John McGavigan Case Study

Steve Mathers, Director at John McGavigan, explained the genesis of the idea to buyout the business: “Our decision to launch an MBO in 2009 was driven by our knowledge and confidence that the business’s long-term fundamentals were excellent, despite the prevailing global economic challenges and their impact on the previous ownership structure of the business, which had ultimately forced it into administration and led to the US owner’s restructuring.”

Whilst capital was at best scarce, the team managed to rescue the UK business, notably with support from several clients. The immediate priority, post-acquisition, was to stabilise the business, and through 2010 the team steered the company back to a state of financial and operational health. Steve emphasises the importance of the backing of key clients at that point: “Client loyalty had been hugely important in restoring confidence and would be equally important in allowing us to look forwards – and, like us, those clients recognised a need in Asia for a business with McGavigan’s capabilities.”

Although international expansion would be a significant step for the business, Steve explains how McGavigan’s previous experience underpinned that ambition and strategy: “Having had previous experience of establishing a business in China, we were able to build a robust business plan using reliable financial assumptions, client expressions of interest and a knowledge of local and national government processes for overseas investing companies to set up. Once we were comfortable with the planning, we then turned our attention to the task of raising the capital needed to make it happen.”

Post investment, Maven’s team started to contribute actively to McGavigan’s growth, and particularly in helping to maximise the immediate opportunity for international expansion in Asia. Steve Mathers outlines the importance of that close working relationship: “Our relationship with Maven from day one was as more than a funding source in providing expansion capital to establish a manufacturing facility in China, and also provided a catalyst for growth. Although we had a strong senior team and business plan, we also needed to make sure our underlying business remained operationally strong and undistracted from our expansion.” That additional support was pivotal, with Steve adding: “We worked closely with Maven to appoint a part time FD who added valuable support for the day-to-day operation, and also agreed a 100-day plan, allowing us to focus on a set of milestones which helped us keep on-track.“

The contribution of a good private equity backer, however, should not end there and should continue to offer expertise and insight across a range of areas as the business grows. One key benefit, once the project was delivering results, was that Maven, through its established relationships, was able to help McGavigan build a credible base with the institutional banking community, which for smaller businesses was especially challenging so soon after the economic crisis. However, there was other important support from Maven in providing an important base for continued growth, as Steve explains: “The investment supporting our expansion in China, which had been funded by Maven’s VCTs, delivered excellent results for all concerned, seeing the enterprise grow from c.£7m at the time of the investment in 2011 up to c.£30m in 2017 (EBITDA CAGR or 39% p.a. over the same period). During that time, we had also added a non-executive Chairman and appointed a full-time experienced Finance Director. This gave us a wider management bandwidth and enabled us to develop a more strategic focus on the business.”

By 2017 McGavigan’s consistently strong growth in China merited a significant expansion of the company’s local presence in that market, but the specific restrictions around VCT qualifying investment prohibited Maven’s VCTs from supporting this further stage of growth. Both Maven and the McGavigan team were, however, keen to continue the positive partnership and a secondary buy-out was the logical next step. As Steve describes: “During 2017 Maven had launched its Maven UK Regional Buyout Fund, which targets investment in mid-size growth opportunities on behalf of institutional investors. Given our consistent performance and growth prospects, our business was viewed as a strong candidate for the new fund, and Maven Partner Andrew Craig and his team initiated the process of structuring a buy out, funded by the new fund alongside management investment, that was appropriate for our long-term aspirations.” That process was completed at the end of 2017 and delivered a total return of 4.2 times cost over the life of the investment for the Maven VCTs.

The active support, and critical commercial and market insight of a private equity investor, can play a crucial role in determining the growth and success of a business, particularly where it is embarking on major strategic initiatives such as breaking into new global markets and internationalising its operations. Steve Mathers outlined how Maven’s backing enabled the company to achieve its growth ambitions: “Without access to the necessary capital to expand into China, we would simply not have managed to achieve sustained growth. Securing the support from Maven at the outset facilitated that expansion and helped us build McGavigan into a global organisation capable of supporting global clients. Since 2017 we have also added through acquisition a high quality polymer injection tooling design and manufacturing business in China, purchased land and build a new 22,000m2 state-of-the-art manufacturing and development facility in Suzhou, which included successfully relocating existing production sites to the new facility, and secured a number of additional high value automotive and medical device contracts from the new site. We have also continued to invest in the UK plant, to help service key clients in the UK, European and North American automotive markets.”

As Steve summarises, the business has achieved impressive growth since the time of Maven’s first investment: “In simple terms our business is now five times the size it was in 2011, but without the investment needed to grow, it is likely the business would have failed to double in size over the same period. It is also unlikely that we would have had the financial resilience to withstand global economic shocks such as we have seen in 2020, whereas McGavigan has continued to be highly cash generative and financially robust throughout the COVID pandemic.”