Review of the Year 2023
“I love it when a plan comes together” – John “Hannibal” Smith, A-Team
While we would never pretend that much goes according to “plan” at Nevis (!), last year we closed our Annual Review with the following statement:
“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.”
We’re delighted to say that all three deals did complete and each contributed significantly to a challenging but enjoyable and rewarding 2023. Let’s look at each of those in turn, starting with the new additions to the Nevis portfolio:
JWF Group (“JWF”)
JWF Group has been owned by the Fairbairn family since it was founded in 1962. In 2022, through our Nevis Explorers scheme, we were introduced to Kenneth Fairbairn, the Managing Director and majority shareholder. Kenneth was looking for a shareholder partner who could help the business continue to grow and diversify and to safeguard the future of the business should he ever wish to exit or step back in the future. Thankfully, in March 2023, he chose Nevis to be that partner.
The Group comprises JWF Process Solutions and Stream Measurement both of whom provide measurement instrumentation and data to a broad portfolio of clients primarily in the energy, utilities and industrial sectors. As the drive to Net Zero becomes more important for these customers, we see an excellent opportunity for JWF to assist them in measuring and understanding their current position as well as identifying where future efficiencies can be made.
We have enjoyed working with Kenneth and his team over the last nine months, see good overlap between JWF and other Nevis portfolio companies and an excellent opportunity to help the business to continue to grow and develop.
Pump Action
Pump Action was established by Scott Lamont and Scott Gray in 1994 and over the intervening 30 years they have built the business into one of the UK’s leading specialists in the sale, installation and servicing of pumps and associated equipment. We became aware of the business through their trading with other Nevis companies and first approached the Scotts in early 2021. It wasn’t the right time for them to look at selling any of the business but we have developed our relationship ever since and towards the end of last year we agreed a deal to acquire a 50% stake.
The deal allowed the Scotts to realise some of the value they had created in the business whilst remaining in control. From our side, we have been really impressed with the customer focused culture in the business and see real potential for the business to grow from its three Scottish locations (Aberdeen, Edinburgh & Glasgow) to offer a UK wide service.
The last deal that we completed in 2023 was a bit unusual for us as we sold DTGen to Flogas (a subsdiary of FTSE100 listed DCC plc). The sale comes more than 13 years after our original investment in the business when we backed Paul Moore to buy out his then business partner. The link above showcases some of our highlights over the course of this time and these included several bolt-on acquisitions, the creation of a UK wide presence and transitioning the business from primarily providing back up diesel generators to providing a range of sustainable and renewable power offerings. With Nevis receiving a money multiple of more than 10 times we could just end the “instagram” version of our time with DTGen here.
However, we have always tried to be balanced and transparent in these reviews and so I thought it might be worth mentioning some of the challenges we have faced along the way:
- Opening and closing of a London depot
- Losing (or having to lose) key members of staff
- Difficult or unprofitable contracts
- Large, long term customers going out of business
- Misleading financial information requiring the shareholders to inject cash into the business at short notice
- Significant shift in public opinion away from fossil fuels (our traditional market)
Some of these difficulties were outwith our control but we undoubtedly caused our own problems on more than one occasion! However, whatever the reason for the challenges, I think we have approached it in the same way. Look forward, make another decision and move on. As F. Scott Fitzgerald wrote, “you must never confuse a single failure with a final defeat”!
That said, we can’t deny that there were stressful times and the critical factor in our getting through these was the absolute trust that we had built with our fellow shareholder, Paul Moore. As Managing Director, Paul led the business fantastically and displayed the resilience and entrepreneurial flair that is required to help an SME to develop and thrive. The trust between us allowed us to be open and honest at all times, to avoid any sort of blame culture and to work together using our combined skills and efforts to tackle whatever challenges we faced. For that reason and many more we give a heartfelt “thank you” to Paul and the rest of the DTGen team that we have been proud to work with over the years.
As a long term owner of businesses, it is unusual for us to sell. However, we recognise that sometimes it is the right thing to do for the wider shareholders and stakeholder in the business. As well as providing an opportunity for the wider shareholders to realise value, the deal was the culmination of a multi year partnership with Flogas on our prime power gas generator offering. While DTGen have successfully grown this business, the target market is businesses with high energy consumption and they are inherently more likely to trust a FTSE100 company to deliver a stable supply of prime power than an SME. As a result, the sale to Flogas gives DTGen a wealth of resources to help accelerate and scale the business further.
Portfolio Update
We believe that the DTGen story illustrated above is fairly typical of life as a business owner – particularly in the SME world. The ups and downs are numerous and challenges aplenty! Ultimately though, we believe that the positives vastly outweigh the negatives provided you have the right attitude and time horizon.
At Nevis, we are long-term owners of business and we believe that this time preference allows us to make decisions that are in everyone’s best interests. We talked about that in more detail back in 2017 but that doesn’t make it easy!
“Saying “I’m in it for the long run” is a bit like standing at the base of Mount Everest, pointing to the top, and saying, “That’s where I’m heading.” Well, that’s nice. Now comes the test.”
– Morgan Housel
The longer that we operate at Nevis, the more we are confident that a key aspect to long term success is a willingness, as a shareholder, to forgo immediate financial returns in order to improve how the business looks after customers and employees. Occasionally, that may mean reducing prices or increasing wages but in our experience it more often involves improving the product or service the customer receives or investing in training, equipment or facilities for employees.
With an eye on this, what progress has been made by the rest of our portfolio in 2023?
Eddie Young and the team at Astec delivered a very strong 2023 that they can be rightly proud of but most pleasing for us were the progress of some longer-term projects. Firstly, investment in time, teaching materials and machines to create our own training academy will enhance our successful apprenticeship program to produce the next generation of machinists in Ulverston. One of the first things we put in place when we became owners of the business in 2015 was an apprenticeship programme and it is gives us great pleasure to see that around 1/3rd of our machinists have come through this route. There is a real shortage of hands-on engineering skills across the UK and we are keen to play our part in creating these well paid, skilled jobs.
Other longer-term developments include investing in a new ERP system to provide the management team with better, more timely information across the sales, operations and finance of the business. In our experience, this type of project takes a lot of planning and effort in the short-term but brings real benefits in terms of simplifying processes and reducing administration to create more enjoyable and rewarding roles for our team as well as a more efficient operation.
Lastly, through a continued focus on trying to help our customers meet their own challenges we have developed our assemblies capability. This will allow us to offer the “next step” to our customers –hopefully helping them to alleviate capacity constraints and improve their own efficiency.
Hardie Polymers enters its 100th year in 2024 – becoming the third member of our portfolio to join the “Century Club”. Given that the odds of a single company surviving 100 years are 0.0045% (!) we are honoured to have 50% of our portfolio (James Ramsay and Merkland Tank are already there) reach that milestone and we’re very much looking forward to the celebrations with staff and customers.
We have been pleased to see that Isy and her team continue to put the work in to creating the foundations for years to come. In 2023, from a team perspective this meant refining roles and responsibilities and the creation of a technical training programme for all staff. One of our main aims for 2024 is to develop this programme further to cover the equally important “non-technical” aspects.
We have also implemented a new ERP system which we believe will help customers and employees alike. It will significantly improve our ability to retain and share market knowledge (amongst our team and customers) and allows us to continue to expand our global supply base and the stock that we hold in the UK. This should help our customers to ensure they have what they need, when they need it, so that they can manufacture on time and on budget.
Gary Shepherd and the James Ramsay team continue to go from strength to strength producing record results in 2023 and working on landmark projects across Scotland’s emerging sustainable energy sector. We are pleased to see continued investment in creating a second tier of management through a number of internal promotions and some targeted external recruitment. Many of these internal promotions have originally been apprentices with the business and we have often found that those who have “come through the ranks” really understand the culture of the business and are well positioned to take on management and leadership roles.
The growth that the business has achieved does bring about its own challenges and undoubtedly the next steps for the business include new, larger premises with much of the groundwork for that completed in 2023 and a move planned for 2024. Crucial to our planning has been to remain in the East End of Glasgow which is home to so many of our employees. Additional space will also allow us to invest in better facilities for our team and in additional off-site works to better serve our customers.
Last but not least, Merkland Tank delivered a strong 2023 and continued 2022’s trend with significant further enhancement of our fleet of high-tech specialist waste tankers. The more modern and flexible fleet will help us to be more responsive to our customers and also allows us to further diversify from our core fuel tank market. While this market will be with us for years to come, we know that it will take time to build the specialist skills & experience required in adjacent sectors like utilities and chemicals. Kirsty McIntyre and her team have made great strides in this regard and we expect this theme to develop further in 2024.
We have also invested heavily in our team - with technical and soft skills courses run internally and externally. While this obviously adds costs, we know that these type of development opportunities have been valued and are making a positive difference to our day-to-day operations and culture.
Thoughts for 2024
The additions of Pump Action and JWF have given us a group of like-minded people and businesses and while all of our businesses operate completely independently there is mutual benefit from a cross-fertilisation of ideas and customers. It continues to be rewarding to share best practice across many areas from sales and marketing to IT and net zero planning. We expect this to continue in 2024 and our immediate focus is to work with the portfolio to take advantage of the many opportunities they see. We know that a continued focus on improving the businesses for customers and staff will allow us to do this.
From a Nevis perspective, we are keen to continue to improve the people development opportunities across our businesses. A key aspect in the long-term success of a business is the quality and development of its people but this also represents one of the main challenges – recruiting, training, developing and providing career paths and succession.
While we have lots to get on with in the portfolio, we remain keen to add new businesses so if you have a similar view on what it takes to succeed over the long term (or know a business that does) then please get in touch!