Partner with international reach

Anyone who has children will be familiar with Tommee Tippee. The company’s range of baby-feeding products has earned it a loyal band of customers over the years. Recently, though, that customer base has grown rapidly as the company has expanded into more than 40 countries worldwide. Sales, profits and market penetration have also risen as it has moved from a UK-centric operation to a truly global brand.

“At the time of our investment in 2006, around 60 per cent of Tommee Tippee sales were in the UK,” says Alan Giddins, managing partner and co-head of private equity at 3i. “But we saw that internationally the market it operated in was very fragmented, with no clear market leadership, suggesting the Tommee Tippee brand could be internationalised very successfully.”

Following the £140-million public-to-private transaction of parent company Mayborn, 3i worked with the management to divest non-core activities so the company could focus on its baby and child division.

But it has been the internationalisation of Tommee Tippee that has driven its success in recent years, with more than 60 per cent of sales now coming from outside the UK, and it’s a pattern 3i is seeing repeated with mid-sized companies across Europe.

“There’s a huge growth opportunity for mid-sized companies in accessing new markets outside their home geography, however internationalising brings with it a range of new challenges,” says Mr Giddins. “Companies that try and go it alone or who don’t have the necessary knowledge and contact base can find themselves incurring a lot of time and cost for little return.”

As a growing number of mid-sized enterprises looking to internationalise are discovering, working with the right partner is essential and there is no substitute for one that has a truly international dimension combined with deep local knowledge. Not only are personal relationships essential, but insight into local business practices and culture can be just as important as understanding more formal laws and regulations

“We’re an international business and all our people are international in experience and mindset,” says Mr Giddins. “We have portfolio companies with operations in more than 80 countries, so the chances are that we will be able to bring some level of knowledge and experience to most situations.

“For example, it’s very challenging to set up in China from a standing start, but we can help across key areas of production, sourcing and logistics by drawing on the experience we’ve gained through operating in China for over 15 years.”

Insight into local business practices and culture can be just as important as understanding more formal laws and regulations

Mid-sized companies are not always able to exploit international growth opportunities on their own. However, management teams are increasingly realising that those that focus on their core business, while using the expertise of a partner to enter international markets, are almost always better served than those who try to do it themselves.

Mr Giddins points to the case of luxury lingerie brand Agent Provocateur. In 2007, 3i acquired a majority stake in the business alongside management. Leveraging 3i’s global reach, Agent Provocateur was able to grow from a UK-focused company to one with 90 outlets across 28 countries, as well as operating concessions within leading department stores and franchises in select geographies.

Over the last three years, the business has opened some 20 new stores a year and has successfully entered 13 new countries, including key markets such as China, and has plans to significantly extend the reach of the brand in the coming years.

In addition to accessing new markets through organic growth, the right partner can help companies grow internationally through acquisition. Headquartered in France, Trescal is a specialist in calibration, providing services for the testing and measuring equipment market. In 2010, 3i invested in the company to support its international expansion.

During 3i’s partnership, Trescal made four significant acquisitions. Only three months after its investment, 3i’s global network and transatlantic experience supported it in the acquisition of Dynamic Technology in January 2011, which established Trescal in the United States. Subsequently, Trescal accelerated its international expansion plans with the acquisitions of Antech Engineering in the UK, Stork Intermes in the Netherlands and Isocal in Austria. Trescal also set up a greenfield operation in Singapore.

Between 2010 and 2012, turnover at Trescal grew from €110 million to €157 million and EBITDA (earnings before interest, taxes, depreciation and amortisation) more than doubled from €11 million to €23 million. By the time 3i sold its investment in 2013, Trescal had specialist calibration and measurement service solutions in more than 150 sites across 16 countries. It had become a truly international business.

As well as providing a springboard for acquisitions, an international presence can provide better opportunities for investors and owners wishing to exit by giving them access to a wider range of buyers.

In 2011, 3i invested in US-German manufacturer Hilite in an all-equity transaction to help the company further exploit its prospects in the fast-growing fuel-efficiency and emissions-reduction engine segment of the automotive industry.By leveraging 3i’s international network, Hilite was able to expand rapidly into China, the fastest growing automotive market in the world, but one which it had very little exposure to.

In May, Hilite was sold to a subsidiary of Aviation Industry Corporation of China, one of the country’s largest industrial conglomerates, in a transaction worth approximately €473 million.

“Mid-sized companies might want to expand internationally, but they don’t always have the bandwidth to focus on it because they’re busy with day-to-day operations,” says Mr Giddins. “We find that they also frequently have concerns about doing so. Finding the right partner, someone with a truly international reach, is about the management of risk. We’re able to reduce that risk and accelerate the journey, so what might previously have looked daunting and hazardous now looks like a great opportunity for growth.”