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Q&A: 3i's David Stephens, co-head of the UK private equity team


David Stephens discusses the path to growing a business.

How should you approach growing your business?

Whether you’re looking at organic, acquisitive or international growth, make sure you’ve got the right foundations in place – that’s the right people, the right culture, the right systems and the right capital structure to deliver on your growth plan. It’s important to have a clear strategy and a detailed plan of how you’re going to achieve it, then to prioritise and allocate roles as human capital is typically the limiting factor. Organic growth tends to pay back over a longer time horizon, whereas acquisitions tend to have a shorter payback period and are a quicker way to scale, but there are material risks with M&A and it shouldn’t be taken lightly without the proper preparation.

What steps should you take if you have no previous M&A experience?

Given the risks associated, it is important to confirm that an acquisitive strategy is right for your business, considered against existing white space and organic opportunities. Acquisitions take time and effort, so rather than just chasing ad hoc targets you need to prepare, map the market and identify what you are looking to acquire and why. There is often little correlation between the size of an acquisition and the amount of work required, so it’s important to be clear on the management team’s bandwidth and consider bringing in additional external resource to support. Acquisitions are typically the start of a new partnership so it is critical to be transparent and honest in all your dealings with the other side and look to build a relationship based on trust whilst remaining disciplined and controlled on what you are willing to pay.

What do you need to consider when integrating an acquisition into your business?

We look to put a systemised acquisition process in place as there are things you can repeat on every deal, but you also need to recognise that every business and culture is different. You need to create a rigorous and pragmatic integration plan and to communicate it well to everyone who is involved, ensuring clear ownership and ideally identifying an internal project management officer. Another important element is to ensure you have buy-in from both organisations. That means senior management needs to get on the road and spend time with the business – acquisitions can be a worrying time, particularly for those on the shop floor, so it’s important to reassure them.

What are the challenges of pursuing international growth?

All markets are different. It’s often harder to see the commercial and cultural variances compared to the more obvious legal or regulatory differences, but those points are equally important, so having local people on the ground is a real benefit. Another increasingly important issue is around reshoring and loyalty to products being made locally, so you should think about how you are going to retain a strong local footprint and ensure you’re not taking anything away from that country. Fundamentally, entering new geographies is complex and each country you expand into brings incremental complexity and challenge, so don’t underestimate this and take a considered, sequential approach.

How can you ensure success when entering a new market?

Never underestimate the importance of culture, that is true for all international expansion. It comes back to your strategy – before you enter a new market, you need to be sure this is the right thing to do. Go slowly. Rather than expand into five new geographies in five years, focus on one or two instead and properly scale those. Being able to test your products and services in a new market on a low-cost, low-risk basis is important – whether that is through distribution partners or through online sales rather than a physical presence. Clearly, one way of short-circuiting international growth is through M&A, as that will bring a local footprint, existing infrastructure and know-how – so one of the advantages of acquisitions over organic growth is that international expansion piece.


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