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Blog July 2013

The Altitude Interviews : Peter Gradwell from Gradwell Communications Limited


In 2012 Altitude provided development capital to support the growth of Gradwell Communications.

The business is focused on providing a wide range of cloud-based services to SMEs, from global telephony to web and email hosting through to virtual cloud-based computing. 

The business is based in Bath and employs over 70 people.

This interview asked Peter about his views on private equity and the business.

What were your perceptions of PE when you first sought investment?

My family had previous bad experiences with external funders so I’ve been aware for a long time of the negatives. However, I made a point of checking with peer-CEOs in my industry and over time the number of successful PE backed businesses I knew grew and tipped the balance, giving me confidence.

What reservations or fears, if any, did you have about PE investment?

My major concern was loss of control of the company I had built up, because of some legal technicality and the concern that the Investor would bring someone in they thought was better than me. We all know of someone who has brought in PE to grow the business and found himself on gardening leave the week after! I was more worried about the Default arrangements than the money.

What persuaded you that Altitude was the best choice?

I went through a formal pitching process, aided by Corporate Finance which involved around 50 prospective investors and various presentations by me to them. I was set to go with another fund but, with the demise of the CF business advising me at the time, I had the opportunity to switch. While the offer would have been better for me financially, I chose to switch after getting frustrated because the other fund would say one thing in meetings but the written legal documents would then be completely different.

I felt much happier with Altitude’s documents which were friendlier. I liked Simon and Jonathan and also felt it was a good thing that they are personally invested in their fund. You’re speaking to the decision-makers, unlike with a larger investor where you’d be dealt with by a junior, and they have as much vested interest as you.

Why did you consider Altitude a better choice than bank or other finance?

In 2011 when I sought funding banks weren’t feeling too generous. One bank said our risk profile was too high. There wasn’t another way to execute the plan.

What did you think of the efficiency and process for negotiating and agreeing the transaction with Altitude?

Once we had chosen Altitude, the process only took about three months so it was very quick. There was a bit of legal backwards and forwards. AP had to get up to speed with the telecoms industry, particularly in relation to the disclosures I made which were fairly technical.

My feeling is that they prefer investments where their money is in the bank and spent over the lifetime of the business plan, rather than used on one big expense but we needed to make capital expenditure; for us that was the whole point. That said, we ended up using a lot of HP’s internal finance to enable our big capital purchases so in effect we got a double whammy.

We had done a good bit of due diligence for the other fund so were able to re-use it, making due diligence bearable. The other thing I wanted was a professional fund manager, rather than an angel investor and AP are good because although it’s a small fund with two partners, they have the structures and processes in place of a larger firm.

Overall AP was much faster in the process than the other fund which was good.

What most impressed and/or surprised you about it?

You have to understand and get up to speed on quite complex corporate finance maths, e.g. ratchets, IRRs etc. The advisors help of course, but even they make mistakes!

During the negotiations we drew up a couple of pages of terms about, for example, decision-making and investor consents and latterly I have been pleased and surprised that Simon and Jonathan have a relaxed approach to implementing them.

What has Altitude enabled you to do as a business that you could not have done otherwise?

We needed better management structures – board members who knew what to do to grow the business. As a result we have expanded our infrastructure.

It has also allowed me to share responsibility – it’s not just me beating up the management team and asking difficult questions. Often in board meetings I am able to listen and contribute whilst the non-execs are doing the questioning.

The investment also gave our wider stakeholders the confidence that we were bankable. For example, we did a deal afterwards with HP for another £1m+ and other contracts, right down to office chairs, were easier to negotiate.

As a rough guide we have given a third of the investment to marketing, a third to management growth and a third to the new platform.

What value do you feel AP brings to your business, besides financial investment?

Jonathan knows that in the PE industry when things go wrong, there was always an “early inking” and so he is good at listening to these and will always raise any concerns. He is particularly good at highlighting when performance is drifting, and we had clear metrics from the start. He keeps a close eye on the business plan and our progress against it, rather than being distracted by other projects we might have embarked on. He keeps us focused and both he and Simon present good challenges to what we are doing. They were also able to help us find a good calibre of FD when we needed to replace.

They do compare us to other companies, some relevant and accurate but others less so.

What are AP like to work with as people? 

They are open-minded. They are also generalists in industry terms. We looked at telecoms investors but they had hang-ups I didn’t think were relevant. We were a mature business needing development capital in order to work better. Simon and Jonathan have brought objectivity and sound business knowledge - a 10,000 feet alternative way of doing things, if you like, which is very useful.

How supportive and collaborative do you find them?

At crunch moments they have been constructive and proposed good solutions. This stems from an approach of being equal partners in the investment.

People talk about “giving away” equity – do you feel you have done this? If not, why not?

In the short term I’m poorer than if I’d kept the business as it was – as an owner/manager you can dip in as required - but it wasn’t sustainable like that. The flexibility has gone because on a day to day basis you’re a bit more like an employee in the formal structure where spending is scrutinised, rather than a dictatorship where you have total control. But you’re building a company with more significant assets that you own part of. It is odd at times though because fundamentally I go to work in order to make myself redundant. To maximise shareholder value the business has to be able to survive without me.

Would I do it again? We haven’t achieved everything we set out. Given the equity split it’s been more expensive than a bank but we needed the investment, and bank finance or another softer option wasn’t available.

What do you think differentiates Altitude from the rest?

You are talking to the decision-makers, the principals, who have a personal investment in making it work, and they have a lot of expertise. If there’s one thing I learned in the negotiations it’s that I wanted Jonathan on my team! They are high-grade professionals who know an awful lot about money.

As a fairly small investor/fund, I wanted a PE manager with structure (as opposed to angel investment) but equally I didn’t want the drawbacks associated with a large fund manager, where I might get lost in the noise.

What would you say to other businesses considering an investment from Altitude?

They are definitely the best pick if you need their sort of money for their sort of duration and terms. If you do, the incentives are much greater. Unlike some PE houses, they know that (hopefully!) you are best at running the business, and their job is to enable the growth by providing the catalyst.

They have allowed us to do the things we set out to do and we wouldn’t have done this otherwise.

Finally, there doesn’t seem to be an urgent pressure to exit unlike with other PE investors who want out at the end of Year 3. Rather than wanting their cash back, Altitude’s investors appear to want it put to good use.

Any other final comments, observations or suggested improvements.

My fear was letting an investor in with their own agenda but what I’ve got feels like a proper partnership. I also feel that I have contributed to the growth of their business as Gradwell was only their second investment. How they grow it and keep the personal attention is a good question – perhaps they will follow the American model and grow the partnership horizontally rather than hierarchically?

Read more about Gradwell Communications.

Blog | March 2013

The Altitude Interviews : Stephen Piper from The Care Division

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