STATS secures £4.3m follow-on
STATS Group, the Aberdeenshire-based oil and gas pipeline engineering specialist, is preparing for further international expansion after it secured an additional £4.3 million investment from BGF in January 2015.
The management team behind STATS has also invested more money in the business, which received an initial £7.8m of growth capital from BGF in March 2012.
Since the initial funding deal, STATS has doubled its annual turnover to around £30m, has created 145 additional jobs and has opened operational bases in Canada, the Middle East and the US.
The additional growth capital will fuel the continued rate of expansion, especially in the US, where STATS opened a new facility in 2014 and recently won contracts worth more than $15m to provide intervention and isolation services to one of the largest energy infrastructure companies in North America.
BGF’s investment will also aid growth in the Middle East, where STATS has pioneered the use of emergency isolation tools as an insurance policy against damage to vital pipeline infrastructure, both subsea and on-land, with clients including national oil companies across the region.
Simon Munro, BGF regional director Scotland, said: “I’m delighted that we are investing more capital in STATS and continuing to back Peter and his team. Since our initial investment in 2012, the company has gone from strength to strength, doubling turnover, creating jobs and expanding globally.
“Follow-on investments are an important part of the BGF model. By supporting businesses that we know and have a proven track-record, we can help them to grow even further.”
Pete Duguid, chief executive officer of STATS Group, added: “Simon and his team at BGF have been very supportive since our first investment. They have not just injected cash into the business but have also offered advice and support during our global expansion.
“The latest funding will help us to maintain the pace of our expansion in the US and the Middle East.”
Peter Duguid founded STATS in 1998 with his sister, Lorraine Porter. The company has since grown to employ 265 people at its head office in Kintore, near Aberdeen, and at its other bases in Inverurie, Kendal, Canada, Malaysia, Qatar, the United Arab Emirates and the US.
Last year STATS invested £500,000 in opening a global training centre at its head office in Kintore to maintain and improve quality and competency standards through in-house specialist training.
Recent work carried out by the group has included isolating the Forties Pipeline System on behalf of Apache North Sea so that a subsea isolation valve could be safely installed on this major pipeline, responsible for transporting over a third of the UK’s oil production.
Mike joined BGF in January 2012 in Aberdeen, where he is responsible for originating and delivering investments in the North of Scotland, and for working with the management teams of the investee companies to help maximise their potential.
Mike started his career as a drilling engineer with Shell, working mostly in exploration in Angola and Congo. He then joined 3i, and after spells in Birmingham and Cambridge Mike moved to Aberdeen in 2004, where he was subsequently appointed joint head of 3i’s oil and gas team.
Mike has a BA and MEng degree in Engineering from the Downing College, Cambridge University, and an MBA from INSEAD, and he is a Chartered Engineer and a Sainsbury Management Fellow.
Mike is married and lives in Banchory in Aberdeenshire. He provides a taxi service for his four kids, and in his spare time likes to be outdoors, running, skiing and biking.
“The economy in the North of Scotland is outward-looking, with UK sales making up the minority of revenue for most of our businesses. The culture is very entrepreneurial, and Scotland regularly generates innovative technology and services on which business owners build some great and valuable companies. This makes it a great market for BGF.”
Latest investments/Board Director:
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- STATS Group
Richard joined BGF in August 2011 and is based in Aberdeen. His role is to identify and successfully execute investments for BGF then work with portfolio companies to support their growth plans. This involves meeting a range of companies to explain the type of funding that BGF provides, working with them to develop their business plans and then structuring and executing investments. Richard will then typically join the board as either an observer or director.
Richard has 10 years’ experience in investments into small and mid-sized companies. This was initially as an adviser at PwC where he was involved in over 30 corporate and private equity transactions in the UK and overseas and since 2011 at BGF, where he has been involved in seven investments so far, with a particular focus on oil service companies.
Richard has an MA in History from Oxford University. He is married with a daughter and lives in Aberdeen. When he is not running around after his daughter, Richard enjoys running around in the Cairngorms!
“I have had the opportunity to work with companies ranging from FTSE 100s to SMEs – this experience has made me realise my real passion is in working with and supporting fast growing, entrepreneurial companies which is exactly what BGF is set up to do.”
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Regional Director – Scotland
As the Regional Director, Scotland, Simon is responsible for leading the Scottish investment team’s activities around sourcing and executing investments and managing the portfolio post investment. He will sit on a number of portfolio company Boards and is a member of the BGF’s Investment Committee.
Simon has 20 years of experience advising and investing in companies, predominantly in the oil and gas industry. He spent eight years with RMD Corporate Finance before leaving as part of a team of five to establish the European office of Simmons & Company International, the boutique energy investment bank. He then spent a year in Hong Kong in JPMorgan’s Oil and Gas Industry Team. In 2002 Simon joined Lime Rock, the specialist energy private equity firm, to help establish its presence in Europe. He became a Managing Director in 2008 and sat on the firm’s Investment Committee and on numerous portfolio company Boards.
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TWO’S COMPANY: PETER DUGUID & GRAEME COUTTS OF STATS GROUP
I’ve been in oil and gas my whole working life . I started out working offshore on hook-up and commissioning projects before moving into the well intervention business during a downturn. That was my first step into junior management and I really got a taste for it. The business I was working for at the time had a dynamic very like STATS in that it was growing very quickly, and it was bringing in a lot of management in order to accommodate that growth. That was unfortunate for me because it blocked my progression into more senior levels, though now I can see they had no choice.
I ended up leaving that business and going to a very small oil services company – it had an annual turnover of about £250,000 when I started. It was a really interesting business that hadn’t really decided where it wanted to be and I ended up as the operations manager. I brought in a product that made us more sustainable and within two years we were doing sales of £3m a year. We started STATS in 1998 with very limited capital, some very restrictive covenants imposed on me by my previous employer and I was in poor health at the time. But we struggled on and eventually I bought the asset base from my previous company which gave us a product to sell.
Still, it was very seasonal and we spent the next few years trying to build an innovative engineering solutions business. The smart bit was to look at whether solutions delivered to individual clients could be taken to the broader market and eventually we ended up with a suite of products. From engineering came a need to manufacture those products, so we began doing that, and we really began to evolve.
I vividly remember my bank manager telling me I couldn’t build a business on enthusiasm alone. In truth, while there was always growth, we were constantly fighting working capital. That was fine in 2007 when the banks were offering very easy access to credit but then the financial crisis came along and the oil market collapsed.
Life wasn’t very good for a period and we had to fight to maintain what we’d built.
By the end of 2010, we’d stabilised but banking support had disappeared. I had to make a call – we knew we had to do something different and that’s when I began looking for outside investment. Then BGF came along with a remit to support growing British businesses and we were an ideal candidate.
As a business, we’re now ready to internationalise, to build an infrastructure in the regions in which we operate, and in those where we’d like to operate, so that we can become a global, sustainable business. But we realised we needed a more serious management team if we were to transition from one sort of business to another.
When BGF came on board, I was perceived as a very operational manager and it was suggested that I needed to create some space around myself and to have someone to talk to and bounce ideas off. I needed to be a chief executive who could delegate the day-to-day running of the business and I needed a chairman who could be that sounding board. We’re still looking for a chief operations officer, but we hired a new chief financial officer at the time of the BGF investment and, of course, Graeme arrived as non-executive chairman.
He wasn’t the only candidate, but I felt I could run rings around the first couple of guys I met; I knew I needed someone who would challenge me. Then Graeme’s name came up. I didn’t know him, and I was worried that with his background at Expro, he’d be too corporate for a fast-growing small business like ours, but I agreed to meet him.
I realised straight away that he’s incredibly grounded – he can look at the details but also see the bigger picture. Also, he tells it like it is which is important because I needed someone who would be able to work with me. I know I can be bloody-minded.
Graeme isn’t in the office full-time but I talk to him at least two or three times a week. It’s a very informal but dynamic relationship – he’s brought a structure and discipline that was probably missing from our management style when we were a younger company, without being overly forceful. It’s an easy relationship to be in.
I did have reservations about taking on an equity partner and a chairman. My concerns were all about whether I was working for a new master – about how the decision making process would work. I wanted to be sure that we could still be decisive about our direction. That seems to be working really well.
I’m an Aberdeen boy brought up with oil and gas from my earliest days, and I think the fact that we were both local lads helped when I first met Pete. I went straight from school into a job in banking which I hated, and I very quickly moved into engineering at Schlumberger the giant oil services group, with whom I travelled the world. Then I spent seven years at another company delivering a new product range before joining Expro in 1989, initially as a short-term consultant. I didn’t leave for 21 years.
I worked in all sorts of senior roles at Expro, culminating in a stint as chief executive of the public company. In 2008, we were just on the edge of FTSE 100 membership, when we were taken over by a private equity group which had fought a very tough and public scrap with Halliburton the US oil business to buy us. It was the most sought after brand in upstream oil services in the world at that time.
I stayed on at Expro as chairman for a couple of years to nurse the private equity guys but it was always my intention to retire once new management was in place, after I’d led a head-hunting exercise for a new chief executive. You should never have a former chief executive serving as chairman – it’s completely unfair on all concerned, because no-one really knows who is in charge and the chairman can’t stop himself from interfering in matters that should no longer be his concern.
When I retired, I said I wouldn’t do any work for a public company – just simply because the onerous governance was not my scene. I wanted to get back to having a bit of fun – fun for me is working with small private businesses and the more local the better. My strategy is to help local entrepreneurs try to realise their journey towards the creation of value. Having worked in oil in every continent of the world I thought I had something I could bring to the table for these guys, because they all face the same challenges and they all make the same mistakes.
It is a very small world up here, particularly in the oil business, and I knew some of the guys at BGF quite well. They asked me to take a look at STATS.
In these situations, it’s all about how you get on with the chief executive – even more so in this case because this is Pete’s business – and the chemistry has to be right. He’s the owner as well as the chief executive and in many ways he’s entitled to make the decisions. My approach is not to ram things down people’s throats – it’s to be on the end of a phone, to listen and to offer some experience, especially when the awkward things happen.
it is the job of the chairman to provide a counterpoint to the chief executive and to challenge his thinking. But I’m always trying to point Pete towards what I suspect is his end-game and that’s all about structuring things to make that happen. The relationship is very important – I’m not the sort of guy to bite his tongue but we never disagree and it’s not my role to do so. I’m here to point out some of the potential roadblocks when Pete has decided on a particular course of direction.
I also come with a pretty extensive list of contacts, both among my peer group and with clients and customers. The thing I’m most actively involved in with Pete right now is recruitment of talent – that can be very tough in Aberdeen, where the market is overheated.
It is crucial though. Pete is a highly dynamic guy and his challenge is that his ambition for the business is very high, including a great deal of international expansion where there are all sorts of pitfalls. He moves very quickly and it’s important that I spell out for him just how critical it is to have the right team of lieutenants around him that will take and translate his message into action.
Right now we’re at that point where we have to make sure we resource this business so that it is capable of delivering the ambition we have for it. As the business grows and internationalises, Pete won’t be able to do everything so the key is to have a foundation of very good and trusted individuals round about him who are like-minded, capable of good communication, and allowing him to do the things he’s good at and to keep away from the things he’s not so good at.
It’s all about being honest. Everyone has strengths and everyone has weaknesses. The collective approach of the team is what covers the weaknesses and allows the progress to be made. We’re working on those basics today.
CAPEX TO BUILD GROWTH
Aberdeen-based STATS Group and South Wales’s SHS Infrastructure Services (SHS) may be hundreds of miles apart but the two businesses have much in common. Both specialise in largescale project management and engineering services for demanding clients; both have exciting growth plans that are dependent on capital expenditure; and both have turned to Business Growth Fund for help.
Without external investment to fund that expenditure, both companies would probably still be struggling to fulfil their potential. With the money, however, the two businesses are building reputations as leaders in their fields: STATS provides maintenance, repair and modification of oil and gas installations and pipelines, onshore and offshore, while SHS erects and dismantles large-scale scaffolding constructions on technically demanding projects. “When I arrived in 2011, SHS was operating with a significant overdraft and was having to turn down opportunities to bid for new work,” recalls Gavin Payne, the company’s finance director. “We did have a finance line with the bank that was facilitating some growth, but cash was massively constrained and we were never going to be able to move to the next level – we turned away £6m of business in the first two months I was here simply because we didn’t have the capital to commit.”
SHS’s difficulties started with the pressing need for capital spending, Payne explains, because the projects where the company specialises, working at refineries in the petrochemicals industry, require so much equipment.
“We needed to spend sizeable sums on the basics of our business – on tubing, boards and other scaffolding kit,” says Payne. “And we wanted to think longer-term – for example, we’d always bought wooden boards, even though steel boards last much longer, because our cash was so short we needed the cheapest option even when it turned out to be a false economy.”
Another issue was cashflow, adds Payne. “Payment terms in this sector are generally 60 or 120 days, which makes life very difficult for under-capitalised businesses.”
It is a story that Pete Duguid, the chief executive and founder of STATS Group, recognises very well. Duguid first launched STATS in 1998 and spent most of the next ten years battling with the company’s constrained finances. “I vividly remember my bank manager telling me I couldn’t build a business on enthusiasm alone and in truth, while there was always growth, we were constantly fighting working capital,” he says. “That was fine in 2007 when the banks were offering very easy access to credit but then the financial crisis came along and the oil market collapsed.”
In the years following the crisis, STATS faced a challenge simply to survive – not because of any flaw in its business model or products and services, but because it did not have the capital buffer needed to ride out a difficult trading period comfortably.
Fortunately, the business made it through, but Duguid realised he needed help to take STATS on to the next level. He could see clearly how the company could expand its range of products and services, and had plans for international expansion. But STATS still lacked the resources for the capital expenditure required to turn that vision into a reality.
“By the end of 2010 we’d stabilised but banking support had disappeared,” Duguid says. “I had to make a call – we knew we had to do something different and that’s when I began looking foroutside investment.”
The search ended in March 2012 when BGF invested £7.8m in STATS, in what was then only the fund’s fourth investment. Six months and 11 other investments later, BGF and SHS agreed a £5.4m injection of growth capital in the scaffolding business.
“What’s clear in both these cases is that the companies had no chance of any significant growth without taking on additional capital,” says Paul Oldham, a BGF regional director based in the Bristol office. “They could have opted to go for much slower growth, but they were ambitious, which is one of the things we look for in a company when we’re considering whether to invest.”
Oldham believes growth capital of this type – as opposed to debt – is ideal for companies with large capital expenditure requirements. You’re not going to be able to arrange debt for a period of longer than five years, which isn’t a great basis for long-term capital investment,” he argues. “Even as you’re investing, you’re already worrying about when you’ll have to roll over the borrowing.”
In contrast, Oldham says, with a slug of capital to fall back on, businesses can concentrate on worrying about growth rather than financing. “What our money has done in both these cases is take away the constraints from these companies and level the playing field with their larger competitors,” he argues. “That’s what BGF does – we invest in smaller companies whose skills are just as good, or better, as those of larger companies, and whose products and services are of equally high quality, or higher, so that they’re no longer at a disadvantage just because of their balance sheet.”
SHS’s Gavin Payne shares that analysis of the value of growth capital, but says he had particular reasons for choosing BGF.
“We spoke to a number of potential sources of funding, and while BGF’s terms were competitive, more important in the end was our impression that there was a greater willingness to work with us,” he says. “It didn’t feel like a traditional private equity involvement – they’ve only taken a minority stake and while we welcome their support and advice, it’s still us running the business.”
At STATS, Pete Duguid had similar anxieties. “My concerns were all about whether I was working for a new master and about how the decision making process would work,” he says. The fact the fund was happy with a minority stake in the company helped allay those fears. BGF also introduced Duguid to oil industry veteran Graeme Coutts, who subsequently became chairman of STATS and now plays a crucial role in helping the company realise its plans for international expansion.
In the end, says Paul Oldham, this is the type of edge that BGF needs to communicate to companies looking for investment.
“If all we were offering was money I think we would have done a lot fewer deals than we have done – our network of contacts is often an important part of businesses’ decision to go with us.”