10 minutes with... RJD Partners

1minutes with… RJD Partners

Private equity firm RJD Partners recently bankrolled the management buyout of Improve International, a provider of training to the veterinary sector. Partner Frank Bulman discusses the deal and the impact of Covid-19 on his fund’s other education and training assets

First, tell us about the origins of your buyout house, RJD Partners, and its investments to date RJD was founded in 2002 and has raised three institutional buyout funds investing in over 20 private mid-market UK businesses. We focus on specific niches within the broader services space and education and training has been a key focus area for us over a number of years, particularly so in our current fund. We have strong experience and expertise of different delivery models in the sector and have built up a wealth of contacts, which makes us a logical investment partner to consider for transaction sizes between £10 million and £50 million.

RJD owns a language-training and educational travel provider, Voyager, as well as Babington, an apprenticeship provider. Could you set out the impact of the coronavirus pandemic on these companies’ operations – and how they have adapted to meet the shifting demands and needs of learners? Voyager has not been able to run its language and other educational programmes since mid-March because of the now withdrawn FCO guidance to avoid overseas travel, as well as the ongoing government advice that schools should not run overnight trips or programmes. This is a huge pity for the pupils that will miss out on this educational experience on top of the lost classroom time in 2020. In terms of 2021, Voyager’s customers see their programmes as an integral part of their academic year, so many have already rebooked for 2021. In the meantime, the company has supported its schools’ home-schooling programmes through launching products like its virtual foreign-language escape room.

Since our investment in Babington it has invested heavily in its online/blended learning proposition, which has meant that the majority of learning has continued remotely while centres have been closed. The employability side of the business has been impacted by the lockdown restrictions as the majority of learning takes place face-to-face, but is working to move much of this online and we believe the division will be in a position to work with the various government agencies involved in addressing the unfortunate but likely rise in unemployment resultingfrom the crisis. The government’s agenda remains to grow the number of apprentices in the UK and Babington is well set up to deliver this training going forward.

RJD recently closed its acquisition of Improve International, a provider of professional development training to the veterinary sector. Amid the Covid-19 outbreak, which has prevented in-person instruction for several months and could continue to do so for some time, what attracted your fund to this business? Improve is a market-leading provider of continuing education to veterinary professionals both in the UK and overseas. The global veterinary services market is supported by strong longterm growth drivers underpinned by increasing consumer spend on companion animals. As a market leader in a growing market where there is strongdemand from vets to upskill through postgraduate qualifications, we believe Improve to be a very attractive investment proposition. Improve delivers both fully online and face-to-face modular programmes and the pandemic has unsurprisingly impeded the face-to-face delivery side of the business. Classroom learning has largely been delivered through the use of video technologies while practical training has been postponed until next month when it will resume with appropriate

social distancing measures and the use of PPE. We believe this combination of options and the flexibility afforded by its modular programmes will allow Improve to continue to deliver the rich and innovative educational experience that delegates are looking for through an ongoing period of uncertainty.

What percentage of Improve International’s revenues are currently derived from distance learning? And, do you expect this income stream to increase permanently as a result of Covid-19? Without going into too much detail, fully online programmes currently represent less than 15% of revenue, but weexpect this to increase permanently moving forwards. Delegates are becoming more comfortable with online delivery with some seeing the time and cost savings benefits, particularly if they are travelling from abroad, outweighing the perceived benefits of face-to-face teaching and physical interaction with other students. In the future it really will come down to personal preference and Improve is able to offer its customers both options.

What does the investment thesis underpinning RJD’s buyout of Improve International look like? Will you seek to grow the business organically, or target a roll-up of competitors – or perhaps a combination of both? We focus on making investments in companies with a growth agenda and Improve has good organic growth potential from further penetration of its existing geographical markets as well as more course development and uptake of its distance learning products. We also have capital set aside to support targeted acquisitions that bringsomething new into the group – whether it be access to a new geographical market or an addition to its product portfolio.

Given that private equity is renowned for its ability to improve the margins of businesses it acquires, often by eradicating inefficiencies (and sometimes jobs), how will RJD look to improve the profitability of Improve International? RJD Partners is a growth investor and it has backed Improve International to grow its EBITDA in absolute rather than percentage terms. We hope to achieve this objective through revenue growth which will require additional cost being invested in the business, particularly into the distance learning product portfolio. Once the initial investment is made into the product content and format, distance learning programmes can in time be more profitable than face-to-face ones and, if the Improve course mix changes consequently over time, this could ultimately have a positive impact on its profitability. How is RJD navigating the ‘new normal’ in the world of leveraged buyouts? Clearly Covid-19 has introduced new challenges into investing – both practical ones and because of the uncertain future trading environment. RJD is delighted to have supported the Improve transaction while this has been going on, but we did have the benefit of knowing the business and the management team well prior to the advent of the crisis. This will not be the case with most new investment opportunities, but as physical restrictions ease we expect more activity. Inevitably we wanted to make sure that Improve was very well capitalised to allow it to navigate through an extended period of trading uncertainty during the pandemic, so the transaction was financed without the use of any debt. This is likely to be the case with most private equity transactions currently being funded as lenders and debt investors focus on supporting their portfolio companies.

In the wake of the pandemic, do you think private equity’s role in the education and training sector will change at all? If so, in what ways? The education and training sector is a very popular sector with private equity investors because many business models are supported by helpful market trends and tend to have a high quality of earnings in terms of revenue visibility, robust margins and cash generation. So I think investment interest will remain strong, but could become more weighted towards transactions which either are required to provide balance sheet support through a period of uncertainty or to accelerate the development of a business, for example through the support of new distancing learning programmes and technologies.

It seems that many private equity-owned companies will have found it difficult – and sometimes impossible – to service the substantial debts on their balance sheets as income has waned and, as a result, could emerge from the pandemic worse-off than publicly- and familyowned counterparts. Do you think this period of disruption, in which revenue visibility has in some cases become limited, has the potential to – and should – bring down the amount of leverage (debt) used in private equity-backed buyouts? Generally when there is a severe economic shock leverage levels used to fund transactions decline as lenders become more focused on their portfolio than winning new business. I would not expect this crisis to be any different. I would say though that in general education and training sector companies have robust business models and while interest rates remain at their current levels both higher coupon debt financing and private equity investors will want to remain exposed to the sector. n