TeamSport: A private equity exit case study
TeamSport, the UK’s largest indoor go-kart operator saw its value grow rapidly from £7.8m to £42m thanks to private equity investment from clients of Connection Capital, generating returns of 4.1 times money in just over four years.
From nine sites at the time of the MBO, it expanded to 23 UK-wide, through Connection Capital’s involvement before a sale to Duke Street Capital. Headquartered in Farnham, it now employs more than 750 staff, having tripled its headcount since Connection Capital’s investment.
The company: Teamsport
Established in 1990, TeamSport is the UK’s largest indoor go-kart operator. Teamsport’s business combines enthusiasm with professionalism: it provides exciting karting experiences at high quality facilities with excellent customer service. It offers indoor tracks of up to 1km in length which include multi-level karting, banked corners, flyovers and ramps as well as hairpin bends, chicanes and fast straights. On-site restaurants and bars are also available at its venues.
As the UK’s leading go-kart operator it had a proven business model and a professional approach to what had historically been a fragmented and ‘amateur’ looking segment of the leisure industry.
In February 2013, we backed the incumbent executive management led by CEO Dominic Gaynor to buy the business from the founder. The founder retained a stake in the Company post-completion.
What attracted us to TeamSport?
- High return on capital model
- Central direct marketing team ensures above market utilisation rates of tracks
- Demonstrable success in executing a roll-out strategy
- Hungry young management team
- Good prospect of exit multiple arbitrage
The investment proposition was to expand the Company’s portfolio from nine sites. The main drivers of shareholder value were the acquisition/set up of new tracks, where returns on capital of 40% to 60% were targeted, and moving the existing portfolio of tracks, many of which were on short leases, to 10 or 15 year leases to demonstrate longevity of earnings to any future acquirer to enhance the exit value.
The funding structure provided capital for the MBO and £1.8m of growth capital to fund the planned roll out to 18 UK sites and beyond. The exit was anticipated to be to a secondary financial investor or trade acquirer who would wish to continue expanding the Company given ongoing scope for market penetration in a fragmented industry with an underdeveloped consumer offering.
The growth strategy
After the MBO, growth took off. A driven management team, headed by CEO Dominic Gaynor, was backed with growth capital from our private equity investors to fund its roll-out plans. Additional bank facilities were also arranged.
The company grew significantly through investing in its sites both new and existing, enhancing its customer offer through its dedicated staff, delivering excellent returns on capital invested in new and refurbished sites and consolidating its dominant market position as a national brand.
How did our team add value?
As part of the investment process we always introduce an experienced non-executive Chairman to our investee businesses. For TeamSport, Peter Roberts, the founder of PureGym, joined the board at completion.
We encouraged and financed expansion, initially in and around London, through new sites and an acquisition. In time, this expansion continued with sites across the UK, with the company adding four or five sites a year, in recent years. It is now a nationwide operator with sites from Brighton to Newcastle and has secured a dominant No.1 market position, having grown beyond its original business plan. Alongside site rollout, the company has sought to increase the average lease length to secure its long term revenue and profit.
Our process also involves bring some strong financial discipline and controls to the business through KPI management. Mostly however, our role is to work with the management team to implement a plan to our mutual benefit and not to get too distracted by the short term, whether positive or negative on the journey to enhanced value. Something we achieved with great success here, with a mutual bond of respect and trust throughout our involvement with Dom and his management team.
"Connection Capital’s involvement has turbo-charged our business: from opening one or two sites a year we are now opening six. As well as rolling out new sites, the investment also enabled us to invest in our Head Office to support that growth" - Dom Gaynor, TeamSport CEO
As at October 2017, TeamSport had grown from nine sites to 23 UK-wide, with a further three due to open and others in the pipeline. Staff headcount tripled over the period of our investment with over 750 people employed by TeamSport. Due to the growth in value and a buoyant M&A market a decision was taken by shareholders to seek a realisation.
Its ambitious expansion programme, together with enhanced operational leverage, drove significant uplift in trading performance, with EBITDA growing from c£1.6 million in 2013 to c£5.6 million on exit, with the new site opening program offering the purchaser visibility of continued profit growth, which enhanced the exit value.
Under its new ownership, Teamsport plans to continue its UK growth, as well as investigating overseas expansion opportunities. The existing management team continued at the helm in a secondary MBO.
Connection Capital clients were able to invest in this deal in units of £25,000. Those £25,000 units have now returned c£85,000.
Dom Gaynor, CEO, TeamSport
About the CEO
Dom says his proudest moment is completing the buy-out with Connection Capital – getting the sense of external validation that someone else recognises the value in the business and endorses the strategy. Delivering that strategy ahead of time also gives him immense satisfaction – and spurs him on.
What advice would you give to a business seeking equity funding?
Make sure you’re clear on why you want PE backing and leave no stone unturned before you embark on the process – due diligence will be extremely thorough.
Why did you choose Connection Capital?
We got on well with them and they have huge experience in private equity. We felt they really understood our business and were equally passionate about what we could achieve. They have been straight and honest in their dealings with us and they’ve delivered what they said they’d deliver.
"Bernard and the team at Connection Capital bought into the vision I had for TeamSport at the time of the MBO and have been a good friend to the company since then. They were patient with us when new sites were hard to come by and as we have gained real traction have encouraged further growth, facilitating the raising of additional bank funding to support the roll out."