Valerie Kendall of WestBridge talks about the MBO of Channel 3 Consulting

Healthcare and tech are investment hotspots. Valerie Kendall, one of the founding partners of WestBridge, talks about the MBO of Channel 3 Consulting

What are the details of the deal?

It is our £10m investment in the MBO of Channel 3 Consulting, completed in January 2021. Founded in 2009, it designs and implements digitalisation programmes for the health and social care sectors. Working with more than 90 organisations across the wider public sector, it’s currently appointed to several key NHS frameworks. It has around 30 employees and consistently delivers revenues of more than £1m a month.

How were you introduced?

Clearwater Corporate Finance, which was engaged to sell the business, has worked with us in several different capacities before. We have a trusting relationship and can speak openly with the team about opportunities.

The shareholders were an entrepreneurial group of investors who owned a pretty disparate group of businesses. They wanted to sell their entire stake and put more focus into their other companies. Management shareholders wanted to roll over their investment into the new company as they were passionate about the growth story. 

What were the timescales?

We met with management in June 2020 and entered the auction in late summer. The process involved five or six private equity houses. We were given exclusivity in October 2020 and expected that we’d complete before Christmas, but it fell into January.

Who were the advisers?

Simon Davies led a buy-side advisory team from Spectrum Corporate Finance for us, and James Killing at Dow Schofield Watts led its financial due diligence team. BDO provided detailed tax advice. CIL carried out commercial due diligence to help us refine the market opportunity for Channel 3 in the ecosystem of digitalisation services to the NHS. Capital Law carried out the legal due diligence.

How was the deal structured?

The owners had appointed ex-KPMG partner John Howard as CEO, 18 months before the exit. He’d spent his life in the healthcare sector, so the business was well prepared for an MBO. He led it alongside colleagues Eleanor Rollason and Lucy McLintock. 

We took a majority stake, management a significant minority. Howard was keen to incentivise the current team and future recruits with a significant amount of equity. When recruiting senior people from bigger consultancies, becoming a shareholder is a big attraction. The management team rolled over 100% of the value of their share options and more into the newco. No debt was put in. We wholly funded it. There was no rollover from the founder shareholders, and no earn-out, because it was a relatively small transaction. We wanted to keep it simple.

How did COVID-19 affect the process?

There was no significant negative impact. We didn’t spend our lives travelling, so had more time and access to the vendors than ordinarily. We were able to be open and transparent with process and timelines, which certainly helped.

What was the strategy?

We introduced Andy McRae, an experienced non-executive director in white-collar consultancy businesses, and James MacLeay, a key member of our team, joined me as a non-executive on the board. The opportunity for tech to improve efficiency in health and social care is enormous. The need to digitalise the NHS has been understood for many years, but recent challenges perhaps emphasised this. With people businesses, you can recruit more senior people as well as developing existing consultants. There’s a strong culture of developing staff at Channel 3, but there will also be the opportunity to entice small teams of people from larger consultancies.

About the author

In 2008, Valerie Kendall was one of the founding partners of WestBridge. She previously spent more than a decade at 3i, where she became investment director. A chartered banker, she started her career as an investment manager at HSBC. WestBridge is a member organisation of the Corporate Finance Faculty.

About the article

You can find this article in the Corporate Financier April 2021 edition - exclusively for Corporate Finance Faculty & Faculties Online members - who can access our highly regarded  magazine in its originally designed form, as well as our extensive archive brought to you by the ICAEW Corporate Finance Faculty.