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Building a deal in the construction business

In January, Connection Capital made a healthy return selling Carter Accommodation, a construction industry business, to the French Modulaire Group in a deal done during COVID-19 restrictions. Jason Sinclair looks at how the company and its private equity overcame some big challenges

When the construction industry booms, the providers of services to the sector do too. Temporary accommodation – cabins, containers and washing facilities – are essential elements of building sites and are also increasingly in demand in the agriculture, energy and education sectors.

That’s where Carter Accommodation found its niche, building a business over 33 years. The company, based in King’s Lynn, Norfolk, employs 150 people and was a success story for Corporate Finance Faculty member Connection Capital, which was invested in the company from 2015 until its sale at the beginning of 2021.

Connection’s managing partner Bernard Dale was introduced to the company in early 2015, ahead of Carter CEO Darren Arnold fronting a management buy-out, with £5.3m from Connection as part of a £20m fund raise. Top-up investments were made to spur organic growth throughout the hold period, with the ultimate sale to France-based international competitor Modulaire Group (owned by London-based private equity firm TDR Capital) providing a 4x return on investment for clients.

Of the initial meeting in 2015, Dale says: “The owner was making a really nice living out of it, but didn’t want to take on the risks of growth. Darren, the CEO, had been there a number of years and saw a great opportunity to build a much bigger business. So, the prime movers in the company had different objectives and a buy-out was the right answer for everybody.”

Connection envisioned a five-year exit, and the financing was arranged predominantly via a secured loan. The fact that the timetable slipped slightly was less of a matter of COVID-19 and more of selling at the right point of the growth journey, explains Dale. “We wanted to get to the point where it was clear that the business was growing well, but if it wanted to keep growing, it would need another £20m or so of capital expenditure over four years,” he says. That didn’t match Connection’s own appetite.

“So, we had to look at what the options were. Do we have a secondary buy-out, or find a trade partner, or do a trade sale as part of the process? All of that was kicked around. We felt that the best two options for us as a group would be to either find the right trade purchaser or to look at a secondary buy-out,” says Dale.

Staying in touch

Modulaire Group – formed into a global player out of French market-leading ‘modular space leasing’ business Algeco – was already owner of Carter’s chief domestic competitor, Elliott. “It gave us a call in late 2018,” Dale recalls, “but we couldn’t quite get together on value expectations. We thought we could grow the business a little bit more, but we agreed to stay in touch.”

Ultimately, when decision time came, and Connection wanted to avoid ‘constraining the company’s growth’, Modulaire came back into the picture – alongside interest from a secondary buy-out house and other potential trade buyers.

“The interesting bit is that Elliott is the major player in the UK and everyone’s prime competitor. So, to start with, it’s very hard for the management team to get to grips with the fact that it might be bought by an arch-rival. And that was quite an interesting journey for management to go on.

“It probably started out quite reluctant about sleeping with the enemy, with trade secrets being a key worry for any business. But I think once we’d done a couple of presentations, and Modulaire demonstrated to Darren what it wanted to do with Carter and the opportunity it could offer to the management team – bringing up what Carter was doing well and saying it was really going to put the money behind it – it became a preferred route for everybody,” says Dale.

“It turns out, and I think this is often the case, that the person who is willing to pay the right price is actually the right buyer because they’re doing it for all the right reasons.”

The ‘right price’ buys a company that has grown from 50 to 150 employees and £6.7m to £21m in turnover on Connection’s watch. The fact that it grew into such an attractive target was, in large part, down to the way Arnold did business, says Dale. “When he first met me, Darren said that doing well in this industry isn’t difficult. You just have to deliver on what you say you’re going to do. That will set you apart because the industry isn’t great at that. And Darren always organised the business to deliver what it said it was going to, when it said it would.

“Having the best fire ratings, the best green credentials, the newest, cleanest fleet – all of that was very important to the customer base that we were targeting and growing.”


About the article

Read the full article in the Corporate Financier October 2021 edition. Access this magazine as well as our extensive archive brought to you by the ICAEW Corporate Finance Faculty.