SME profile Kinetics is the result of an unlikely marriage between social housing and turbo capitalism
For a £120m-turnover firm with bags of private equity cash, Kinetics’ office is a surprisingly modest three-storey, grey stack, somewhat reminiscent of a seventies job centre, writes Andrew Hankinson.
Chris Cheshire, Kinetics’ chief executive, explains the thinking behind that. “In my formative days of company rescue somebody told me, ‘Don’t have personalised number plates, don’t have flagpoles and don’t have big shiny office blocks’. They signal you don’t have control of costs.”
Perhaps it is appropriate, then, that it is the non-sexy end of the market where the South London-based firm makes its money. Kinetics was formed through the acquisition of 19 social housing repair and maintenance and facilities management businesses over four years, and its clients include the large housing associations, local authorities and the Ministry of Defence. The whole thing was rebranded Kinetics last January “We do everything from tap washers to tower block refurbishments,” says Cheshire.
Formed in 2006, the firm has backing from private equity firm Sovereign, which means it has been able to take advantage of the recession.
It has 22 UK bases, but its big priority is expansion – 20% per year organically (achieved twice so far) and the rest by means of more rapid acquisitions, which is where Sovereign comes in.
“It gave me a war chest of £50m,” says Cheshire. “A team of ‘prospectors’ then rang round to find targets. If there was interest to sell and it stacked up, I engaged the target. It’s a sausage machine when you get it right, and we did the first six in 18 months.”
Essex-born Cheshire, 48, made his reputation fixing struggling companies, which is how he got involved with Kinetics. Having taken a firm called Hudson Engineering through administration on behalf of a bank and put his own money into it, he was approached by Sovereign in 2005.
“I had a chat in their offices in Victoria [London],” he says. “It was semi-daunting. They’re all Harvard this and Enfield that – some fairly bright boys. A lot might not be able to run the business they own, but they know the nuts and bolts, so you’ve got to be certain of what you’re talking about.
“After that we had a year of kissing frogs, because we wanted to meet some more potential backers, so I used contacts and schoolfriends who went to work in the City. But Sovereign was different. It had experience of the sector and understood the problems in it, so we danced around for a year and shook hands in 2006.”
Hudson was merged with the gas and construction operations of another firm and renamed Kinetics; Sovereign took an 80% holding and Cheshire and 10 others kept the remaining 20%. Now Cheshire plans to expand to a turnover of £150m (“£200m if the right contracts come along”), and predicts that there will be an imminent “wave of insolvencies” that will provide acquisition opportunities.
“As soon as you hit recession everyone looks for the safe market of social housing,” he says, “and they head for maintenance. They don’t do it very well, but clients run towards them because they’re offering very low, unrealistic prices because they don’t understand the market.
“We all get squeezed, hence some of the big boys have taken a bashing, but I don’t chase the market. We stayed just above that layer of scrapping and as contracts failed because firms went in too low, the clients came back and said they need a better service. It is difficult to win big capital projects, but one thing you can’t cut is maintenance.”
Cheshire expects Sovereign to sell up in 2012, unless a big offer comes in earlier. After that he may stay or not, taking with him treble the “substantial six-figure” sum he invested at the start.
“It’s hard but if you get the right venture capitalist it is worth talking to them. I’ve met some since who say their typical deal size is €200m (£174m). But you’ve got to pay that back and convince your clients you’re not bankrupt because of all the money you owe. The knack is not being lured by the glittery cash and glass towers.”
Kinetics in numbers
2006 Year Kinetics was formed
£120m Turnover forecast in year to June 2010
£6.7m Pre-tax profit forecast in year to June 2010
19 Number of acquisitions so far
1,633 People on the payroll
0 Number of private registration plates