Ruby McGregor-Smith, Chief Executive of outsourcing group MITIE discusses the launch of the company’s ‘MITIE Entrepreneurial Programme’.
At the beginning of the year MITIE announced the launch of the ‘MITIE Entrepreneurial Programme’, with an initial £10m fund to encourage management teams from the private and public sector to establish mutually-owned businesses.
The outsourcing group will provide equity, working capital, management expertise, back office and administrative infrastructure to help support the start-ups. The initiative will see management teams take an equity stake in a business, which they are motivated to grow over a five to ten-year period, and will be eventually acquired by MITIE in full.
What are the parameters a business must abide by in order to be considered by MITIE?
"They must be in the business of outsourcing where we deliver services to either the public or private sector within our chosen market. For example, any of the industries across cleaning, energy, reprographics, and pest control – any outsourcer and potentially any new areas, though it will be difficult to judge until those new businesses come in. Basically anything that is within our expertise."
What are the barriers to exit once the agreement to enter into the Scheme has been made?
"As with any business there would be penalties within the shareholder agreement that would be identified early. Any losses that had occurred carry the risk that any shareholder could lose their money. It can be done, but if you shut anything down early after you just started it there would be sunk costs and they would have to cover that so that would be on an individual case by case basis.
"Once you have agreed a business plan and it is up and running, both sides would not go into it unless the opportunity for risk or failure was low. There would only be 10-15 businesses targeted in the first place."
Is this mainly a method of harvesting new business for MITIE?
For me, it's a way of bringing new innovation and excitement to what we do with young, entrepreneurial management teams. They will always offer you different ways of doing things and will be passionate in what they believe they can deliver"
Ruby Macgregor-Smith, MITIE Chief Executive
"We have recently set up a business property solutions arm with a management team focussed on looking for emergency work for the insurers. It has been a hugely positive start in terms of what they’ve done in this new market for us.
"We've never had that before, a team of real experts in this field. The scheme is open to everyone, including those in cleaning enterprises."
What support would MITIE provide?
"We would provide financial support through capital and support around the brand and marketing – all the things you would expect a big, corporate to do that a young, small company wouldn’t.
"We would give them that infrastructure and support. This could be through the IT systems, through expertise support to give the young business what it needs to grow. In terms of driving sales growth, that is what they are there to do."
Have you had any unsuccessful schemes?
"We’ve had the odd one that hasn’t worked over our 22-year period, but once you enter a scheme you have a pretty good chance of success once the market and growth parameters are identified. If you have the right people it does tend to work."
Is there capacity in the private sector for a scheme of this size?
"Certainly in outsourcing, it is for us to attract hugely talented management teams which want to grow a business. I think that in the UK there are a lot of people who would like to do that. I think the private sector should offer more of these types of schemes."
Are there opportunities for businesses to continue with mutual ownership or make a management buy-out beyond the ten-year tenure?
"Yes they could. It would be built into the agreement at the start if they wanted to carry on without us. It is quite a wide remit as we ant to create opportunity for individuals. We’re very focussed on making sure that these schemes can work. This is what we’ve built our growth on and it would be hugely disappointing if we didn’t get that right.
"We go into this with the best of intentions around the markets that we choose. On the odd occasion it hasn’t worked, it was probably due to markets not growing quickly enough. We now enter into situations where the market is really fragmented and we believe we can make a difference and make it work.
"Remember, we’re still in a young industry. The outsourcing industry has only been around in the UK since the late 1980s. So you have fragmented markets with things changing which can make growth even faster."
What happens after the ten years is up? Will there be a pay off or are the managers employed by MITIE?
"The companies involved have an opportunity to come back to us on the five-year anniversary to look at us buying out their shares. What tends to happen – not always in year five, its dependent on profit forecasts – is the company looks at what value they can get for the shares.
"Our cut off is ten years because we believe that by then the company would have shown its value. At that point we would have the option to wind it down but we’ve never done that. We have bought companies out in their final year, but we’ve never had a company shut down."
Are spending cuts the main driver of this scheme?
"We would have done this anyway because it is part of what we do and this is a relaunch of the scheme – although we haven’t put money aside at this level before. We passionately believe in job creation and looking at more opportunities in outsourcing. We believe the current state of the public sector will encourage more people to come and work with us.
"For example, we’re 60% more private-sector-focussed at present and that’s why we want to enter some of the areas we don’t currently work in and grow our client base.
"There are a lot of markets opening up, which we believe would be hugely exciting for the public sector. It’s about growth and creating jobs. That’s our focus, we’re a growth company and the offer is really attractive.
What happns if a support services business is too similar to another already within MITIE’s portfolio?
"We wouldn’t take on a business too similar. Within our client base there are a lot of areas where we are still small.
"If someone came to me and said they wanted to set up a mainstream cleaning business in the UK, we can’t do that because we already have one that is very, very large. The same would apply if someone wanted to set up a security business or an energy-focussed business in the Midlands.
"This initiative is based around new ideas for new client-bases where we can make them niche for our group. We’ve done it in property services just last year. We set up a care-and-custody business, which looks after the facilities management of the prisons because we don’t work in that area. So there are lots of angles which people can approach from."
