Sharelink
Transaction Background
In May 1992 Graphite Capital led the management buy-out of ShareLink from BT and other shareholders. ShareLink was an execution-only stockbroker based in Birmingham providing telephone share dealing services to retail investors. The company was established in 1987 and grew rapidly in a market that was dominated by share issues from privatisations. By the time of the buy-out over 250,000 clients had dealt through ShareLink.
Deal Attractions
ShareLink was a very small business for its majority shareholder and one of very few execution-only stockbrokers. There were opportunities to reduce costs and increase market share. The company's service was both efficient and price competitive, particularly by comparison with traditional advisory stockbrokers. The business was highly automated, had low overheads and surplus capacity. The marginal cost of any increase in volumes was minimal.
Achievements
- turnover rose in the year after the buy-out despite no major privatisation issues
- a number of new products were successfully launched
- operating profit more than doubled
- operating margin rose from 13.7 per cent to 27.0 per cent
- strong cash generation enabled a substantial early loan repayment
Exit
- Graphite and the management team decided to seek a flotation less than a year after the buy-out
- the business was floated in July 1993 capitalised at £42.1 million or 12.4 times operating profit
- we realised part of our investment on flotation and the remainder in the aftermarket
- total proceeds represented a multiple of 7.4 times our cost of investment
- the internal rate of return was just under 300 per cent