ARC de Triomphe

Like many private equity firms with their eyes firmly on growth, LDC has its fair share of holdings in high-potential technology businesses. But the development capital arm of Lloyds Banking Group is certainly not betting the house on tech. With a portfolio that also spans investments in consumer, healthcare and media, LDC also stands out for its focus on the industrial sector, where it has invested £660m in 35 businesses over the past decade.

In November last year, LDC added another industrial asset to its portfolio when it announced an investment in ARC Building Solutions. The deal sees LDC take majority ownership of ARC, alongside specialist SME investor Newable, the business’s previous controlling shareholder, which retains a minority stake. As an adjunct to the transaction, Beechbrook Capital, ARC’s leading debt investor, is exiting the business, with Virgin Money stepping in to provide credit facilities in its place.

The transaction was led by LDC investment director Will Scales, alongside Dan Smith, a partner and head of Yorkshire, and investment executive Connie Smith. Scales believes the firm’s keenness to support industrial businesses provides a significant point of competitive differentiation for LDC. 

“We’ve got real expertise across the industrials sector, including in the built environment and UK construction,” he explains. “The wider Lloyds Banking Group also has a great deal of heritage in housing and very strong relationships with housebuilders.”

Warm-up act

Newable first invested in ARC in 2019. The company manufactures fire-resistant materials that sit inside the cavity between the brick and block walls common to most modern buildings. These materials protect the building in the event of a blaze, giving anyone inside vital extra time to get out safely. They also provide insulation, keeping warmth inside the building and reducing the energy required to heat it.

When Scales first tracked ARC, three years ago, he decided it wasn’t the right time to invest, given an uncertain economic environment following Russia’s invasion of Ukraine and the Liz Truss budget. However, he stayed in touch with the CEO, Neil Weeks, and rekindled discussions with Weeks and Newable in October 2024. Newable was reaching the natural end of its investment cycle and recognised that the business would benefit from additional investment to pursue its growth ambitions.

“What we liked about the business was its strong position in a construction market with clear tailwinds around fire safety and energy efficiency,” Scales says. “We also welcomed the fact that the existing management team remained committed to the business – and that Newable would be staying involved to provide continuity and stability.” 

Weeks points out that despite a tough macroeconomic environment for construction – hampered not just by the Ukraine conflict, but by other disruptions such as the pandemic – the company has grown strongly since Newable first invested. “Over the past six years, we have nearly doubled revenues [from £15m] across our core residential and commercial markets, supported by customer-focused new product development, investment in people and operations,” he says.

Build build build

With today’s more favourable backdrop – including the Labour government’s target of building 1.5 million new homes during the current Parliament – Weeks believes the company is now well-placed to accelerate. He sees potential in “continued organic growth, delivering market-leading solutions to customers with safety-critical and energy-efficiency needs”.

Hence the LDC investment. New funding will initially be deployed to substantially expand ARC’s manufacturing capacity. Investment is already underway in new site space at the company’s premises on the south-west edge of Leeds, with the aim of increasing capacity by 50%.

Now is the right time to be making such investments, says David Crout, non-executive director at PMSI Strategy, which conducted commercial due diligence (CDD) on behalf of LDC as part of the deal process: “The favourable macro drivers for the business include what will hopefully be a pick-up in the construction cycle, but also the increasing regulatory pressure in areas such as fire safety and environmental performance, where ARC’s products can be an important part of the solution.” 

Will Durbin, partner at PMSI Strategy, agrees. “It’s important not to overlook how vital manufacturers such as ARC are, given the onus now on putting thermal-efficiency and fire-safety products into buildings,” he says. “When we interviewed the major housebuilders, we found ARC has incredibly strong relationships with them, because they produce really well-specified products that are easy to install.”

ARC’s ability to keep housebuilders and construction companies happy, by supplying them with products that enable them to meet regulatory responsibilities without adding complexity (or significant cost) to the build process, is a critical feature of its value proposition. At the same time, the company must also be able to manage demand – it can’t afford to be the reason, for example, that building sites suffer delays.

That’s why LDC also hired Collinson Grant as a specialist operational due diligence adviser to work alongside its financial adviser, RSM, and PMSI’s CDD team. “It’s something we do on most of the investments we make in and around manufacturing,” says Scales. “We look at issues such as machine utilisation, workflows, supply chain resilience and operational resilience.”

At ARC, the brief for Collinson Grant was twofold. “We wanted them to check the business was robust,” says Scales, “but we also hoped they would identify upside opportunities, by bringing a fresh pair of eyes to the lens of operational efficiency and quality assurance.”

Narrative arc

The investment plan for the business reflects that work, with ARC now pursuing opportunities to improve systems and processes, including increased automation to boost capacity. The company has also installed a new enterprise resource planning platform. “It’s about taking the business to the next stage and giving it the space to grow into,” says Scales.

As part of that process, Scales and his LDC colleague Dan Smith have joined the ARC board, alongside two non-executive directors: Kevin Sargeant and Steve Greenhalgh. 

Sargeant, who has been appointed chair, had a 10-year stint at ventilation specialist Volution Holdings, steering the company through a management buyout and secondary buyout before it was eventually sold to PE investor TowerBrook. He has also been non-executive chair at a string of other businesses, often shepherding them towards PE sales or secondary transactions. These include LDC‑backed shower manufacturer Aqualisa International, where he was chair until its £130m sale to US acquirer Fortune Brands in 2022. LDC believes Sargeant’s experience of supporting the growth plans of similar businesses will help ARC hone its strategy across its various sales channels and markets. 

Greenhalgh brings additional operational and manufacturing experience, courtesy of COO, CEO and chair roles at several pan-European manufacturing companies, including former LDC portfolio company Hill Biscuits.

LDC believes the new ARC board will have both the capacity and strategic oversight to help the business grow organically and pursue the M&A ambitions outlined by Weeks: “[We would certainly consider] strategic acquisitions in line with ARC’s current market expertise to enhance our product offering and reinforce the ARC brand focus.” While its existing suite of products puts ARC in a strong position to benefit from a pick-up in the construction sector, acquisitions could help it diversify.

“Potential new product areas include acoustic solutions, ventilation, and damp- and waterproofing,” says Scales. “There are a number of independent businesses that could help us in those areas, but a deal has to make sense, either because it broadens the offering for the existing customer base or because it enables us to enter into new markets.”

The right transaction would accelerate ARC’s scale-up journey to the benefit of all investors, including Newable. “The business achieved impressive growth and operational progress under our ownership, and we are delighted to see it move into its next chapter,” says Newable chief investment officer Peter Barrand. 

Demand for technical solutions that enable both residential and commercial property developers to create safer and more sustainable spaces looks set to grow strongly in the years ahead. For businesses with the expertise and capacity to meet that demand, that trend represents a significant opportunity. “This transaction is an important moment in our journey to drive safety, sustainability, and innovation across the built environment,” says Weeks.