Photo: from left Gordon Stark, Jonathan Thorne

Murgitroyd has grown to become the largest IP practice in the UK and one of Europe's leading practices, what has been Sovereign's role in this? How does Sovereign help to identify M&A opportunities?

Jonathan Thorne: As a private equity investor, we've got lots of different ways that we help with value creation and growth, but one of the areas we think Sovereign is best in class at, is supporting CEOs like Gordon and his team with buy-and-build strategies. That's partly because of the way we're structured. Quite unusually for a PE firm of our size, we have a research and origination team of around 10 people to help us map markets, build relationships, and make contact with business owners all over the world. As a result, we have a very well developed pipeline of bolt-on opportunities, which Murgitroyd benefits from.

When we invested in Murgitroyd in 2019, we'd already done over five years of work building relationships with potential targets in the market, ranging from 'tuck-in' acquisitions all the way through to transformational game-changing transactions for the sector. I'd describe us as the 'engine room' to help give Murgitroyd that optionality when it comes to making a strategic decision around what they want to acquire.

Murgitroyd had made a number of acquisitions before our involvement, so our partnership with them is a continuation of the strategy the business had already pursued, but with more financial firepower and resources to do some larger deals at greater volume. The pipeline of acquisition opportunities for the business is exciting.

Gordon Stark: The first thing was the scope of ambition in terms of the potential for acquisitions and we really shared a common mindset with Sovereign around the potential for quality, acquisitive growth and the continuation of our strategy. What has changed now, as Jonathan alluded to, is the financial backing, the resource and the focus, which has allowed us to move forward with M&A with greater confidence and with greater ambition. This is represented by the fact that we have since completed two acquisitions in 2021, and one so far in 2022. So, the pace and the scope of our acquisition activity has expanded significantly through our partnership with Sovereign.

Since Sovereign invested, the business has made three add-on acquisitions. What have each of these contributed to the overall Murgitroyd group?

Stark: What we see is a very attractive opportunity to lead consolidation in the sector and to build an IP firm which is predominantly based in Europe, but also is globally connected with an unrivalled capability. Each acquisition we make brings something different to the group. For example, the Hanna Moore + Curley acquisition, which was the first under our partnership with Sovereign, extended our presence in Europe, as they were headquartered in Dublin and, due to Brexit, that was strategically attractive. They also had expertise in key areas that were very much aligned to our own clients in terms of how we serve them, and where they are based. Further, UDL and Creation IP have brought strategic capabilities, specifically more strategic depth and technical expertise.

Thorne: UDL was a landmark transaction in the sector because it's a firm with a long heritage of over 100 years and, importantly, it was a partnership. We are very proud that the UDL team decided to become part of Murgitroyd, and we've helped to create a blueprint for unlocking partnership transactions, which is important given many of the businesses in the sector are currently structured this way.

How has Sovereign worked with Murgitroyd's management team to ensure the successful integration of the three add-on businesses?

Thorne: We have some best practice frameworks around what good integration looks like, which ranges from high-level strategic thinking on why we’re doing a deal, what makes it successful, through to more granular items in and around the 100-day plan, the timing and approach to integration, etc, which we support our management teams with.

In the Murgitroyd instance, the business is probably the most sophisticated team I've worked with around M&A, so they're very well versed in this and they know what they’re doing with regard to integration. Clearly, this is about building a market-leading and integrated business, not a set of acquired businesses that aren't cohesive. We look to ensure the group is entirely strategically aligned in what it’s trying to achieve and around that, I think the most important thing is that the integration is bespoke and tailored.

A good example is the acquisition of Creation IP, which the business has absorbed very quickly into its Glasgow office. The larger businesses, UDL and HMC, both have their own bespoke integration plans, depending on the people, the clients and the systems of those businesses. It can't be a cookie-cutter approach. It's got to be bespoke to the specific deal.

In addition, what we find is that every acquired business tends to ask: What is the relationship with the investor like? And, are they supportive as part of the growth journey? Whilst post-transaction we won't have day-to-day responsibility for working with that acquired business, they quite rightly want to know how Sovereign supports the wider group.

Stark: When it comes to integration the end point is that we want to operate the business as a single entity, so we look to achieve full integration. To get there, the initial focus is around culture, and really supporting people in the transition from one business into the broader combined group – a good cultural fit is key. Areas such as systems integration and the tools that they use to complete their work is considered further down the line. We really do place a focus and an emphasis in the early stages post completion on cultural integration and making sure people understand the business they’re part of, what the opportunities are for them within that and making sure that they can see a clear and exciting career path within the broader business.

What are the key challenges that can arise during a buy-and-build process like this one?

Stark: One of the key things is that we're looking to buy high quality, successful businesses, which can add to what we already have. And of course, that can bring with it strong and successful people who have built those businesses. So, supporting them through the transition as they move from business leaders into the broader business and define their place and how they can contribute in this new environment. I think that's one of the key areas that can be a challenge for firms without experience in integrating businesses to a broader group.

Thorne: For Murgitroyd, the multiple years of buy-and-build research that we've done in the sector mean we have hundreds of ongoing conversations and relationships across the UK and Europe. This is extremely beneficial, as just because we pick up the phone, it doesn’t mean someone will want to sell to Murgitroyd today. For all parties, the cultural fit, timing and terms needs to be right. Unlocking a deal relies on trusted and well developed relationships, all of which is critical to our buy-and-build model.