Review of the year 2022
Much to my surprise, my elder son Charlie (age 10), has recently become interested in business and how it works. He’ll probably tell you it is because he is looking for ways to supplement his meagre pocket money (!) but it has led him (and me) to think about what he might like to do when he is older. I know that moving jobs and employers regularly over your career is now very common but given his age and stage, if he wants to spend his career with a single business, it will need to still be trading in 50 years’ time.
That may sound simple enough but at Nevis we like to look at the facts. The empirical evidence suggests that long term business survival is more difficult than you might think:
The average lifespan for a US company is 12 to 15 years (source 1).
If you look at companies who have lasted more than 100 years, it’s 45 companies for one million and if you look at companies who’ve lasted 200 years, it’s one company out of a billion (source 2).
With this knowledge, it felt a lot more difficult to give Charlie career advice… and it gave me cause to reflect on our goal at Nevis to be long-term owners of businesses.
We are fortunate to have acquired several businesses which have already bucked the trend. James Ramsay and Merkland Tank are more than 100 years old, Hardie Polymers celebrates its centenary next year, DTGen is over 50 years old and Astec Precision is the “youngster” at just 25.
With the odds stacked against long term success, understanding more about those businesses which have survived felt important in our efforts to be effective stewards of ours. Both Vicki TenHaken and Arie De Geus have spent time studying businesses which are more than 100 years old and both find the following common attributes (source 3):
Strong culture & identity
Long serving employees
Decentralised decision-making structures
Niche focus able to evolve over time
Conservative finance structures (relatively little debt)
Strong partnerships
Connection to and part of the local community
Whilst 2022 had its challenges for all of our businesses with supply chain disruption, inflation and a very competitive labour market, we decided to review the year with the above factors in mind.
At DTGen, Paul Moore and his team have continued to evolve their niche focus on standby and prime power generators with two significant extensions.
Firstly, in March, we acquired Power Electrics Generators (“PEG”) in Bristol from the Pullin brothers. Paul and the Nevis team have known and traded with the Pullins for decades (PEG began trading in 1963) and the trust built up over that time was crucial in getting a deal that worked for everyone. Acquiring PEG has extended our geographic reach and we were delighted to welcome their experienced and long serving team to our own. The acquisition takes us to three UK locations and more than 90 colleagues and we are already seeing the benefit of being able to offer truly national coverage to our customers.
Secondly, we have expanded further into the gas market through exciting partnerships with Flogas and Himoinsa. With the energy crises impacting all businesses, these partnerships allow us to use our core skills to help our customers reduce their energy bills, secure critical power supplies and transition towards net zero.
2022 ended with Raymond Shepherd’s retirement from full-time employment after forty years with the business. Having begun as an engineer, Raymond quickly became a Director and shareholder and moved from Operations Director to Managing Director when Nevis acquired the business in 2013. As we mentioned last year, Raymond’s son, Gary succeeded him as Managing Director in 2020 and together with our support last year he and his brother Jamie completed a Secondary Buy-Out of Raymond’s shares. We are glad that Raymond will continue to work with the business on a part-time basis and we offer our congratulations and best wishes for a long and happy retirement.
In our experience, succession planning is one of the most difficult aspects of managing for the long term so we’re delighted that Gary & Jamie will take the business forward and maintain its distinctive culture of caring for customers and employees alike. Since our initial investment in the business, the team has grown from 26 to nearly 80 and turnover and profits are up four-fold. We see lots of opportunities to continue this trend and look forward to working with the team to seize them.
Last year we saw a doubling of our tanker fleet and team. This has broadened our niche service offering to our customers and the business has further developed with the establishment of a second location in Rosyth; building upon our partnership with the team at Babcock. The combination of more equipment, a larger team and a new depot will help us to better serve our customers in the future.
When a team grows quickly, there is clearly a risk that the identity of the business is diluted or lost. Thankfully, many of the management team and engineers at Merkland have been with the business for decades and are protecting our culture and passing it onto the new recruits. Thanks in particular to Director Kirsty McIntyre who is a great example of this (having worked with the business for 35 years) and we are looking forward to working with her and the rest of the team (old and new!) in the future.
As you might expect, this expansion has required a significant investment and we have been able to do much of this from retained profits. One of our guiding principles is that as owners you often need to accept lower returns in the short term to deliver sustainable growth in the future and we are confident that this will follow at Merkland too.
Eddie Young and the team at Astec enjoyed a stellar year – growing the business and securing a number of important new customers. Eddie has done an excellent job of empowering his team and they have rewarded his faith by producing first class results for their customers and the business.
During COVID, demand was badly impacted but as a shareholder group we made the decision to retain our skilled team and completed a move to larger premises. These decisions have borne fruit during 2022 as we are able to meet growing demand and had the space to invest in additional machining capacity. If we are to continue growing, we will need more skilled machinists and in the coming year we are looking to extend our apprenticeship programme with the introduction of an Astec training academy. Being based in the small Lake District town of Ulverston, Astec is among the largest employers and we see the apprenticeships and academy as a demonstration of our commitment to maintaining and strengthening the company as part of the local community.
We marked the first anniversary of our buy-out of Hardie Polymers in November and Managing Director Isy Ferguson was kind enough to share her reflections for us in a recent post. We have thoroughly enjoyed working with Isy, Bartosz and the rest of the team and are proud of the progress made.
It can take time to settle into a new ownership structure but the Hardies team have hit the ground running with a record year. Furthermore, with a move to larger premises, the establishment of a Dutch subsidiary and the introduction of a new ERP system, we are putting in place the building blocks that we believe will help the company to take the next steps in its development.
New Deals
We have been interested to see a range of predictions and opinions on what the deals market has in store for 2023. For business owners, if it is your intention to sell your business there is always debate as to when is a “good” time. Some commentators have argued that 2023 is not one of those times – a global recession looms, interest rates are rising and there is evidence that the availability of debt is tightening for large, highly leveraged transactions. Other commentators are urging owners to sell now before it gets worse!
For us, whether or not it is a good time to sell probably depends upon who you are selling to. If you are selling to a private equity firm or a highly leveraged trade acquiror then 2023 may not be the best time. If they can’t borrow as much, then they can’t pay as much and if results are likely to drop back in a recession then they’ll have even less time to try to aggressively grow the business before they are looking to sell it again. If, on the other hand, you are selling to a buyer like Nevis then the timing doesn’t really matter. We are always conservative in our use of debt and as we take a long-term view on maintainable earnings the “ups and downs” of a recession are par for the course.
As we start the year, we are in the rare position (for us) of having three new deals in exclusivity and we are hopeful that they will complete and will be a huge step towards making 2023 a good year.
Conclusion
The odds of winning the Euromillions jackpot are approximately 140 million to one. Compare that with the 1 billion to one odds of a company surviving 200 years and it is clear to see just how difficult it is to build a truly sustainable business. That said, we are keen to continue to buy tickets for the “business lottery” (there is a lot more challenge, enjoyment and reward to be had than from picking your lucky seven numbers!) so if your business meets our criteria and you are interested in a conversation please do get in touch. Only time will tell whether we are able to beat the odds but hopefully we can improve our chances by learning from some of the long term “survivors”. I’ll certainly be advising Charlie to look for their attributes when choosing a company to work for.
Sources
Source 1 : Vicki Tenhaken – Lessons from Century Club Companies
Source 2: John Elkann in his interview with Masters of Scale https://mastersofscale.com/john-elkann-how-to-build-your-company-to-last/
Source 3: Vicki Tenhaken – Lessons from Century Club Companies; Arie De Geus – The Living Company