Endless 5th anniversary promotion: The partnership that represents the best of the city

INTRODUCTION

Some of Yorkshire's most pre-eminent professionals were sitting around a table at an office inside the Yorkshire Post's imposing headquarters in Leeds. The distinguished group included top lawyers, bankers and accountants as well as senior journalists from Yorkshire's national newspaper.

They were debating the shortlist for the Yorkshire Post Excellence in Business Awards 2008 and in particular, the Young Business of the Year category. There were three candidates on the shortlist, but it was clear there could be only one winner. It was Endless. The judges agreed unanimously that it had to win. "It's what Leeds is all about," said one.

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In many ways, Endless does represent the best of Leeds, projecting a strong, successful and entrepreneurial image of the city to the rest of the world. It hasn't been easy, though.

"Running and owning your own business is totally absorbing," said Darren Forshaw, a founding partner. "I don't think anyone who hasn't done it can appreciate the level of stress it causes, particularly in the early years. It's impossible to switch off and your life revolves around thinking about how to develop, improve and defend your business against all of the pressures that come."

The nature of turnaround work brings difficulties of its own. Garry Wilson, the managing partner, said: "Doing turnaround is very tough. You're trying to pull a business back from the brink. Doing that in a recession or very uncertain climate as we are in at the minute can be even more difficult than normal.

"Sometimes there is a naive view that a recession is good time to be in turnaround. There's no doubt that our deal flow has rocketed since the onset of the economic crisis but the number of attractive investment opportunities has fallen because they are so broken or perhaps because the banks want a price that makes it unviable for us to invest."

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The overriding principle of turnaround work is that it cannot be done on a shoestring budget, according to Mr Forshaw. He said: "You have to have the confidence to invest in a business and provide cash headroom at the start.

"In the early days we tried to limit the amount of capital we invested – that's natural for any private equity house because you are always judged on your return. You run the risk of ending up with a failed investment if you don't have enough confidence to put the proper amount of headroom in at the start."

Once the investment decision has been made, the next step is to bring stability to the business by making sure the company has the right cash management systems in place and getting the right management team in place. The next phase is value creation, which usually takes place after six to 12 months. Using retail as an example, this could involve the roll out of new stores, buying better, merchandising stores better, investing in infrastructure, potentially relocating the head office, looking at surplus assets and how to better utilise or dispose of those.

It does not involve asset stripping, said Mr Forshaw. He said: "It would be very difficult for Endless to go into an investment case based on assets being sold for a profit to the detriment of the business itself. At the end of the day, we are very proud of the record we have got on saving jobs. We have saved more than 10,000 jobs."

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The team will be busy for the foreseeable future. Mr Wilson said: "Part of me thinks the UK has not experienced the recession yet. We have been protected by quantitative easing and low interest rates and other Government help.

"The other part of me is pleasantly surprised by the way that UK business has reacted to this climate. The overriding thing that concerns me is the difficulty in the Eurozone. There is still a lingering fear of system failure and the impact that can have on business confidence is huge.

"I have a fundamental belief that if business people want to do business and they want to make profits they will find different ways around this problem as we have done in the last two years. Necessity is the mother of invention."

He paid tribute to his team at Endless, across the firm's offices in Leeds, Manchester, Birmingham and London. He said: "Having a strong team of around 25 people and being able to mobilise that team any time we want to do a deal fundamentally has been why Endless has been successful and has been able to continue to grow. We are a very small but tightly knit team and we spend time together on a daily basis. They find Endless an exciting place to work. They all love what they do. They have got fire in their belly."

THE INVESTORS

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Absolute conviction in the eyes of Garry Wilson and Darren Forshaw convinced property investor David Newett to back their fledgling turnaround fund with tens of millions of pounds. Five years on, that judgment call has helped to deliver market-leading returns and save thousands of jobs.

Mr Newett is a self-taught property investor who, through a series of well-timed investments, has become one of Yorkshire's most successful businessmen. The 51-year-old is publicity shy, but has decided to speak about his support for Endless on the fifth anniversary of the Leeds-based turnaround firm.

He said: "I first met Garry while he was at Ernst & Young and he became my adviser on a number of projects that included business turnarounds as well as property investing. In general these investments turned out to be highly successful.

"Garry presented the concept of a new turnaround fund to me in October 2005 and I was instantly intrigued and keen to support it – I think the negotiation on the funding took us less than 10 minutes. It was clear to me that this was something that nobody else was doing but that there was a strong market need for it and that Garry and Darren could deliver it."

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He added: "I had seen them in action on the deals we had worked on together and knew their qualities and motivation. It takes a lot for senior people to walk away from a comfortable position at a Big Four accountancy firm and yet they were prepared to do it and had absolute conviction in their eyes. We also got on very well and I felt that we already had a strong relationship built on trust, which is vital for any partnership."

Mr Newett, who is based in Wetherby, said he was "immensely proud" of the Endless team's achievements over the past five years. The firm has made 34 investments and has 17 businesses in its portfolio. He added: "The investments we have made have saved thousands of jobs and rescued good businesses from closure. Making good economic returns as well as seeing the social benefits of our investments is very rewarding and reflects the hard work and dedication that all of the team continually give."

Asked about the economic outlook for next year, Mr Newett said: "Personally, I remain very cautious and expect that the benign economic environment will continue for some time. This, however, does not deter me from investing and I expect that the next few years will represent a good time to be putting funds to use in both businesses and properties, selectively though. It is very much a time to pick your opportunities carefully."

Jakub Crhonek is the cornerstone investor for the second Endless fund. The Czech fund manager was working at HRJ Capital, a California-based fund of funds co-founded by three American football stars, when he read about Endless.

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He was looking for European turnaround investment opportunities and visited the Leeds office in 2007 to find out more. He was impressed by the fact the office was full of Endless logos, despite only having invested a relatively small amount of equity by that point. He said: "I found it very charming because I really felt there was this energy and confidence and huge plans."

He agreed to invest and introduced to Endless some other investors, who in turn agreed to invest. Mr Crhonek, 33, said he preferred turnaround investments to traditional private equity-backed management buyouts.

"We think backing hands-on in companies makes sense and makes money. Hands-off buyouts are difficult to understand. My grandmother does not understand why buyouts make money, but she understands if you buy something that is broken and not working very well and you put people into the company and make it better then the company runs better and is more efficient. That makes sense. That's what private equity should be about and used to be about – people doing things to a company and not using much leverage. Work should always make money, rather than money making money."

Mr Crhonek left HRJ to form Clearsight, a Zurich-based dedicated fund of funds to back teams like Endless, which back hands-on turnaround teams. He said: "We only have a vehicle but a lot of money is our own money. We want to sleep well at night. If teams are hands-on inside companies, we sleep much better."

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Mr Crhonek contrasted the approach of Endless to London-based rivals. He said: "They think of themselves as workers and service providers. They provide services to broken companies. They do not think of themselves as big financiers. They think of themselves as hard-working guys that fix problems at broken companies. I find that attitude refreshing. How can the flashy financiers of London really have a good relationship with those small and mid market companies that are broken? I have always thought that does not work. I think these are the right guys for the job."

He dismissed the perception that a financial crisis is good for turnaround specialists. On the contrary, he said, the operational environment is tough, with customers and suppliers often having problems and banks unwilling to lend.

He added: "Perhaps you can buy companies cheaper than in great times, but you have to work much harder now. Everything is harder."

Asked how he saw the economic prospects for Europe, he said: "Most countries still have not paid for the excesses of the past. We will have a prolonged sideways environment in Europe."

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But he predicted that it would take less time for the UK to work through its problems than countries like Spain.

THE LEGACY

It's a catchphrase that sums up the man and his legacy.

Every time somebody in the Endless team uses the word "awesome" they are remembering Phil Tate, their colleague who died tragically, aged 32, while on holiday in the French Alps in 2008.

Mr Tate, who was a founding member of the Endless team, would say "awesome" whenever he wanted to show his enthusiasm for a potential deal.

The former Leeds Grammar School pupil was an investment director at Endless from January 2006 until his death, and played a key role in helping to establish the firm and its early successes.

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Before joining Endless, he had worked as a senior manager at Ernst & Young and Arthur Andersen. Darren Forshaw, a co-founder of Endless, said: "Phil played an important part in the foundation of Endless and was the first to join once we had set up the business.

"I remember him being excited by the entrepreneurial nature of what we were launching, which is something he had always wanted to do.

"Never one to shy away from a tough task, Phil was definitely one to work hard and play hard, which gained him a lot of respect and also a lot of friends. He will always be remembered at Endless and his photos continue to adorn the office – he's never far from our thoughts.

"Phil's accident in March 2008 happened just after he had helped Endless raise its first institutional fund.

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"The new fund was a cause for great celebration, but, unfortunately, the darkest days in our short history soon followed with the terrible news of Phil's accident.

"Shortly after his passing, we collated a book of the messages we had received from the local business community, which include some of the following: 'It was a pleasure to work and spend time with Phil, someone who represents the best of Yorkshire..I consider myself fortunate to have known Phil...I will miss Phil's approach to life and his boundless energy.' We continue to have Phil's picture on our team page on the website, which I guess sums up how big a part of our business he was."

Garry Wilson, the managing partner of Endless, added: "We keep in regular contact with Phil's family. Those who knew Phil might like to know that his brother Paul and sister-in-law Natalie recently had a baby boy and named him Henry Philip Tate."THE INSPIRATION

THE collapse of Arthur Andersen following the Enron scandal in the United States was traumatic for many of its employees. It had a particularly profound effect on Garry Wilson and Darren Forshaw, who worked in the accountancy firm's Leeds office.

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Mr Wilson, a newly-qualified partner, had believed that large firms offered a secure environment. The destruction of Andersens in 2002 changed all that. Mr Forshaw, his most talented team member, witnessed the devastating effect that the collapse had on colleagues.

They worked in the restructuring team, which moved en masse to Ernst & Young, one of the remaining Big Four firms. Mr Wilson's faith was shaken further by the legal action against his employer by Equitable Life. The Irishman, who grew up in Belfast during the Troubles, resolved to do something else and take control of his own destiny. Mr Forshaw was thinking about his future too. E&Y was a good home, he said, "but it was never like your first girlfriend".

Mr Wilson's expertise was with helping private equity firms deal with under-performing investments, but he struggled though to find anyone interested in investing in turnaround opportunities and realised there was a gap in the market.

The private equity industry was booming and everyone else was interested in doing big deals with lots of bank debt, based on the assumption that double-digit growth would go on and on. Mr Wilson started to see some of those over-leveraged deals hit the buffers. The market was coming under pressure.

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He was in the process of selling a business and had found a buyer when he took a call from Walker Morris, the law firm, to say a client was interested in buying the company.

The client, a businessman called David Newett, made a better offer and a deal was quickly struck. "If that's how you do business I might have a few other opportunities for you," Mr Wilson told him. They got to know each other.

The presence of a gap in the market, some tell-tale signs of pressure and a potentially willing investor had combined to create the perfect opportunity for a turnaround fund.

In October, he visited Mr Newett's office, clutching an A4 sheet of paper. It was a proposal to set up Endless and a request for funding. "That looks great, why don't we do it?" said Mr Newett.

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Two months later, Mr Wilson and Mr Forshaw launched their first fund with 110m in debt and equity. Endless LLP opened for business on December 19, 2005, with Mr Wilson and Mr Forshaw as partners and Phil Tate as investment director.

Their first investment was Speedframe, a loss-making window manufacturer in Barnsley. Endless bought it for a nominal sum and put in a 5m working capital facility.

The business came back to life and into profit, but was hit hard by the sudden paralysis in the housebuilding market caused by the failure of Lehman Brothers.

"The business turned around, but unfortunately it turned around twice, not just once," said Mr Wilson.

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Endless sold Speedframe without a loss, but with no return on investment.

Other deals followed, creating a buzz around Endless in the market. There was lots of activity that in turn created more activity. The business was off to a flying start and the economy was still strong.

They hired more people, including a chairman, Peter Yendell, a former partner at 3i, who brought with him traditional private equity experience.

A difficult time came in spring 2006. One of the acquisitions, a copper fittings manufacturer called IBP, was in crisis following a sharp hike in raw material prices. At the same time, the team was negotiating to buy its then biggest investment, the retail supplier, Peter Black.

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Mr Newett held firm and backed Endless with both investments. The turnaround firm sold IBP later that year and Peter Black in August 2007 for a 30m return on investment. It was a valuable learning experience for the team and it made sure the first fund was a success. It also gave Endless a taste for the bigger deals and created the appetite for a second fund, backed by institutional investors.

Meanwhile, on the other side of the world, a fund manager at California-based HRJ Capital had read about the success of Endless and wanted to meet the team. In 2007, Jakub Crhonek was looking for turnaround investment opportunities in Europe. He met with the partners, was impressed by their vision and arranged for them to meet with some more investors in the States. Endless soon had 15 backers, including 12 institutional investors, and in February 2008 launched fund two, which amounted to 164m.

The partnership is now halfway through that fund, with investments in companies including The Works, Crown Parks and Vasanta, and has its sights set on a third, of around 250m, which it will raise towards the end of next year.

Endless has made 34 investments to date, of which the majority – "the high 20s" – have been successful, said Mr Wilson. Most have been manufacturing, engineering and retail businesses in the North of England. Endless currently has 17 companies in its portfolio.

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The first Endless fund, a 110m mix of bank debt and equity, has delivered three times return on equity, said Mr Forshaw. Endless is three years into fund two, which has a five-year investment period and a five-year realisation period. The team expects market-leading returns for fund two and hopes to beat the performance of the first fund.

THE FOUNDATION

THE desire to help individuals overcome adversity through education and employment led to the formation of the new Turnaround Foundation.

David Newett, Garry Wilson and Darren Forshaw, the three founding partners of Endless, decided to create a charity into which it could contribute a proportion of the company's profits each year to help individuals turn around their lives in some aspect.

The foundation will initially concentrate on projects attached to education, re-employment and small business start-ups in and around the Leeds area.

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Mr Forshaw said: "It had been in our minds for quite some time. As Endless became more successful we decided we wanted to give something back to the community."

He added: "An unfortunate consequence of businesses finding themselves in distress is often the loss of jobs, as companies are restructured in order to help stabilise and save them.

"Whilst Endless plays a part in helping some of these businesses with their turnaround plans by providing funding at vital times in the life-cycle, this does not help those that lose their jobs.

"One of the key aims of the Turnaround Foundation will be to assist people who find themselves in this difficult position with finding new jobs or re-training."

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The charity was unofficially launched last month when a team assembled from the Leeds professional community ran the Abbey Dash 10K in Leeds.

The team, which included 10 people from Endless, featured runners from KPMG, Deloitte, Walker Morris, Addleshaw Goddard, RBS and Lloyds and raised nearly 9,000 for the race charity Age UK, promoting the Turnaround Foundation in the process.

The charity will be officially launched in the New Year with more details about individual projects. Charity contributions will come from both Endless' profits and fundraising events throughout the year.

Mr Wilson said: "We will be outlining the target projects in the New Year and are hoping that we will garner further support from across the Leeds professional community to work with us on fundraising and also in delivering the projects themselves. The responses we have had to date have been phenomenal and we are very excited to see what can be achieved. We're launching the foundation in Leeds initially but we're hoping to branch out to other areas over time."

Filling a big gap in the market

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THERE was a huge gap for turnaround investors in the UK when Endless launched.

Darren Forshaw, a founding partner, said: "There was nobody in it. Those that purported to do it, when push came to shove, did not.

"They tended to be people who lent against assets rather than providing equity and risk capital.

"Once we had secured the first fund, we were panicking that we thought we needed to get into the market quickly because we thought somebody might steal a march on us and five years on there are still very few turnaround investors that would compete with us in the mid-market."

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Today, the private equity firm only tends to face competition from rivals on deals coming out of London.

Other turnaround firms active in the UK include Jon Moulton's Better Capital, Hilco, Sun Capital and HIG.

In the regions, Endless faces competition from other avenues, such as trade competitors or management-led options.

Endless announced this September that it had opened an office in London's Mayfair in the heart of the West End.

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The firm bought the six-storey townhouse in Mayfair from a distressed property developer.

Garry Wilson, the managing partner, spends up to four days a week at the office to be closer to banks and City advisers.

But according to Mr Forshaw, the firm remains committed to its Yorkshire headquarters. He said: "It is nice for us to refer to London as one of the regions."

CASE STUDY 1

Crown Paints has the potential to be the best investment Endless has made, according to the turnaround firm.

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Garry Wilson, managing partner, said: "We bought it in October 2008 just as Lehman Brothers was collapsing. It was at the heart of the storm of the financial crisis. A lot of people at the time thought that Endless had bitten off more than it could chew."

The company had reported losses of 13m in 2008 and the subject of an accelerated disposal by its conglomerate parent, AkzoNobel, to meet European competition regulations.

This year, Crown Paints is completely debt free and is set to report earnings before tax and interest of more than 12m, according to Mr Wilson. He paid tribute to Warwick Ley, who joined the Endless partnership in 2009 and who has been responsible for the turnaround.

Crown Paints has a manufacturing plant in Hull, which employs 250 people.

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Mr Ley said: "The business has performed ahead of expectation, particularly in 2010."

CASE STUDY 2

THE acquisition of Keighley supply chain business Peter Black was a seminal moment for Endless.

The 240m-turnover company was one of the main suppliers of products and services to Marks & Spencer and had been taken private in 2000 in one of the biggest such deals of the time.

The business was highly-geared and was unable to invest in itself because of its debt repayments, although it remained profitable before interest.

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Endless combined with chairman Gordon Black and chief executive Stephen Lister in a secondary management buyout in July 2006. It was the turnaround firm's biggest deal since its launch.

The buyout saw the restructuring of the business and the exit of existing shareholder, private equity firm, 3i.

Endless set to work on an intensive "value creation" process, which involved providing new capital to target high-profile customers, investment in new product development, buying new product licenses, a review of the group's real estate portfolio and managing the group's defined benefit pension scheme.

The subsequent sale of Peter Black in August 2007 to Honk Kong-based trading giant Li & Fung valued the business at 48m and resulted in Endless making three times its initial investment.

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Reflecting on the deal, Mr Black said: "I know a lot of venture capitalists and they are usually good at buying and selling businesses but not always good at running them and improving them and increasing value so that there's a good profit when they do sell. Endless have proved that they are good in this department and their record speaks for itself. The Peter Black deal was their first big one which helped establish them. They showed courage and imagination and they move quickly ."

He added: "When Li & Fung bought Peter Black, sales were 250m. Now, through acquisition and organic growth, sales are 1bn. The sale was a very good one. Peter Black went to a good home."

CASE STUDY 3

Kevin Parkin specialises in turning around underperforming manufacturing companies. He joined loss-making DavyMarkham in 2006 and a year later contacted Garry Wilson at Endless to tell him about the good investment opportunity at the Sheffield heavy engineering firm.

Endless bought it for a nominal sum in summer 2007 and helped transform the company into a profitable enterprise through investment and strategic support. Endless invested 350,000 in skills and training in the first year, which sent out a strong message to customers and employees about the company's long-term aspirations, said Mr Parkin.

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Indian conglomerate IVRCL bought the company in March 2010 in a deal worth 10m. It is now breaking into new markets.

CASE STUDY 4

Not all turnaround investments go according to plan. The acquisition of IBP, a copper fittings manufacturer, is a case in point, illustrating the fine line between success and failure.

Endless bought the West Midlands company for a nominal sum in February 2006 and put in place a financing package to secure the future of the group's businesses across UK, Europe and North America, safeguarding more than 1,200 jobs.

Soon after the deal completed, the price of copper moved from $3,000 to $8,000 a tonne.

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It was virtually impossible to pass those increased raw material costs onto customers so Endless had to put in another 7m into the business, on top the 5m already injected into working capital.

Six months later, the business was still in turnaround.

Endless managed to sell it by September that year, getting its money back.

Looking back, Garry Wilson described IBP as "the worst experience of my life".

He told the Yorkshire Post: "The business had gone from generating gross margins of 30 per cent to gross losses of 30 per cent because of commodity price movements.

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"It was a daily nightmare because the business had not hedged against those increases at the time of acquisition.

"We really had bitten off more than we could chew. In the end, some European partners came in and rescued us."