In Profile: Dunedin

"As we don't focus on consumer industries, we generally don't acquire household names," says Dunedin partner Mark Ligertwood, admitting that most of the companies on the GP's radar seem fairly esoteric. "CitySprint was an exception."

Dunedin acquired the now ubiquitous courier in 2010 and sold a majority stake to LDC in February this year after six years of ownership. The business grew from £7m EBITDA to £16.8m under the GP's ownership. Of this increase, 60% was organic growth with the rest generated via 21 acquisitions.

"CitySprint was the only same-day national courier business when we initially invested and since it is part of a fragmented industry, there were very clear buy-and-build opportunities," says Ligertwood.

"The simplicity of the model was attractive compared to the traditional next-day courier market with hub-and-spoke operations. Citysprint is a same-day courier, essentially a point-to-point model more akin to a taxi model, driven by sophisticated routing technology to optimise fulfillment and parcel tracking. We maximised the opportunity by expanding the network nationwide through an active acquisition programme and investing heavily in information technology."

The implied return on the investment is 2.8x since Dunedin originally invested £33.1m in CitySprint at the end of 2010 and the sale to LDC in 2016 valued the company at £175m. Dunedin reinvested in the business to retain an equity stake.

The GP currently has 14 investments under management (15 including the minority stake it retained in CitySprint). And when looking at some of the names in the portfolio, the niche element becomes very apparent: Blackrock PM is a professional services firm that provides independent expert witness and construction consulting; Alpha is a specialist consultancy to blue-chip asset and wealth managers; EV Offshore provides video cameras to diagnose problems in oil & gas wells; and Kee Safety provides services and products designed to protect people from hazards.

Dunedin invests in companies with an enterprise value of £20-100m and which require up to £60m equity for a buyout. The three main sectors are business services, financial services and engineering and industrial.

When Blackrock PM arrived on Dunedin's radar, the offering was hard to resist, admits Ligertwood. The group operates in the niche of independent expert witnesses in construction disputes and is now well known to the London law firms that are hired to navigate them. Even before Dunedin's investment in 2015, the firm was on a steep growth trajectory. Revenues grew from £1m to over £16m between 2010 and 2015, of which almost £13m was generated by international sales. Turnover for 2016 is expected to exceed £20m.

"Since construction disputes are very common, especially in large projects, there will always be a need for the very best experts to testify and give evidence, so we felt very confident going in," says Ligertwood.

EV Offshore is an example of a company that is also very niche but arguably indispensable in its field. The company – set up by an ex-cameraman who also has a background in engineering – puts purpose-built cameras down oil production pipelines to check flow. "We think the company is four years ahead of its peer group," says Ligertwood.

Exceeding expectations
Dunedin has raised three limited partnership funds to date. The first closed in 2002 at £54m and is fully deployed and returned. The second closed in September 2006 at £250m, exceeding its £200m target. Dunedin Buyout Fund II is now fully deployed but only 50% realised. Dunedin's Buyout Fund III closed in June 2013 on its hard-cap of £300m, above the £250m target, and is approximately 60% invested.

In terms of its LP base, Fund I investors were solely UK-based; Fund II was mainly UK and 20% international; and Fund III was 60% international (including Nordic investors, and some from the US for the first time, as well as increased commitment from investors in France, Switzerland and Germany). Dunedin's third fund also attracted interest from a range of different types of investors, with increased commitments from pension funds, insurance companies, sovereign wealth funds and foundations.

With regard to leverage for its investments, Ligertwood says Dunedin is pretty conservative, not entering into high multiples of debt and with relatively low costs to boot: "We play in the sub-£100m market, with average leverage in the 2.5-3x EBITDA range, so for us there is less of an emphasis on debt funds and direct lenders. We also have our own debt product called Dunedin DebtBridge, which allows us to underwrite the entire transaction, giving certainty to the management team and enabling us to complete in a faster timescale."

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