Victoria plc: a company on a rollJune 2016 | News
It was a chance conversation at a fund-raising lunch that first brought Victoria Carpets to Geoff Wilding’s attention. Idle curiosity then led him to inspect the company’s accounts. What then followed has become one of the UK’s most remarkable corporate stories of this decade, and one in which BGF has played a crucial part.
Since Wilding became executive chairman in October 2012, Kidderminster-based Victoria has been turbo-charged. A sleepy, family-dominated AIM-listed company has become the UK’s largest carpet manufacturer. Its share price has soared. In 2013 revenues were £70m and EBITDA was £2.3m; analyst forecasts for 2016 are for revenues of £256m and an equally impressive EBITDA of £23.5m. “There’s nothing magic about it,” says Wilding, a straight talking former investment banker who hails from New Zealand. “It’s all about executing your plans. I am aiming to take Victoria Carpets from being a very small manufacturer to being a very large one.” His initial steps involved quite an amount of corporate “shenanigans,” as he puts it: a protracted battle with the incumbent board led to “legal manoeuvring and PR mud-slinging” before he gained control of the company. And that was before the operational turnaround of the business, which was hard up against its bank limits.
Within a year, Wilding had done enough for the bank to support a loan for Victoria to make its first acquisition. But one small purchase was not going to give Victoria Carpets the all-important scale that Wilding was seeking. It is scale that drives synergies in logistics, production and distribution, while also providing stronger purchasing power for raw materials.
The real scale-up opportunity arose in September 2014. Wilding had identified Abingdon as his target. It was a £70m-turnover, good-quality, substantial company, well-run and profitable. This was the transformational deal that he needed.
There was one question: how was he going to buy it? “I knew we were hugely undervalued so I didn’t want to raise equity to fund the deal, nor did I want to simply go for a loan and see our bank debt end up at more than 2.5x ebitda,” he explains. His advisers at BDO suggested BGF. He met Gavin Petken and Gurinder Sunner and was more than pleasantly surprised. “I didn’t think it would lead to much,” he recalls, “but I realised very quickly that Gavin and Gurinder were really dynamic guys. We got on very well. They were easy to deal with - straight, pragmatic and honest. I did the deal because of these two guys.” It did not take long to put it together. “I could have trawled through the markets and gone with other options but when BGF proved to be so responsive to our needs, I didn’t bother looking,” says Wilding. “I could just get the deal done.”
BGF made its initial investment in Victoria Carpets in September 2014; it was the first investment in a publicly listed company. BGF’s investment took the form of loan notes with a cash-paid coupon. There would be no capital repayment for the first five years and the capital was then to be repaid over the following three years, as well as an option to buy equity in Victoria at a later date. The investment was unsecured and flexible, in line with BGF’s approach as a provider of capital to support companies’ development over the longer term.
This package unlocked everything for Victoria. With it, Wilding was able to buy Abingdon. It was a key moment in the execution of his long-term plan. Unsurprisingly, Wilding emphasises that the value of the money was far more important than its cost. He focuses on the upside and how it has helped to achieve value for shareholders. “The BGF money enabled me to buy Abingdon, which I would not otherwise have been able to do. Our share price rose significantly as a result of that transaction, which put the company in a position to do itsnext deal. The cost of raising this money was not much of a factor compared to the benefits that doing it would bring.” As well as the funding, Victoria Carpets also gained BGF’s Gavin Petken as a new board member. He has become a valuable sounding board for Wilding. I will always call Gavin to get a second opinion and to check my logic,” he says. “His opinion is valuable to me. Just because I am a large shareholder does not mean I am infallible; it’s extremely useful to bounce ideas off Gavin.”
After Abingdon, the advantages of scale kicked in quickly. Wilding was soon back on the acquisition trail, adding Whitestone Weavers and Interfloor in the UK as well as Quest in Australia in 2015.
These deals mean Victoria is now the largest player in the UK market. While domestic growth opportunities remain, Wilding’s expansion plans are increasingly focused on making selective acquisitions in continental Europe. This presence in Europe will open up new markets and enable Victoria to hedge its manufacturing costs between sterling and the eurozone. So Victoria is set to be a prime European industry consolidator in a highly fragmented industry. “We are buying good quality businesses,” he says. “We are not looking for turnarounds. So we keep them independent as far as sales and marketing, product design and channel management are concerned. Behind the scenes, we will rationalise production facilities and look to rationalise stock levels by cross-selling product ranges.” It’s an enterprise that is unrecognisable from four years ago. “Some people say that this can’t be for real,” Wilding notes, tartly. “They ask how a tiny loss-making business in 2012 can now have a market cap of £200m. They think the wheels are going to fall off. Well, they are not. I know what I am doing - and this is doing very well.”