In among the busy news flow that was Safestyle vs SafeGlaze, there was some news about another of the industry’s big names, Everest. Better Capital, the investment fund behind the company, gave this update.
Now, as far as business speak goes, the statements we get from Safestyle are backed fairly well with the usual management talk. This one takes a little further, so it will take a bit of careful reading.
EVEREST VALUATION AT 31 MARCH 2018/SPOT PROGRESS
BECAP12 GP Limited, General Partner of BECAP12 Fund LP, has informed the board of Better Capital PCC Limited that:
- in the process of finalising the 2017 annual financial statements for the Everest business, it has become clear that the financial data used for the valuation (GBP20m, as of 31 March 2018) of this portfolio company was, in part, incorrect. It is likely that, if a more accurate picture had been known, the valuation of Everest would have been reduced by an amount which might have been significant to the valuation of this investment.
(The total reported portfolio carrying value of the 2012 fund as at 31 March 2018 was GBP125.1m. The company has since distributed GBP48.35m to investors in the 2012 fund.)
So, in short, when the accounts were being done in 2017, it included information that was wrong, leading to a higher valuation, when in fact had the right information been submitted, it would have given a lower valuation of the company.
We know, from statements made by Jon Moulton, founder of Better Capital, that the performance of their investment in Everest had not been doing well. This was made about Christmas time last year. Not long after that, Anglian had announced a multi-million pound pre-tax loss of £3.3m.
The picture for the very biggest installation companies doesn’t look great right now. So where do we go from here?
I was having a chat with someone the other week and we both agreed that there is still much consolidation needed within the sector. Growth in the industry is stagnant, yet if you look at the sheer number of companies in the last Insight Data industry report, on the face of it there looks to be way too many companies to service current levels of demand.
So, given the performance of our biggest installers, who presumably would want to avoid the scenario that befell Entu, I believe that there should be consolidation there too. Results from all three have been poor, there’s no getting away from it. But if you look at other industries where companies have failed to adapt or change to the current environment, take the likes of Debenhams and House of Fraiser for example, it’s not inconceivable that this scenario could play out in our sector.
On a local level, home owners will have access to plenty of smaller, more agile installers and fabricators to help sort out new windows and doors. In fact, its the smaller installers and fabricators who have adapted to a quality-focused business model that are doing well in what remains a challenging environment. Those who were proactive knew that if profits were to be made, if growth was to be had, they had to provide a high-end, quality product choice for home owners. Products that could command a higher price and a wider margin. Those who have travelled down that road have more or less found business to be good.
I wouldn’t say that the largest installers have done the same. Recent results would back my theory up. So, from where I’m sitting, consolidation, in other words takeovers, look more likely. We could see a scenario where one big company could take over another big company. Or, a VC with cash to splash could start buying them all up and forming a group.
Either way, the current structure isn’t working. We all know that. So change is required. It’s a questions of when that change will happen and if it can be done in time.
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