bolt-on deal was funded by Lyceum and Lloyds TSB.

McNeil’s key objectives were to review the organisation’s structure, together with the HR processes and procedures and to standardise the terms and conditions of employment to enable the integration of Octopus. “Interim managers go into a business with a set of objectives and have to complete what is agreed. Once they are there, it becomes apparent what has to be achieved and delivered,” he says.

The investments in SPI and Octopus were led by Dan Adler at Lyceum who worked closely with Huxley. Post-deal, Adler and another partner David Harland joined SPI’s board with ambitious plans to double the size of the company within two to three years and achieve good returns on exit.

McNeil says, “Family businesses reach a certain size and then, in order to make the step change to a larger organisation, there has to be structural and process improvements to enable the business to cope with the accelerated growth required both organically and through acquisition.

“A medium-sized business, such as SPI, wouldn’t normally require a HR director on a permanent basis. However, to make the step change quickly, someone who is over-qualified and over-skilled has to be brought in temporarily to identify the issues, set up new structures, recruit a replacement and move on,” McNeil adds.

A seasoned HR professional with a strong operational background, McNeil worked at SPI for 15 months. During this time, the group continued to grow
and following significant interest in the business, he assisted in preparing the company for sale.

SPI, which generates a turnover of some £50 million and employs 500 staff, was recently sold for an undisclosed sum to RWE Group’s UK subsidiary, npower. The deal was closed in January and is set to expand its energy services business. npower has since announced that the SPI deal will leave it “well positioned to improve almost five million homes in the social housing sector and provide its home energy services business to homeowners and tenants”.

Managing the downturn
McNeil thrives on being parachuted into businesses that temporarily require over-qualified management expertise. Currently between assignments, the interim HR director expects crisis management and turnaround situations to become his bread and butter in the upcoming months. “In the current climate, I think that restructuring and turnaround situations will arise more frequently,” he says.

Nick Diprose, MD of BIE Interim Executive, would tend to agree. He says that 20 per cent of the organisation’s assignments currently involve a restructuring or turnaround situation, and he expects this to increase over the next 18 to 24 months.

BIE has on its books 1,500 executives at – or near – board level, who provide management or change management services to public and private companies, government, not-for-profit organisations and private equity firms.

Diprose sees recovery work as a robust and growing market as more corporate finance is pumped into distressed situations, and believes that interim managers are more than up to the job of rescuing such companies. “Interim managers, such as the ones that have gone into Northern Rock, have nerves of steel, and are resilient and tough because they are going into a crisis situation and gripping it by the scruff of the neck.
They have a plan and the buy-in from the board, and they know that they have to deliver.”

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