It’s probably the hardest thing I’ve ever done,” admits Paul Atkinson, referring to the founding of Edinburgh-based venture capital firm Par Equity in 2008.
“Unbeknown to us when we started the business, the banking crisis was about to hit,” he says ruefully. “So literally by the time we had got our licence to run funds from the FSA – as it was at the time – it was more or less the same time as the banking crisis started.
“Our ambition was to build an institutional fund but all the institution doors slammed shut because of the banking crisis so we built the business from the ground up with private investors. That’s why it’s the shape it is today.”
And that is a pretty impressive shape: since its launch Par Equity has invested more than £80m in over 40 companies, it has completed five exits, two of which were in medtech. Of that £80m, Atkinson estimates that more than 70 per cent has gone into Scottish companies and says that Par has some really good companies in its portfolio.
Compared to launching Par Equity in the teeth of the international banking storm that blew down some famous investment houses, Atkinson’s latest business venture is being done in much more benign conditions.
He is putting together what he aims to be a “recruitment supergroup”. He added Change Recruitment, which he bought in a deal announced in May for an undisclosed sum, to his existing businesses of Head Resourcing and Head Medical and he has since added Atkinson McLeod, a business he formed with well-known headhunting veteran Ian McLeod.
The combined group has an expected consolidated turnover of about £65m. Atkinson believes that they can grow the current combined business organically to a turnover of about £70-80m with further acquisitions required to “add the last 20 per cent” to take them to around the £100m turnover mark.
“We’re deliberately designing it so that it doesn’t need so much hands-on help from the likes of me,” he explains. “I’m a long, long way away from the recruitment tools these days and the guys who are running the businesses under Taranata are a lot more capable than I am in terms of what’s actually happening in the recruitment sector today. Part of my role is to make sure that we keep our eyes looking up and looking forward and that we can see we’re not going to run into a tree, we can see the forest,” he laughs.
“The impact of technology on all sectors is going to be huge. And part of my role is to make sure that my recruitment business actually takes advantage of the new technology and is not caught out by it.”
Each of the businesses covers different specialisms with Head Resourcing handling information technology and software and business change. It is, he says a very UK-centred business. Head Medical deals with placing medical practitioners both at home and abroad and is a very international business. Change Recruitment is principally involved in accounting and finance but also with teams that do investment and risk management to which has been added a new construction business with a new hire from one of their competitors.
There is a clear strategy to the development of Taranata, Atkinson says. “The intention is to add more brands with other specialisms, particularly if they bring more international context. In my view the more international the business is the more valuable it will be and the less prone to disruption in the market it will be.”
About 30 per cent of revenue line just now is international and Atkinson says: “I would see that increasing; certainly the companies that we’re looking at as potential acquisitions, at least a quarter of them have got very significant international exposure.”
He believes that this will give Taranata a real competitive edge because he says that there few UK recruitment companies that are truly international.
“I want to get it to a scale where we can potentially list the business or do something that creates some liquidity because we have got a number of shareholders in the business just now and that number will increase.”
The group as a whole will benefit from the different strands within it because, as he says, recruitment is a very cyclical business.
He has a clear picture of the way the ambitions for the group will be realised: “Identify markets where they can differentiate themselves, apply technology smarts to it and give the teams that work in it a competitive advantage.”
The economic conditions look so very different from those in which Par Equity was created with the shortages in the labour market caused by EU nationals who are leaving, are threatening to leave or who are looking elsewhere rather than the UK because of Brexit.
Atkinson says: “There is no doubt. We’re at record high employment and the skill shortage in some sectors is really acute, particularly IT and particularly medical. But there are skill shortages right across industry.
“The mood music is making the UK less attractive as a destination for international workers. Our mood music outwardly looking is the wrong mood music to attract people in. I see that as part of our role in the recruitment business – the more international we are the more we can help with that.”
He goes on: “Brexit is having an impact for a couple of reasons – number one exchange rate. A big part of the reason that Polish construction workers are going back to Poland is because the pound in their pocket is worth 20 per cent less than it was before.
“At some point the rules around immigration and skilled workers shortages will become clear and there will be a mechanism to bring in international workers I’m sure. What it will be we don’t know yet. In the meantime skill shortages are generally good for recruitment companies. So we have no shortage of demand to find people we’ve just got to be creative about how we go about finding them.”
And he believes that Taranata is well placed to do that because of its existing international footprint. The group is already operating in 20 countries in accountancy, finance and medial recruitment. Head Medical is supplying into Australia, New Zealand, Middle East, China, Singapore, the Maldives and the Caribbean. But it also places people across the UK particularly in some of the remoter regions. “Being international gives us that edge interms of winning UK business,” he says.
Atkinson’s move into recruitment was not a planned one. He had been working in an IT company as an engineer and moving into sales working in “have car will travel a lot” job in a territory that covered the west of England and Scotland from Manchester. In that role he sold computer hardware and software and then moved sideways into the IT industry.
“Almost by accident I fell into recruitment in a role with Computer People in Manchester,” he says with the job coming about after he met them at a computer exhibition. When Computer People opened their Scottish office in 1987 Atkinson moved to head it up and has lived and worked here ever since.
He was headhunted to set up what is now called Parity in Scotland as regional director. Then he and a couple of colleagues decided to go into business for themselves. Atkinson says now: “It didn’t work out but I had quite an interesting tour of the Middle East selling IT consultants into Qatar, Dubai, Abu Dhabi and Bahrain.”
He then spent a year headhunting for the IT division of the Royal Bank of Scotland and then a further year working for what is now IBM Global Services.
Atkinson met Gordon Adam, who became his business partner, and the pair set up Direct Resources in 1995. “Four years into that we were approached by an Nasdaq-listed IT services company MasTec Systems Corporation to buy our business with a view to building a strong footprint on the UK for them. We were offered what was in hindsight a very good deal.
“I stayed on to do the integration with the parent company and Gordon stepped out to build a second company that we had formed called RecruitmentScotland.com, which was Scotland’s first jobs website business before S1 Jobs.
“About six to seven months after we sold Direct Resources we decided to see if there was a market to sell the online business largely driven by the hyped state of the market – it was dotcom boom time. We started to hear stories of how much TMP Worldwide were buying online recruitment sites for and thought maybe we should take a look at that. That was competitive, we hired advisors to take the company to market, we had four offers for the business and the offer we took was with TMP Worldwide, which owned Monster.com.
“At the time of the deal TMP Worldwide was trading at 200 times earnings on Nasdaq and we effectively sold our business then for half that: 100 times earnings. We were in the fortunate position of having built and sold two businesses within a year of each other.
“That was when I first started investing in other people’s companies, the first being Learning IT, an IT training business in Stirling run by an ex-client of mine Duncan Macleod. I invested in that business in 1998, went onto the board as non-executive director and later sold it to a management buyout backed by Baxi Partnership.”
Between 1998 and starting Par Equity in 2008, Atkinson invested in 16 companies. He founded Head Resourcing in 2001 after the dotcom bubble had burst and, he says: “I didn’t feel like doing too much investing in technology businesses at that point.”
In 2008 Atkinson stepped out of the executive suite at Head Resourcing to set up Par Equity. “I wanted to professionalise the investment I had been doing as an angel prior to that. Par Equity was really a business set up to back new technology entrepreneurs with both money and expertise. That’s been the model ever since really; we’ve got a very strong professional investor base that sit on boards, do the diligence and help these companies develop and succeed.”
Par Equity’s recent investments include Snap40, a wearable health monitoring device business; Union Blazes, a laser technology spinout from Heriot-Watt University; Particle Analytics, a spinout from Edinburgh university; Par were one of the founding investors in ‘light to Wi-Fi’ business PureLiFi; Money Dashboard, the personal finance app and QikServe, the dine-in food ordering and payment app.
But while some might have settled for this life as a professional investor, Atkinson is also working at a strategic level building his recruitment business. Asked why he doesn’t stick to one or other, he says: “I’m actually not quite sure; maybe I’ve got a low boredom threshold.” This is probably why if you add up the companies he has invested in prior to Par Equity and since its inception it comes to about 60 companies alongside the five businesses he has started.
“I enjoy business, I enjoy the people I work with in business and I get a real kick out of it. I like seeing the people I back being successful. One of the reasons I back other people’s businesses is that I like to help other people get to a good place as well; it’s not all about financial returns.”
Par Equity has created hundreds of jobs, he says, and that alongside the other angel networks like Archangel and Pentech they make a big difference to the Scottish economy. He says that Scotland is unusual in being under-served by venture capital firms but is well served by active angel investors.
Atkinson explains what type of business Par Equity invests in: “From the get go we were looking for businesses that have innovation at their core. Innovation is quite a catchall phrase: it could be technology; it could be business model but something that differentiates them in the market, a new way of doing things. But it was also important that all the companies we invest in have some kind of international context because most likely the exit for these business will be an international trade sale.
“We wanted to work with people we could work with in terms of style, characteristics, personality and approach.
“The actual areas of technology that we invest in are very broad and I guess the other aspect is that we’ll only invest in businesses where we’ve got deep expertise in the sector in our direct investor base. If we don’t have deep expertise in the space we won’t invest.”
A member of the Par Equity syndicate will work with the company, sometimes acting as investor director, sometimes as chair or sometimes in an advisory capacity. There are about 140 members of the Par Equity syndicate, about a third of whom are interested in being hands-on with businesses. They include people who have built successful businesses or people from the advisory community, partners from law firms, accountancy firms or senior executives from banking, finance and industry with quite a number of people still active in business.
Paul Atkinson was one of four founding partners along with Robert Higginson, Paul Munn and Andrew Castell, all of who come from different backgrounds.
“We’ve got great ambitions for the Par business. We recently opened an office in San Francisco and we’ve got new partners joining us with that,” Atkinson says. “The ambition there is to build a transatlantic health tech fund which will be our first institutional fund, a bit of a game changer for us. We’ve already had quite a lot of success investing in medtech business: Aircraft Medical sold a couple of years ago was one of our investments and we also invested in a business called PathXL, a patent recognition software business for detecting cancer on digitised pathology slides.
“When we started in Par Equity we were probably investing earlier in the cycle. These days we are investing in things that have already got some commercial traction.”
Par Equity has always looked UK-wide for its investments but, as Atkinson says, “Because we are based here in Edinburgh, all the local deal flow lands on our doorstep, we don’t have to try too hard for that. I think because of that a significant percentage of our deals are in Scotland. But although we’re based in Edinburgh we don’t see ourselves as a Scottish firm per se.
“So far we’ve exited five companies and we’ve lost four. So our hit rate is rather better than the norm. Before tax we’ve generated an internal rate of return of about 22 per cent overall.”
That, as Atkinson says means they are in the top quartile in terms of performance in their asset class.
A key to all of this is timing the market right. He says that you can have a great technology but if you don’t hit the market at the right time it can come to nothing.
“If we hadn’t decided to sell RecruitmentScotland.com before the dotcom burst then it probably would have been bust. Or probably not bust but we wouldn’t have been able to sell the company for 100 times earnings for the next ten years.
“You get a good deal when the time is right. In the case of the ones we’ve sold already you generally get three times money out. In two years that’s a decent return. We try and do the right thing for investors and managers. If we keep all that in mind we’ll probably have a decent investment business.”