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MID-MARKET COMPANIES
16/07/14
EDITION #0268

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RACONTEUR.NET
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Commercial Feature

Get a partner with

international reach
Going global can open up new markets and provide
valuable opportunities for mid-sized companies,
but they need a partner that has experience of
operating in countries around the world

Alan Giddins, managing partner,

co-head private equity, 3i

Anyone who has children will be

familiar with Tommee Tippee. The
companys range of baby-feeding
products has earned it a loyal band
of customers over the years. Recently, though, that customer base has
grown rapidly as the company has
expanded into more than 40 countries worldwide. Sales, profits and
market penetration have also risen
as it has moved from a UK-centric
operation to a truly global brand.
At the time of our investment in
2006, around 60 per cent of Tommee
Tippee sales were in the UK, says
Alan Giddins, managing partner and
co-head of private equity at 3i. But we
saw that internationally the market it
operated in was very fragmented, with
no clear market leadership, suggesting
the Tommee Tippee brand could be internationalised very successfully.
Following the 140-million public-to-private transaction of parent
company Mayborn, 3i worked with the
management to divest non-core activities so the company could focus on its
baby and child division.
But it has been the internationalisation of Tommee Tippee that has driven
its success in recent years, with more
than 60 per cent of sales now coming
from outside the UK, and its a pattern
3i is seeing repeated with mid-sized
companies across Europe.

Insight into local business

practices and culture can be just
as important as understanding
more formal laws and regulations

Theres a huge growth opportunity

for mid-sized companies in accessing
new markets outside their home geography, however internationalising
brings with it a range of new challenges, says Mr Giddins. Companies that
try and go it alone or who dont have
the necessary knowledge and contact
base can find themselves incurring a lot
of time and cost for little return.
As a growing number of mid-sized
enterprises looking to internationalise
are discovering, working with the right
partner is essential and there is no
substitute for one that has a truly international dimension combined with
deep local knowledge. Not only are
personal relationships essential, but
insight into local business practices
and culture can be just as important
as understanding more formal laws
and regulations.
Were an international business
and all our people are international in
experience and mindset, says Mr Giddins. We have portfolio companies
with operations in more than 80 countries, so the chances are that we will be
able to bring some level of knowledge
and experience to most situations.
For example, its very challenging to
set up in China from a standing start,
but we can help across key areas of
production, sourcing and logistics
by drawing on the experience weve
gained through operating in China for
over 15 years.
Mid-sized companies are not always
able to exploit international growth opportunities on their own. However, management teams are increasingly realising that those that focus on their core
business, while using the expertise of a
partner to enter international markets,
are almost always better served than
those who try to do it themselves.
Mr Giddins points to the case of luxury lingerie brand Agent Provocateur. In
2007, 3i acquired a majority stake in
the business alongside management.

Leveraging 3is global reach, Agent

Provocateur was able to grow from a
UK-focused company to one with 90
outlets across 28 countries, as well as
operating concessions within leading
department stores and franchises in
select geographies.
Over the last three years, the business has opened some 20 new stores
a year and has successfully entered 13
new countries, including key markets
such as China, and has plans to significantly extend the reach of the brand in
the coming years.
In addition to accessing new markets through organic growth, the right
partner can help companies grow
internationally through acquisition.
Headquartered in France, Trescal is a
specialist in calibration, providing services for the testing and measuring
equipment market. In 2010, 3i invested in the company to support its international expansion.
During 3is partnership, Trescal
made four significant acquisitions. Only
three months after its investment, 3is
global network and transatlantic experience supported it in the acquisition of
Dynamic Technology in January 2011,
which established Trescal in the United States. Subsequently, Trescal accelerated its international expansion
plans with the acquisitions of Antech
Engineering in the UK, Stork Intermes
in the Netherlands and Isocal in Austria.
Trescal also set up a greenfield operation in Singapore.
Between 2010 and 2012, turnover
at Trescal grew from 110 million to
157 million and EBITDA (earnings
before interest, taxes, depreciation
and amortisation) more than doubled from 11 million to 23 million.
By the time 3i sold its investment in
2013, Trescal had specialist calibration and measurement service solutions in more than 150 sites across
16 countries. It had become a truly
international business.

As well as providing a springboard

for acquisitions, an international presence can provide better opportunities
for investors and owners wishing to exit
by giving them access to a wider range
of buyers.
In 2011, 3i invested in US-German
manufacturer Hilite in an all-equity transaction to help the company
further exploit its prospects in the
fast-growing fuel-efficiency and emissions-reduction engine segment of the
automotive industry. By leveraging 3is
international network, Hilite was able
to expand rapidly into China, the fastest growing automotive market in the
world, but one which it had very little
exposure to.
In May, Hilite was sold to a subsidiary of Aviation Industry Corporation
of China, one of the countrys largest
industrial conglomerates, in a transaction worth approximately 473 million.
Mid-sized companies might want to
expand internationally, but they dont
always have the bandwidth to focus on
it because theyre busy with the day-today operations, says Mr Giddins. We
find that they also frequently have concerns about doing so. Finding the right
partner, someone with a truly international reach, is about the management
of risk. Were able to reduce that risk
and accelerate the journey, so what
might previously have looked daunting
and hazardous now looks like a great
opportunity for growth.

80%
of revenues
from 3i portfolio
companies come
from international
businesses

60%
of these
international
businesses
revenues come
from outside their
home market

turnover from
largest 45 portfolio
companies who
employ 150,000
staff with
operations in
80 countries