Brompton chief executive Will Butler-Adams said a decision to shun private equity in a fundraising last year has helped Britain’s largest bicycle maker weather a steep industry downturn.
“We wanted a long-term, quiet, sensible, not panicky investor,” Butler-Adams told the Financial Times, referring to the company’s decision to tap markets in its first foray for fresh capital since 1980.
“The problem with PE” is its focus on quick improvements and the desire to sell down their stake within three to five years, which “does not work” for Brompton due to long product development times.
In addition, the unlisted group wanted cash from the equity raise to beef up its balance sheet and pay down debt, which is the opposite of private equity’s standard tactic of increasing leverage.
Brompton chose BGF, a £3bn UK investment fund backed by five large banks, as its new shareholder, taking a 8.5 per cent stake in return for £16mn. Brompton raised another €3mn from existing shareholders.
Butler-Adams’ decision was at odds with a wider trend in UK business in which deals financed by private equity make up a larger proportion of the economy than other advanced countries, according to Dealogic and the OECD.
Brompton’s fundraising, which valued the company at £173mn including debt, was in response to a slump in demand for new bikes after the cycling boom during the Covid-19 pandemic.
Some of the cash raised was used to pay back £10.4mn in loans from banks.
Despite tumbling sales and profits last year, Butler-Adams said Brompton was well positioned to generate 15 per cent to 20 per cent of annual growth over the medium term.
He added that he expects a return to revenue growth as well as an improvement in profitability for 2024 after the travails of 2023.
Profitability is also on an upward trend as it is selling a higher share of more expensive bikes, such as extra-light models and those with electric assistance, as well as netting a bigger share of business through its stores.
However, he warned that the wider crisis in the cycling industry is not over. “This winter, we will see more businesses go bust for sure,” he said, adding that both manufacturers and retailers were at risk.
Brompton’s revenue fell by 5 per cent in 2023 compared with 2022, while earnings took a much heavier hit, Butler-Adams said, although he did not reveal numbers for last year’s yet-to-be-published results.
The company also only produced 90,000 bicycles in 2023 after initially ordering parts to make 115,000 — the second annual decline in a row.
The downturn forced the company to go to shareholders for extra cash. BGF, founded in 2011 by Barclays, HSBC, Lloyds, NatWest and Standard Chartered, is now one of the largest shareholders in Brompton alongside founder Andrew Ritchie, with 13.6 per cent according to filings, and Butler-Adams with 8.4 per cent.
“We talked to several who were more flexible [than standard PE firms] but BGF were head and shoulders above the rest,” said Butler-Adams.
He added that while “many” potential investors had been interested, it was “quite difficult” to find a fitting one due to a shortage of investors meeting the company’s requirements.
BGF specialises in minority investments in small and medium-sized enterprises in Britain and says it provides “long-term, patient capital”. The fund declined to comment on its purchase of Brompton shares.
In a response to the cycling downturn, Brompton has put plans to build a new factory and corporate headquarters in Ashford in Kent on the back burner.
The company unveiled proposals for a futuristic new home in 2022, with plans to move in by 2027, in a project that it said would cost £75mn.
Butler-Adams told the FT the company was still pursuing the project and had won the support of the local council, but has deferred the timetable by about two years.
“If we get planning permission in the next six months, we’re not immediately going to start building because the [economic] climate is too weak,” he said, adding that Brompton will tread carefully as “companies [can] go bust when they move factory”.
Private equity has also been hit by the cycling downturn.
Both KKR and Carlyle unsuccessfully courted German privately held bike maker Canyon, which in 2020 sold a 52 per cent stake to Belgian investment holding company Groupe Bruxelles Lambert for €350mn.
KKR in 2022 then forked out €1.6bn for Dutch cycling conglomerate Accell Group, which is now in crisis talks with creditors to restructure €1.2bn of debt.
Founded in 1976, Brompton has grown into Britain’s largest bicycle maker with £129.4mn in annual sales and 805 employees in 2022, according to its latest annual report.
It reported a 35 per cent increase in profit to £8.7mn in 2022 with an operating profit margin of 8.5 per cent. In the five years to 2022, sales almost quadrupled while its annual bike production doubled to 90,000.
