Corporate compounders catch the eye after CorpAcq deal
Unglamorous businesses looking for a new home and an exit strategy should be open to the compounder investment model after yesterday’s surprise news that CorpAcq is to float in New York.
Not only is the model an alternative to traditional private equity it is far more founder friendly claims Andy Dodd of PHD Industrial Holdings, which also operates as an active investor with a portfolio of investments into a diverse and disparate cluster of businesses.
PHD, which is also based in Cheshire, was originally founded in 2008 as a private equity business, made the transition to the corporate compounder model in 2021.
Dodd says the structure enables it to follow a longer-term investment model and increase liquidity for investors. It is also more ‘founder friendly’ and a better way to support the type of traditional, industrial SMEs that are often the bedrock of the economy.
Andy Dodd says: “PHD invests in stable and mature SMEs in traditional industries that are highly profitable and cash-generative. It takes time to find good investments and prime them for growth. Where you have a successful business that is increasing in value, it makes no sense to sell prematurely.
“Our model enables us to hold businesses, reinvest cashflows and benefit from compound growth. Because we avoid the constant cycle of fundraising, investing and exiting, it reduces the proportion of time where the funds are not invested.
“It also provides greater continuity for the business. Typically these companies have experienced management teams, a skilled and loyal workforce and long-standing customer relationships. We help owners to preserve that legacy. Usually the management team will remain in place and we will work with them to make operational improvements. As many owners are reluctant to sell to private equity, our approach also means we can acquire good businesses at an attractive price.
“While much of the investment going into SMEs focuses on risky, early-stage companies, our approach shows there is value in established businesses in traditional or unfashionable areas of the economy. The corporate compounder model is an ideal way to support them and to preserve British industry.
“We are excited to be part of this growing area of the market and look forward to adding more businesses to the company in the future.”
PHD Industrial Holdings currently comprises six main trading businesses in a variety of different industries employing over 330 people with a combined turnover in excess of £60m. Its businesses include Wigan-based sealants and adhesives specialist Hylomar; Lancashire hardware specialist Olympic Fixings; Goole-based chemical manufacturer Technikraft; Wiltshire based castors wheels and materials handling equipment manufacturer BIL Group; and Auto Marine Cables and First Class Holidays, both based in Manchester.
