Watertrain and Neil Davies
(Interviewed and Written by David Oliver)
Selling his business successfully in 2022 Neil Davies was able to start a long anticipated planned retirement, in the knowledge that he was financially secure for the long haul.
But it all started nearly two decades earlier with an unexpected knock on the door.
The journey began in 2000 when Neil was appointed Chief Executive of an engineering apprenticeship business called TTE Training, in Ellesmere Port Cheshire. Neil’s immediate priority was to relocate the TTE facilities to new premises and then to develop the wider business. Locally, West Cheshire College also delivered engineering apprenticeships and training. This facility was managed by Paul Bartlett. Neil headhunted Paul to add another dimension to the TTE business.
Neil headhunted Paul Buckley from West Cheshire College and together with their joint experience, and Paul’s extensive network of contacts, they grew the business.
A knock on the door
In early 2007 there was a knock on the door! Glenn Jackson a specialist in the water industry had taken an early retirement package from his role as Training Manager at United Utilities and was wanting to offer consultancy services to TTE. Paul and Neil knew very little about the water sector, but the opportunity was clear, and there was a swathe of government funding supporting the development and utilisation of apprenticeships. Seeing the opportunity and the potential within it, Neil suggested to Glenn that he work on an income share of all the water related training work that he could secure. So, on the 17th of October 2007 Watertrain training was incorporated and branded.
Engineering apprentices at the time had technical certification for the academic side of their training and NVQ’s for the practical ‘hands on’ dimension. Working with the Sector Skills Council, TTE Training together with a provider called Utilise TDS helped with the development of the required NVQs and Bolton College assisted with the development of the academic certification.
A change of fortune
Prior to this development, and in parallel with it, Neil’s task as Chief Executive was to do a turnaround on the TTE business. TTE was owned by a consortium of companies including ICI Chlor Chemicals (now INEOS Chlor), Shell Stanlow and Innospec. In the early days Neil was reporting to a board of non-executive directors, mainly engineers, who were practically focussed rather than commercially driven. These directors were appointed by the member companies. There were three leading directors who worked with Neil, who were highly supportive and appreciative of his achievements.
At the time of Neil’s appointment TTE was running at a loss to the tune of £250k annually. Over the next few years Neil grew the business and importantly turned the £250k loss into a £300k profit, a remarkable achievement that unexpectedly was to cost him dearly. Part of Neil’s package was a 25% share of the profit above an agreed threshold.
The original and very supportive directors had moved on, and were replaced by new directors who had no commercial experience, no training experience, and no engagement with the history of loss making at TTE. Neil was very defensive of TTE Training; its values, its reputation and its achievements and began to experience tensions between his own vision and that of the newly appointed directors. This was likely exacerbated by the reality that Neil’s contractually agreed profit share, exceeded the remuneration of the other directors. Inevitably some internal tensions arose.
In May 2008, Neil went on holiday and came back to discover he was being suspended! He was placed on garden leave, which ended up lasting some 20 months, during which time the business went downhill, and government began to claw back funds for underperformance. Without Neil’s financial acumen and process competence, the business got into a financial pickle, so much so that they couldn’t afford to pay the contractual amounts due to Neil. So as part of a settlement agreement Neil acquired the Watertrain business.
During his garden leave Neil had been busy formulating plans and making contacts so in February 2010 together with Paul Bartlett, Neil began to grow Watertrain primarily by securing apprenticeship funding as a sub-contractor to various Further Education colleges. Initially the ownership of Watertrain was to be split. Neil and Watertrain had agreed a Memorandum of Understanding between Watertrain, Bolton College and Utilise TDS where each would own a 1/3 share in Watetrain, subject to the signing of a mutually agreed Shareholders Agreement. This was concluded with Bolton College but in the meantime, Utilise TDS had gone into liquidation.
In December 2013, Neil and Paul bought out Bolton College which resulted in Neil holding 75% and Paul 25%.
During this period the business grew rapidly, and grew well, with a reputation for excellence in the training provided, and in outstanding apprenticeship outcomes.
Insights
We made a mistake! We should have stopped much sooner.
Given the established reputation for excellence in delivering apprenticeship training, Bolton College asked Watertrain to take over the sub-contracts with two other training providers who were not performing. This would mean taking on additional apprenticeships in other sectors.
Watertrain were outstanding in the water sector, with a market share of around 90%. The Adult Learning Inspectorate awarded a Grade 1 with a score making TTE the best engineering apprenticeship provider in the country, even beating the likes of BMW.
In Neil’s mind was the thought that, ‘we are great at this so why can’t we be equally good in other sectors?’
For a variety of reasons this turned out to be a pretty disastrous transition. They very quickly found that in different sectors, and in different parts of the country, there were different attitudes, different cultures and different values around apprenticeship training. In Neil’s words, ‘we should have stopped it much sooner than we did. It became clear very quickly that these additional opportunities whilst flattering and potentially good ‘on paper’ were a distraction. There was a drag on the main business; a loss of resource, loss of money, and the distraction of very good people spending high value time working on projects destined for poor outcomes.’
Exploring exit the wrong way with the wrong partner
There were several reasons for Neil and Paul to begin contemplating exit. Neil’s daughter Keri had joined Watertrain at the back end of 2010, and both Paul and Neil wanted Keri and the wider business to have better opportunities, and the potential to pursue more solid growth and secure future prosperity. Secondly there was a natural ageing process. Already in their early 60’s both Paul and Neil had dropped their working commitments to two or three days a week. They were thinking seriously of the new horizons that retirement would bring them both.
With Watertrain’s achievement of an 80% share of the UK water market, the company needed business development, but there was neither the appetite nor the business development capacity in-house, that could grow the business to its full potential. So a consultancy firm that specialised in the training sector, was tasked with finding potential acquirers.
It was a poor choice for two main reasons. Firstly, this consultancy was primarily driven by getting the transaction done and their whole ethos in offering training companies for sale, was based on a multiple of income. It became clear this focus was limiting and unproductive. Secondly, being sector specific was very limiting in terms of finding potential acquirers. Ultimately Watertrain was to sell to a company completely unknown to either Neil or Paul, and also outside of their sector!
Covid and the silver lining
In the middle of this process Covid arrived, and the consultancy company’s activity ground to a halt. But for Neil, Covid was to hold several positive surprise outcomes. In terms of appetite for retirement and exit, Neil looks back and sees that Covid changed his thinking.
Neil summarises the experience; ‘Covid taught me in a very profound way the value of life and the value of experiences with friends and family. I no longer had much of an appetite to continue working in the business’
At the same time the business got unexpectedly transformed. We can all remember the shock of the first Covid shutdown, both at a personal level and a corporate level. The water industry was no exception. Everyone knew that the on-going training of apprentices was mission critical and must continue somehow; and yet no-one knew how!
In a very short space of time, using their newly discovered experience of Zoom and Teams, Watertrain developed an online training competence and capability. Apprenticeship training could continue and Watertrain was able to secure its income pipeline and develop new capacity.
Covid was a big wake-up call for lots of business. In the water sector particularly so, lots of people took early retirement leaving companies with no choice but to start recruiting larger numbers than in previous years. Very good news for an apprenticeship provider. Watertrain also won new tenders with big players like Southern Water and Thames Water. So it was time to contemplate exit in earnest, not least because of the additional and now visible upside.
As Neil puts it, ‘coming out of Covid was good for us good for the decision to sell and good for the ultimate sale outcome’
Neil had previously sold two other business and from that experience he knew Paul and he didn’t need to rush for early offers. They knew that they could wait for the right acquirer. They also knew that it was important that they found a choice of acquirers, to enable them to make the right final decision; a decision they could both live comfortably with.
The Green button why press it with Kingsbrook?
Neil had deduced that the previous attempt to find a buyer was flawed, with a consultancy firm focussed on a low valuation, based on multiples of training income, rather than looking for the best value.
Neil had been to a Kingsbrook public seminar and had discovered the Kingsbrook model of multiple acquirers with a heavy emphasis on future value and not past multiples. In Neil’s mind, following Covid, they needed to wait for the uplift potential to be proven, and in the course of this waiting he met Chris Taylor from Kingsbrook.
Neil described the decision-making process this way. ‘I found Chris a highly professional salesman, and in a sense his job was to get me over the line. I liked what I heard, and I had a desire to believe that what Chris promised me would be matched by the reality in the Kingsbrook process. It was mission critical to me that I should meet the key person actually responsible for taking the sale process forward. When I met Luke Rebbettes the deal leader, I was confident that there was substance and process behind the promise.
The final acquirer
Neil and Paul were faced with multiple choices of potential acquirer and the company they chose was RSK. Neil explains his choice of acquirer ‘We chose RSK not because they were going to pay the highest amount! Yes, finance was important, but it wasn’t the main driver for either of us. We looked at their acquisitive style, their international reach their commitment to environment and water, and we believed this acquirer was going to offer the best possible future for Watertrain, for the staff and their career opportunities and for my daughter Keri who would become MD in a great company.’
Having a choice was important for both Neil and Paul. They were not hung up on the financial benefit. In fact, there were two other acquirers where they could have leveraged quite a bit more cash for the business. But what was more important to them both, was the potential for the business to grow in safe hands. And in that future growth for new horizons of opportunity to be opened for the staff and for the business. The two potential acquirers that could have offered more in financial terms, added no real value to Watertrain as a business or its potential for future growth. Speaking of the successful acquirer RSK, Neil says,
‘We couldn’t find a better fit, so it was the best home for the business and the person leading the acquisition was also a good personal and cultural fit in the business.’
Life Post-sale
Every business owner that sells has a slightly different experience of the post-sale moment. For Neil he said one of the most gratifying things was the first look at the screenshot of the bank balance; and the accompanying sensation of freedom that comes with complete confidence in a secure financial future.
For both Neil and Paul their business exit has given them a secure and comfortable retirement without needing to work again. Neil makes the point with a wry smile; ‘many people have told me that once you sell your business you won’t switch off, you won’t let go, you will find yourself wanting to go back to work. In reality he said, the reverse is true, I’ve not given the business a single moments thought’
Neil’s an avid golfer and what also helps is that he has a building project at home which is fully underway. The project is all consuming, he’s enjoying it and finds it a great joy. It must help a bit that the project includes a state-of-the-art golf simulator. That too brings a big smile to his face.
An achievement very few business owners achieve
‘You’ve done in life what very few other business owners do’
Reading up on other business exits, Neil remarks on the fact that not many business owners are successful in selling their business and getting off the business owners’ treadmill.
Neil reflects, ‘My accountant called us and said congratulations you have done what very few business owners ever get to do. You have managed to sell your business and come out of the process with good money.’ Neil continues, ‘I’ve come to call it the doom cycle. If you are a business owner, you either shut up shop or you keep going but you’re in a cycle of doom with no clear and positive way out.’
No surprise then, that Neil has no regrets, and is utterly confident that he’s done the right thing.
