Mickey Patel and Richard Muckle speak to Irish online publisher The Currency

Mickey Patel and Richard Muckle spoke to The Currency‘s Tom Lyons to discuss our recent acquisition of Integrity360 and our future plans on investment in Ireland. The full article can be found here and below:

British private equity firm August Equity is hungry for Irish deals. This is what it is looking for

After investing in cybersecurity firm Integrity360, August Equity’s Mehul ‘Mickey’ Patel says the firm is looking for more Irish deals. With colleague Richard Muckle he outlines its sectors of interest, its strategy and its plan to scale Integrity360.

Mehul ‘Mickey’ Patel and Richard Muckle are sitting by the window in the Westbury Hotel looking down onto the flower sellers near Grafton Street in Dublin 2. It is October 20 and Patel, a partner in August Equity, and Muckle, a director, are in Dublin to attend their first in-person board meeting of Integrity360, Ireland’s largest cybersecurity firm.

In the Covid-19 era, they told me they’d been forced to negotiate and close the acquisition of the firm entirely virtually with its founder Eoin Goulding and his team. Now, they are both looking forward to meeting Integrity360’s management team. While the price paid for Integrity360 wasn’t disclosed, it was a decent-sized business with revenues of €42 million and a team of 200.

This was August Equity’s second investment in Ireland, and they plan to do more. Patel, a former accountant with PwC, and Muckle, who previously worked with private equity specialist Azini Capital, told me they were more than happy to discuss August Equity’s plans for Ireland. But they were tight for time, so we agreed to do a longer interview a few weeks later when they were back in London.

A 100-day plan

It is now November, and Patel and Muckle are on either side of my screen on a video call. Muckle is in August Equity’s office on Slingsby Place in Covent Garden, while Patel is in his London home. Patel is recalling his first physical board meeting with Integrity360. “It was the first time we saw the business with all the management team around the table,” he said, admitting that investing in businesses by video call wasn’t ideal.

“We wouldn’t have done that with a business we didn’t know for a while, or a sector we didn’t know really well,” he said.

By the time the deal was closing, he said August Equity had retained Ian Brown, the former chief executive of a previous cybersecurity portfolio company called SecureData to bring his knowledge and experience to the table.

Brown has now come in as the Executive Chairman of Integrity360, while company founder Goulding is moving to the role of President. Integrity360, according to Patel, had a 100-day plan in place and had identified acquisition targets. “It was a very strategic and commercial board meeting,” Patel said. “This is a team that is going to be moving very quickly.”

“We also had a few Guinness’s with the team,” Muckle added. “It was nice to finally have a few beers together, after what was a long sale process.”

August Equity had enjoyed their visit, but what is their bigger plan for Ireland?

Growing earnings

August Equity was originally called Kleinwort Capital when it was founded in 2001. It was rebranded as August Equity in 2006 and is led by Philip Rattle, a former partner in JP Morgan Partners. It has raised five funds to date totalling about £1 billion. While working in investment banking, Rattle worked on Betfair’s acquisition of Flutter in 2002. This was an early step in the creation of what would become the world’s biggest betting company after it merged with Paddy Power and other businesses. This ability to see how businesses can be combined and scaled in high-growth sectors is at the heart of what has made August Equity a successful investor.

In early 2020 it closed its fifth fund of £309 million which has a ten-year life span. I ask Muckle and Patel how August Equity’s funds have performed to date. “Each of our funds has delivered top quartile returns to our limited partners,” Muckle said. “The reason for that is the strategy behind it. We invest in adjacent areas that we know well where we have had success in the past.

“What we have found is that over the course of our five funds returns have gotten better, and better and better.”

August Equity Muckle says is a lean business with just 19 people, and he said its investment in AirIT, a managed IT solutions provider, was an example of what his fund could do. August Equity invested in this business in January 2020 when it had £1 million in EBITDA, but this is now £6 million after making eight acquisitions.

“I think that cadence – that energy – we bring to businesses and a can-do attitude really resonates,” Muckle said. “Ultimately that is how we managed to win deals and get cracking on with things quickly and deliver what we said we would do.

“We are very efficient at decision making. We have six members of the IC (investment committee) who are all partners. Our funnel for investment isn’t like a funnel in a traditional private equity firm where you pop a lot of ideas in, and one might come through. We are high conviction.”

Muckle said since he joined August Equity in 2017, its IC had not rejected any deals he’d presented. “There is a high surety that once we want to do something, we will do it,” he said.

Patel added that bad deals were almost always filtered out before reaching the IC stage. “This means we don’t waste time focusing attention on the wrong areas,” he said. “No one wants to do that.”

From vets to education services

August Equity closed its first deal in Ireland at the start of 2020 when the Amtivo Group bought Certification Europe. This deal can be traced back to 2017 when August Equity was at the start of creating the Amtivo Group by acquiring the British Assessment Bureau, a certification firm. It had spoken to Certification Europe in the run up to this deal about trying to invest in it. The Irish company had a diverse shareholder base at the time including Kernal Capital, Enterprise Ireland, the University of Limerick Foundation, and the Galway University Foundation, which had different views about how to grow the company. August Equity felt that buying out these shareholders would help the business grow.

“Michael Brophy [the CEO of Certification Europe] saw the opportunity to be part of a larger business. He had spoken to other potential buyers, but the Amtivo story was really good,” Patel said.

“We’d acquired five or six other businesses by then so he could see that. It was a deal that was a long time in the making but so was Integrity360 in many ways.”

Today, the Amtivo Group is in 27 countries providing a range of certification services, with Brophy a key leader in its management team. August Equity has also made a series of investments in the animal healthcare sector. In August it co-invested with CVC to take a minority stake in Medivet, a chain of 450 veterinarians in the UK, Germany, and Spain. It is an also investor in Hallmarq Veterinary Imaging, and last March it sold Pet Cremation Services to VetPartners.

In October, The Currency wrote about how private equity is buying into the Irish veterinarian industry. Is this a sector August Equity is interested in here?

“The animal health market for August Equity has been excellent,” Patel said. “We have made three investments in the sector and have invested across the whole gambit.

“We would like to invest in an Irish focused vets’ business, and we are talking to a number at the moment, so the answer is yes we are interested.”

What other areas is August Equity interested in? “I think from a technology standpoint we are looking at three areas. The biggest of those is digital transformation,” Muckle said.

He said August Equity was interested in consultancies in areas like agile software development, DevOps, cloud and data migration, and data analytics. “This is an area where we will be investing for sure in the next six to 12 months,” Muckle said.

“Other areas we are focusing on are technology-driven compliance businesses including GRC (governance, risk and compliance) as we love that sector.

“Another area is education services. There has never been a requirement for skills transfer more than there has been now. We will be investing in things like corporate training, CPD, ed-tech. We will be investing in all those areas with high conviction.”

Patel said a final noteworthy area was healthcare. I ask Patel how does August Equity secure deals versus its rivals? “Our edge is not just to wait for information or a random business plan to end up on our desk,” he said. “We will go to the business directly ourselves and contact them.”

How quickly does it seek to exit? “It is three to five years in terms of investing and then exiting. The fund itself is open for is ten years,” Patel said.

How does it make its investments? “With every business, we start with a growth plan,” Muckle said. “What will the business look like at exit? In the case of Integrity360, we are going to grow to a €200 million-plus revenue business in the space of two to four years.

“We are going to do that by acquisition and growing parts of our business. Eoin and the team have bought into that.

“We have a clear plan saying there is where we are going to get the business and if we do that, we are all going to have great success as it will be a very valuable business at that point.”

Unfinished business

Private equity is very active in buying up businesses in Ireland. Valuations in certain sectors are hot, but August Equity believes its track record in investing in service orientated companies and growing them quickly is a differentiator. It believes it can offer the management of companies it is involved with greater opportunities. “We want to back people who have got ambitions to scale their businesses,” Muckle said. “And hopefully make double what they made the first time around when we sell it together in three to five years time.”

In the case of Integrity360, Muckle noted, Goulding remained a significant shareholder. “Eoin will make a significant outturn from it at the next phase too,” he said. “There is goal congruence.”

“We want to build a new European wide-security provider,” Patel said. “It is a fragmented market at the moment with only a few big players.”

Muckle said the plan with Integrity360 was to focus initially on Northern Europe, but it was also looking at other markets like Spain and Italy.

Understanding what August Equity hopes to achieve with Integrity360 requires looking back at its dealmaking track record and a company called SecureData in particular.

August Equity invested in this business in 2012 and grew it by 20 per cent a year until it had revenues of £50 million when it was acquired by global telco Orange for a reported £120 million. SecureData was the largest independent managed security services provider in Britain when August Equity sold it. When it raised its fifth fund it identified cybersecurity as a market it wished to invest in, with Integrity360 as the foundation stone.

As the deal closed Ian Brown, the former chief executive of SecureData, came on board to help lead the company.

“The stars aligned for us at that point,” Muckle said. “We wanted to get back into the market. Ian Brown had unfinished business there, and Eoin and Integrity360 were interested.

“We want to create the largest independent European cybersecurity business and that is what we are going to do. There are huge opportunities to grow.”

Is Integrity360 in talks to buy other firms? “We have multiple discussions going on,” Muckle said. “Some are in exclusivity; some are far progressed. We will certainly be investing in the UK in the next year and we have the Nordics and continental Europe on our list as well. Watch this space.”

When will August Equity invest in its next Irish business? “We want to under-promise and over-deliver,” Patel laughed. “If we can do a deal in Ireland a year then that would be good.

“I think there is an opportunity to do more, but we are at the start of understanding that. We don’t want to rush as that is not our style either.

“We see a considerable number of opportunities in Ireland and believe we can replicate some of the things we have done over the last five years in August Equity in Ireland.”