Stone boss on MBO: 'New investment gives us firepower for M&A'

Simon Harbridge reveals details of the new structure as well as why he expects its recycling business to grow significantly in the next few years

Stone Group' new partnership with private equity (PE) firm Souter Investments gives it the "firepower" to make acquisitions should the opportunities arise, CEO Simon Harbridge has told CRN.

The chief exec recently led a management buyout (MBO) backed by Souter which was spurred on by former investor RJD Partners seeking to close its second fund.

RJD had invested £28m in the PC builder and reseller eleven years ago and was hunting a return on its investment, he added.

"We spent a bit of time looking for the right partner to take over from RJD as our investor because the management team here are all really committed to the long-term journey here at Stone," he said.

"We took over a year to look around for a replacement partner and we didn't take the first one that came along, either. We've been a bit selective and found someone who really gets what we're trying to do here and who's really bought into and really interested in the business and taking it to the next level with us."

The new structure sees individuals from RJD continue to invest in Stone, including founder and chairman David MacLellan, who becomes chairman of the Staffordshire-based VAR as part of the new deal. Harbridge considered this a "big vote of confidence" in where the company is headed.

Under the new structure, Souter will hold a 51 per cent majority share in the business with the management holding 30 per cent and the remaining stake held by the remaining investors.

The management team had considered alternative forms of investment but ultimately decided that they wanted to stick with PE backing, according to the chief exec.

"We did consider all alternatives but it was always with a view that the management team here are personally very committed to what we've created here at Stone and we really want to stay with it," he explained.

"We want to be the ones that take it to the next level because we've got very close to £100m this year from £80m last year."

The company also refinanced its debt position with Shawbrook bank which - paired with the new investment - gives Stone a "really strong" balance sheet as well as enabling organic growth over the next five years, Harbridge said.

"We plan to grow organically because we're continuing to add new customers all the time and grow our market share. As we continue to broaden our services and the different technologies we'll be selling, we're also reselling more lines of business to each of our customers."

The chief exec also hinted that more M&A is on its way for the VAR and that Souter has provided it with a war chest should the right opportunity present itself.

"Having Souter on board does mean that we have the ability to accelerate that growth if the right acquisition is to come along," he said.

"Previously with RJD, because they were approaching the end of their fund, they wouldn't really have been looking to make any sort of follow-on investment.

"With Souter on board, we've got a lot of firepower should the right opportunities present themselves."

The main priority for the next number of years is to continue its success with public sector clients as well as growing its burgeoning private sector business.

"Eighteen months ago, we set up a private sector team to sell our solutions into the private sector and it's still relatively small," he elaborated.

"Whilst will continue to grow in the public sector, alongside that we'll be adding a lot of new private sector businesses. We've got an ability to grow quicker there because it's all white space to us at the moment."

Cradle to the grave

Along with its PC building business, Stone also as an IT asset disposal (ITAD) unit which Harbridge predicts will flourish over the next few years as channel companies and their customers become more attuned to having a circular economy.

It currently contributes 10 per cent to the company's total turnover, and that figure is growing, according to the chief exec.

"We're a systems builder with an ITAD business, which is a little bit unique - from the cradle to grave," he stated.

"If you think about the sheer volume of devices that we all have - it's a major impact on the planet unless we get the circular economy going correctly.

"There's going to be a lot of demand over the next few years for ITAD services and I think we're uniquely positioned in the channel with our ITAD business."

This ability to supply customers with equipment as well as take it away gives the client peace of mind in knowing the kit is being disposed of in the appropriate manner, helps wen it comes to winning over certain clients, the chief exec stated.

"If you're dealing with UK public sector, they certainly want to know what your policies are towards the environment," he said.

"UK universities, for example, they're very keen on having their campuses sustainable and they want to demonstrate their own sustainability. As a supplier, we're working to help them with that and demonstrate that we have a sustainable footprint from this whole 360 approach.

"I think this reflects society, it's an increasingly important issue and the IT channel is playing catch up with it."