We chat to Richard Chapman, Partner at ECI, about what working in private equity says about him as a person, how CEOs can really get to know their deal team, and why he is now a fully signed up Mighty Harpenden Hockey Club member.
Q: What prompted your move from corporate turnaround to growth investing in private equity over 20 years ago?
Private equity and corporate turnaround offer a lot of change, which I liked, but what appealed about the move to PE was that it really is about the growth of the business overall. You’re employing more people and growing into new territories, whereas in corporate turnaround it was more about solving the problems of the business and getting back to stability. I was keen to get involved in that growth side and stay with the business for longer. That is what makes it more interesting and more fun! In private equity, you’re much more likely to be faced with deciding which is the best option out of a lot of good options for growth. That gives you the chance of being involved in the right business, with the right growth strategy, and watching it skyrocket.
Q: What do you think that working in private equity has taught you about yourself?
It has taught me that I like change, I like challenges. I like being able to measure the success of what I’m doing. Which for me is all about seeing how a business has grown, how many jobs they’ve created, and being blunt about it, how much money people have made on the journey as well. Private equity can be challenging, but there are few jobs where you have something quite so clear that says, ‘Look at the success here, look at the difference you made.’
Q: What has been your biggest lesson learned on successful investing since joining ECI?
Private equity is very simple and very hard at the same time. From a simple perspective, it is just making sure you have the right people doing the right things. The problem is, that is very hard to do. But when you do have a good team and they are pursuing the right strategy, it will be a success. Then it feels very straightforward.
One of the other lessons I’ve learned, in terms of what can an investor do to help: it really is about communication. A private equity investor can help unblock some of the miscommunication, so everyone understands what the focus is, what the targets are, and why that is important.
Q: What do you think management teams’ biggest misconception about private equity is?
Well, as with most misconceptions, I think it’s based on an element of truth. Management teams worry that if you bring private equity into your business, they will tell you what to do and they will think they know better than you. And the truth is, there are a minority of investors that do operate like that, so the fear isn’t unfounded. There will be investors that micromanage and fuss over details rather than buying into the bigger picture, invest by spreadsheet or roll out a playbook that they expect management teams to follow. The downside is that all firms end up tarred with the same brush, even though they operate very differently.
Q: Given it’s a fair concern, any advice for CEOs who want to find out what their potential investor is really like on the day-to-day?
The more time you spend with the people you’re going to be working with for the next three to five years, the better your confidence will be in that decision. Ideally, you want to be spending time with them in a work and social environment, understanding what they are like as people as well as investors. Always take references out – it’s important to trust your judgement, but people can sell something they’re not, so ask around the market, and speak to their management teams. You will be able to paint a picture quite accurately as to what it would feel like to be partnered with them, and how much ‘telling’ they might do versus listening.
I also think, make sure you know you are dealing with the person who can make decisions, and that they have authority in the business. You may buy into the person you’re meeting, but if you can’t make decisions together and crack on without them having to go back internally, it will slow down the pace of what you’re trying to achieve.
Q: How have you seen the way private equity firms operate since first joining the ECI investment team?
When I started, you were a team of one. You did everything on the deal and they took a long time to complete. Now there is a lot more diligence and we’d easily have a team of six people getting a deal over the line, and we get it done really, really quickly. The industry has matured, and you’re paying a higher price so there’s a lot more analysis ahead of time.
The same is true post-deal, from it being just me sitting on the Board and trying to help as much as possible, to me plus 15 people on hand across specialist areas to offer hands-on support to management teams if it’s helpful. If you look at just M&A, we now have a team of five who can support you with anything from M&A strategy to helping to execute deals. It has matured and I think it has become much more attractive as a proposition.
Q: Are there any high-growth subsectors you’re particularly passionate about at the moment?
I think across the spaces that I’m looking at there are three big challenges that businesses are facing at the moment. 1) Finding the right talent 2) Complying with regulations 3) Managing your business in a rapidly changing world. I like businesses that are helping to solve these challenges. I was on the board of Mthree, which is a hire-train-deploy business, training graduates with the right technical skills to go into the workplace, and that trend has only accelerated since we invested. There is a big increase in regulation, in particular around areas like fire and safety post-Grenfell, so I think awareness of and complexity of health and safety questions is a fast-growing trend. Then lastly, cost management is a big challenge, especially as we are seeing more market volatility. I was on the board of Bionic for example, which helped companies manage their costs, particularly energy. I think any businesses that can help with better buying are very valuable.
Quick Fire with Richard:
Would you rather be afraid or embarrassed?
Embarrassed. I think you get better at being embarrassed as you get older, I can laugh at myself more now.
Do you have a weekend routine?
Taxi service to the kids. And then I’ve recently joined the Mighty Harpenden Hockey Club, so I try and fit in a hockey match if I can! This summer we’re playing in a league where all of my family, my wife and two kids, will all be on the same team – I’m looking forward to that, it’s a nice thing to be able to do together.
What is your most memorable meal?
Lio in Ibiza, it was a dinner show and the routines they did were incredible, like a guy who went through 20 different songs by 20 different singers, sounding like each one. The food was okay, but the experience was incredible.
What famous person would you most like to have dinner with?
If I could convince Eddie Howe to come for dinner, I’d be a hero in my family. The brownie points I’d get from that, can you imagine?
What piece of advice have you given to others most frequently?
“It’s not just about EBITDA, it’s also about making your business more beautiful.” It’s important to not just look through an EBITDA lens, there are lots of factors that mean you have a better business model and that make it more valuable. Your revenue model, the territories you operate in, your sales machine… all these things are important, and you lose that if you become too focussed on just margin and profit.
