Inspired by his visit to the go-karting track, Lawford pursued the transaction seriously. In the summer of 2017, he and his team started discussions with Connection Capital, a private equity firm which specialises in small transactions with enterprise values of about £10 million. Connection Capital supported Gaynor’s management buyout in 2012. The business at the time was on track to reach a turnover in excess of £20 million during 2017.
Connection Capital started an auction process and five private equity sponsors provided an initial bid. However, Gaynor, who was the largest shareholder in the business with a 30% stake, decided to negotiate only with Duke Street and one other private equity firm. He liked that Duke Street had a very good experience with multi-site leisure businesses. Indeed, this experience helped Duke Street front-run the auction process and offer a deal before the other competing private equity firm managed to submit its final offer. This was possible because Duke Street was already familiar with the business. In the summer of 2016, Lawford was introduced to Gaynor and tried to buy the business. However, Gaynor wanted to open a few more tracks before considering a transaction.
In November 2017, Duke Street offered £42 million for the business, conditional on the completion of due diligence in three weeks. The business had a £19 million loan on its balance sheet and the fees to close the transaction were expected to be approximately £2.5 million. The accountants also mentioned in a discussion that the company would likely have about £700,000 in cash balance at the time of closing. After a couple of discussions with some debt providers, Lawford decided to fund the transaction with a unitranche loan of £12 million.
Gaynor was convinced by Duke Street’s determination to buy the business and understanding of the seasonal revenue variance. Together with Connection Capital, he accepted the deal. As part of the agreement, he cashed out 50% and rolled over the remaining 50% of his stake in the company.
Post-deal, Duke Street implemented several layers of operational and strategic changes, which range from cost-cutting and improving sales force effectiveness to roll-out strategies involving consolidations in fragmented sub-sectors and international expansion.
Today, TeamSport is in the midst of Duke Street’s growth strategy, which, with a revamped marketing and booking process, has three dimensions – open more tracks, at a rate of up to six a year until 2021; improve existing tracks (consultants have calculated that a £200,000 investment at certain sites can generate £100,000 of incremental earnings) and expand the UK success in the fragmented German and Dutch karting markets.
TeamSport has been through a rigorous process at Duke Street. The firm looks at 250 potential deals annually. Only 30 reach the nine-month long due diligence stage. Out of these, every year about seven deals are discussed in the investment committee with investments in a maximum of three deals, which are held typically for four years.
The ingredients are all there for TeamSport to be a success – Lawford and Almond’s team will support management, but ultimately it will be up to them to deliver on the firm’s potential.