As Fairgrove marks its 10th anniversary, partner Paddy Woods Ballard and director Bhavna Dewan speak to Real Deals about the evolution of commercial due diligence and why the business services sector has remained buoyant during the recent market downturn.

Congratulations on your anniversary. What have been the highlights of the last 10 years?

Paddy Woods Ballard: The whole journey has been immensely rewarding. Setting up a commercial due diligence (CDD) boutique from scratch and growing it at 27% per annum, through Brexit, Covid and now this period of high inflation and rising interest rates, hasn’t left us much time to pause and reflect! 

However, building our own identity has certainly been a highlight. Everyone knows that culture eats strategy for breakfast – if you haven’t got the right culture, the strategy will fail – so we are constantly balancing being a progressive, post-Covid employer with being a highly responsive, premium-quality consultancy. 

As we have learned, those two aspirations aren’t mutually exclusive. You just have to hire really good people, eliminate bureaucracy and trust them to be brilliant. We have developed a significant amount of our own IP but we’re still a people business at heart, and our success is down to having a team of really smart, likeable, ambitious, commercially curious and practical consultants.

How has CDD changed in the last 10 years?

Woods Ballard: The biggest changes have probably been: (i) an increased emphasis on strategy; and (ii) relatedly, a growth in demand for vendor-led work. A decade ago, CDD was often commissioned early in the deal process, with the primary aim being to educate the investor on the market and the asset’s right to win. 

That is still a key output today, but investors now have much stronger hypotheses on these topics, having looked at the transaction for longer before appointing advisers. With increased competition for good assets driving up valuations, this means there is now more emphasis on how to maximise returns. Good CDD incorporates a strong element of growth strategy, which is why our training as strategy consultants is fundamental to our ability to add value.

The second trend has been the growth in vendor-led CDD, which seeks to expedite the transaction while providing the sellers with more control. Vendor-led work often prioritises scrutiny of the downside risks associated with the investment, which is another reason why buy-side work (especially if it is ‘topping up’ a vendor report) will again focus on strategy and how to maximise growth.

What role has the business services sector played in Fairgrove’s success?

Bhavna Dewan: Business services represents approximately 50% of our turnover. We also have a technology practice, and it is increasingly difficult to distinguish between the two, as ‘tech-enabled’ has been the biggest growth driver in business services during the last 10 years. Business services is so broad that you really need to market your expertise at the subsector level to cut through. 

For Fairgrove, that means professional services, human capital, training, and media and marketing services. Within professional services, we then drill down into accounting, broking, consulting, legal services, energy services, property services and ESG. In the last six months alone, we’ve worked in accounting, consulting, employee benefits, DE&I, workforce management software and flexible offices. 

All of these things are interdependent, driven by the evolution of new ways of working. 

The whole services economy is converging, with technology at its centre. A great example of this is ECI’s CIPHR platform, which recently acquired Marshall E-Learning, an online training provider with particular expertise in DE&I training. This is classic convergence – HR, payroll, training and culture all coming together on a single software platform so that the proposition becomes less about functional silos (‘we can do your payroll’) and more about a holistic proposition (‘we can look after your people’), with provision being either software-only, or on a managed service or consultancy basis.

Which business services deals have caught your eye during the last 10 years?

Woods Ballard: Tenzing’s investment in FMP Global, and its subsequent exit to IRIS at 5.4x, was a great example of an investor identifying opportunity in a seemingly mature market. FMP had found a high-margin sweetspot, supporting businesses that were trying to manage payrolls in multiple countries for the first time. The largest players in the market were slower moving and weren’t set up to deal with the complexities of multiple small country payrolls. The business grew strongly organically and Tenzing turbocharged growth with several bolt-ons. 


Where should PE firms be looking to find value in business services today?

Dewan: Businesses with recurring or repeating revenue models such as accountancy are attracting interest, as are businesses delivering regulatory or compliance-related services such as fire and security services including testing. For non-recurring revenue businesses, those that serve more resilient end markets such as renewable energy and healthcare are attractive, as are those with skills in growing functional areas such as data and automation (including AI), cyber and ESG.

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