Real Business column
By Jeremy Middleton, CEO of Newcastle-based investment company Middleton Enterprises
Smart investing is like many things in life – part art, part science. As an investor with more than 30 years’ experience in business, I’ve put money into dozens of businesses – and not always with resounding success.
Any investment is a risk – but a calculated one –and experience has taught me that there are a number of elements which, when executed together, will give a good idea of whether putting in finance to a particular venture is desirable or dangerous.
The fund that we run has clear objectives – we invest in growing companies that can create jobs and produce wealth. While some of our portfolio is allocated to stocks and shares and commercial property, the bulk of our attention is on investing in and helping develop a focused group of businesses that we believe have potential to become much larger in the future.
Every one of the companies we work with share five common characteristics – and these are the general guidelines that I use for deciding if an investment is good one.
1. An Attractive Market
This might sound pretty obvious, but an attractive market is the fundamental cornerstone of a sound investment. The ideal investment opportunity would have a small share in a large and growing marketplace, because this means the company’s potential and ability to expand are at a premium level. For this very reason, we invested in South Shields-based Utilitywise PLC, an energy consulting company listed on the AIM. Utilitywise is a good investment because, with energy costs rising, a growing number of firms are using brokering services to keep their costs down, and Utilitywise dominates the market in providing these services to small and medium sized companies. Although they are a market leader, at the moment, a very small number of SMEs use these services and Utilitywise’s penetration into SMEs is between 1pc and 2pc. Therefore, this is a big and growing market and Utilitywise can go a long way just by doing more of what they have been doing.
2. A Great Concept
This is also a must for any company where we take a position. To my mind, a classic example is HomeServe PLC, a business that I have been involved with from its inception in 1990. HomeServe offers a range of emergency services for the home, including plumbers, electricians and gas engineers. Its ultimate promise is peace of mind for homeowners – if you like, an emergency breakdown service for the home. So far, this concept has been proven to have traction in the UK, the USA, France, Spain and now Italy and Germany. I believe the appeal is near universal and it can grow into a major global business.
3. Great Executional Ability
Any company we invest in needs to be able to execute its business model more efficiently and effectively than its competitors. Property trading company House Buyer Bureau is a business we funded two or three years ago and its concept can be summed up as “we buy any house”. It’s a good investment because it has the intellectual property and skilled workforce which enable it to efficiently and accurately carry out the three elements of its business: valuing property; buying quickly; and pricing and selling properties. The team really know how to execute and this means House Buyer Bureau has become one of the UK’s largest cash buyers of residential property in a very short period.
4. Competitive Edge
All our investee companies have a competitive edge. One of the neatest is Apex Lending, a bridging loan provider. The need for short-term bridging loans for commercial purposes is a well-established marketplace. However, as a sister company to House Buyer Bureau, Apex has an advantage - it only offers loans where the security is residential property. Its connection to House Buyer Bureau enables it to value properties easily and it never lends without knowing that its sister company would be prepared to buy the underlying security against the loan if needed. This gives it a competitive advantage which is, in my view, a winner.
5. Great People
This is the most important aspect of any investment proposition. Most of the businesses to which we have made a significant financial commitment are run by people who are proven operators, who have been known to us for many years and who we are certain we can trust. As I’m sure many people who run family businesses would agree, often the best investments are made with those to whom you are closest. When looking for a new investment, a good place to start is thinking about people you really trust who are experts their field.
A final word of caution – while these guidelines might look pretty simple, they are not always that easy to execute. This said, I have plenty of experience of making investments where I didn’t follow one or more of these guidelines – and the results were generally disastrous!
CONTACT: Lauren Pyrah on 01325 363436
Notes to Editors:
Middleton Enterprises Ltd is a private investment company that has made a substantial contribution to the North East’s economy by investing in and providing business advice to entrepreneurial businesses.
During recent years, it has supported a number of North East businesses, generally from start-up, usually taking a minority stake and offering strategic advice to support growth.