Coflex: Seamus Grealish
He managed the ‘Gherkin’ but then sold his £40m business - find out why
Seamus Grealish has always made a point of spending time with valued suppliers.
So when, in January, he met with David Openshaw, CEO of ISS UK, a £500m turnover cleaning and landscaping supplier for his company Coflex, it was ostensibly to share plans for growth and any mutual opportunities.
Nothing unusual. But on this occasion, Openshaw made an offer for Grealish's business, and two months later the deal was complete. The two go back 14 years to Grealish's time with his former company – but Openshaw's interest in acquisition had never been on the agenda before.
For facilities-services company ISS though, the interest was understandable, given it presented the chance to make inroads into the burgeoning facilities management sector. Formed in 1998, Coflex rapidly became a top independent player in the field of facilities and consultancy management, managing prestigious sites such as the Lloyds Building and the Swiss Re skyscraper, popularly known as ‘The Gherkin'.
Coflex's growth makes impressive reading. Turnover had rocketed from £0 to £40m in six years. In 2002 and 2003 it was ranked sixth and 33rd respectively in the Sunday Times' Fast Track 100. And by the time of the sale it had 109 blue- chip clients who used the company to either manage their facilities or to help cope with a period of change, via its consultancy division, which offers advice on procurement, environmental control, change programme and and project management, among other services.
Yet, while, Grealish was confident his business could steadily go further, he was also aware it had reached something of a plateau. “We could have got to £50m, £70m, even £100m. But it needed a step-change to compete with facilities services companies. We'd got to a point where we were ‘too big to be small and too small to be big', and we didn't quite have the right toys to be more successful.”
Those ‘toys' were a strong geographical spread, with regional offices, corporate experience and parental guarantees. Client gains had instead been won through innovative, personal and determined tendering, with the classic smallerbusiness approach of going the extra mile to ward off competition from established industry incumbents. One example was Grealish's plan to have his team's business cards and the summary of a bid-presentation translated for Japanese prospect Tokyo Mitsubishi. “We'd only been shortlisted as a wildcard,” he says, “but ended up winning it.”
It had got to the point, though, where its strengths were no longer enough to convince. “There were times where we were the best bidder and put the best people forward, but still lost deals because it was believed we didn't have the additional infrastructure to guarantee the consistent level of service required. We were like second or third division footballers punching above our weight. This deal can take the brand to a different league,” admits Grealish.
In contrast, ISS UK is established as a major facilitiesservices company and part of a large global parent. It employs 43,000 in the UK alone. And internationally, the Copenhagen-based business has half a million people on the payroll and annually turns over £3.2bn.
Despite its scale, Openshaw was expected to be growing the business further still and covering new ground. “David had a determination to move up that value chain. We had a chat. He then came back and we opened the agenda,” says Grealish. The rest of the process proved remarkably simple. Openshaw put in an offer, which Grealish and business partner Joe Samuels took to the company's investors. They left it to Grealish and Samuels to make the call. The offer exceeded the pair's expectations – not so much on price, but on quality – so they accepted.
It's fairly easy to see what attracted ISS in the first place. Grealish illustrated his ambition from the outset with Coflex, starting up in bigger offices than were necessary; using an expensive IT infrastructure; glossy brochures; a com- munity programme; graduate recruitment, training and mentoring programmes; and the application for Investors in People status. The company also achieved British Standards Institute 9001 accreditation (which assesses processes, procedures, audit trails and health-and-safety) in just six months, a move necessary for the business to tender for contracts. “The point is, if you start in the back of the car, you end up in it. I forecast £25m turnover in five years and relied on the fact that we'd grow into the infrastructure,” he explains.
To Grealish's mind, there's no downside to the sale, as staff, management, investors and clients all benefit. On a personal level he and Samuels improved their situations. And the integration has been smooth, too. He describes the deal as one you agree, lock in a safe and never need to look at again – so good is its fit to what the company could have hoped for, and what expectations it had. “I'd love to find one niggly doubt; it seems too good to be true – but it is true.”
Providing an exit
So what makes a perfect offer? For a start, the private investors who initially backed Coflex and owned 32% of the business were at the point of wanting to see a return. In total (with additional investment from Grealish and Samuels' friends and colleagues), the company was started with £600,000 – so returns were likely at this stage to have a significant effect on investors' bank accounts.
The investors had used the Enterprise Investment Scheme and its inherent tax breaks to finance the company, which had a built-in understanding that no dividends could be paid within the first five years (this has since been changed to three years), but an exit would be provided soon after that time. “We were beginning to feel a little pressure to provide an exit,” says Grealish. “After all, these guys had retired and were waiting for their return. They'd invested fairly and honestly and deserved it, so I had no problem with that. Fortunately, it was the right time and the right fit.”
Illustrating Grealish's determination to source the best deal for all parties and his keenness to not get precious about ‘his baby', it wasn't the first offer for the business he had received. “While we haven't encouraged it, over our five or six years we've had lots of unsolicited approaches from companies, and a number made offers where the money would have been right, but the fit wasn't. We always went back to our investors, but it never got as far as due-diligence,” he says.
Grealish kept his exit options open but a trade sale elected itself as the most obvious route. He dismissed a flotation as a non-event due to market conditions, and believes an MBO would have been difficult as he and Samuels had already taken a chunk of the risk by remortgaging and would therefore struggle to raise sufficient funds. That left a trade sale, or the investors selling their equity to a venture capital firm. The trade-sale option arrived sooner.
The level of understanding between the businesses has surprised Grealish. “I've only been here a month and the entrepreneurial style of operating is very much in ISS,” he says. “Coflex was my baby, but I've moved on and am as enthusiastic as the day I started the company.”
Training and development
In terms of ethos, Grealish believes Coflex and ISS are on the same wavelength, despite operating in different leagues. Coflex achieved Investors in People status in the minimum time possible and runs a graduate trainee scheme, which might be seen as unusual for a smaller business. But Grealish has always been comfortable with providing training for employees who may leave, using the argument that if you treat people well early on, they'll come back to you. “They'll become clients in the future: people always come back,” he says. ISS has a similar focus on training and development. “They run training days, sponsor the MBA at Henley Management College and have a university in Copenhagen.”
Partly to ease Coflex into the ISS model, but mainly to strengthen his own executive team, Openshaw also offered Grealish a seat on the five-person ISS UK board as UK group director. It suited Grealish perfectly. He had been keen to give co-founder Samuels control of Coflex and was considering becoming chairman of the business, to let his deputy-MD take over, but Openshaw's offer a fortnight into the acquisition came out of the blue. “Joe will do a great job and deserved his chance. I'll continue to be involved in what I do best, which is building relationships. I know all the MDs across the group and will be dealing with a far wider clientlist, which benefits all the units, including Coflex.”
Like Samuels, other members of staff are likely to get opportunities to take more senior positions within the group, too. And employees have the added satisfaction of their shares transferring over to ISS. Again unusually, for the size of business Coflex was pre-sale, Grealish has always been keen to give staff ownership. “We're one of the few businesses to offer 24% of the company to staff based on performance, and we have a 92% take-up rate on the five-year option, which is one of the highest you'll find. They'll also now have the opportunity to participate in ISS shares.”
And finally, on the client acquisition side, Coflex is already reaping the benefits, with one of its biggest deals to date. “Coflex has won the right to offer a major global brand its management expertise. We were down to the last four prior to the sale,” he reveals, “and we then went on to win it.”
But while everything in the garden appears rosy, doesn't Grealish think the entrepreneurial bug will get him again? A surveyor by trade, he feels he's had his day as an owner-manager. “I'm 56 and could enjoy the next three to five years, putting my feet up and becoming a non-exec. I don't think I'd ever want to start another Coflex.”