The halo effect

The halo effect

With Sir Brian Souter moving up to chair Stagecoach next year, he will have more time to devote to his portfolio of other business interests, as Kenny Kemp discovers.

While Sir Brian Souter is celebrated for his entrepreneurial zeal in building up Stagecoach – and saving it from oblivion ten years ago - his support as an angel and equity investor in established companies is not so well recognised.

Yet the Perth-based entrepreneur is a dark-horse figure in the remarkable story of Archangel Informal Investment syndicate, set up by Mike Rutterford and Barry Sealey, which celebrates its 20th anniversary in the coming weeks.

Over the Olympic and Paralympic summer, two Archangel successes - Optos and Touch Bionics - have been showcased in London in the Make It In Great Britain exhibition at the Science Museum, in Kensington, celebrating the importance and success of British manufacturing.

Touch Bionics, based in Livingston but with a major market in the United States, even featured in the foyer of the Department of Business Innovation and Skills in Victoria Street. This kind of success story has delighted Sir Brian Souter, who has announced his decision to step up to chairman of Stagecoach in May 2013, making room as chief executive for the much-admired Martin Griffiths, the current finance director, who will undertake the day-to-day running of the listed transport giant.

This will allow Sir Brian extra time to consider the work of Souter Investments, a portfolio of businesses that is relatively little-known in Scotland. While Stagecoach Group is the bedrock of this portfolio, Souter Investments has no role in the management of Stagecoach.

When BQ Scotland went to meet Sir Brian in his Dunkeld Road headquarters, he had just heard the shock news that Virgin Rail had lost the West Coast Mainline franchise. With Stagecoach holding a 49% stake, in this rail joint venture, he appeared resigned to the loss of the franchise.

While Sir Richard Branson has been seeking recourse through a judicial review of the Department for Transport’s decision, Sir Brian expressed a view that FirstGroup, who landed the franchise, was at least a viable UK business rather than another state-funded European competitor or a transport group likely to go bust.

Although he expressed some amazement at the decision-making, considering Virgin Rail had inherited the worst rail franchise in 1997 and done a great deal to ensure better and safer trains on the route, with the arrival of Pendolino tilting trains.

FirstGroup’s winning bid assumes 10% growth, while Virgin forecasts were only 8%. Sir Brian also spoke of his recent coach deals in the US, where a decade ago Stagecoach wrote off £640m. He has been able to buy back from administrators some of the ‘jewels amid the dogs’ that he had been forced to sell in 2003.

“We had to package it up and sell it out to get rid of it, this time what Martin (Griffiths) and I were able to do was cherry-pick the good companies and the ones that geographically made sense.”

But the reason for the visit was to hear about Sir Brian and sister Ann Gloag’s support for the Archangels, the trailblazing business angel group based in Edinburgh. Their backing stemmed from their relationship with Barry Sealey, the veteran business figure who was chief executive of Christian Salvesen plc, and who retired in 1992, aged 55.

While Barry joined Stagecoach as a non-executive director, he also teamed up with Mike Rutterford, who had sold out his estate agency Stuart Wyse Ogilvie, for £14m.

Barry and Mike shared an interest in supporting young Scottish companies, and brought in Sir Gerald Elliot, the former Salvesen chairman, Eric Young, Peter Shakeshaft, and later Gavin Gemmell to develop the syndicate.

Over the intervening 20 years, the Archangels syndicate has evolved into a world-leading ‘Scottish model’ of angel investing, supporting over 80 Scottish companies, and raising £200m, of which £62m came from the pockets of the angel investors. A staggering amount.

“I can hardly believe it is over 20 years ago that Barry explained to me about his intention of supporting Scottish businesses that were often no more than a glimmer in the eye. He had joined the board of Stagecoach as a non-executive with a wealth of experience and common sense about business,“ says Sir Brian.

He admires Barry Sealey who has been a staunch advocate of angel investing, rather than pure venture capital. The Archangels, working with LINC Scotland, were also instrumental in the creation of the Scottish Co-Investment fund, backed by the Scottish Investment Bank, which is supporting high-growth firms in Scotland.

“Barry had already asked me to support a couple of companies, which we did, but when he told Ann and I that he and Mike Rutterford were planning to do something more for young companies in Scotland, I said we would be happy to help.”

His involvement was purely as a financial supporter, backing Mike and Barry’s judgements, whereas the other investors operated within the businesses providing help and advice.

“I didn’t take on any non-executive roles or chairmanship, I was busy running Stagecoach and happy just to be in the background.”

Today the Archangels syndicate, is run by a professional executive team in Edinburgh, led by former Noble Grossart director, John Waddell, and has a syndicate of over 100 privately-wealthy individuals willing to support Scottish companies.

The recent successful exits have been Mpathy, Lab901, Vitrology, while they have invested in Touch Bionics, Reactec and many others. Sir Brian and Ann Gloag’s early involvement was in supporting Optos, which was the first of the Archangel investments.

It moved from being a brilliant idea of Douglas Anderson, whose son had sadly lost an eye, into a publicly listed Scottish business with a world-class optical laser machine.

The company needed many rounds of funding before being listed in February 2006, and was supported all the way from conception through until flotation by Sir Brian and Ann Gloag, who was a non-executive director on the Optos board.

“Barry and Mike never waste an opportunity. It wasn’t long after this that we were invited to put money into a laser eye testing machine, which was then a brilliant concept from Douglas Anderson.

"We knew it would be high risk – and that all the money might be lost. Nevertheless, we helped with funding for the first prototype. We knew if Barry, Mike and Sir Gerald Elliot were prepared to back it, then we would put some money in too. Eventually, after many rounds of investment, Optos turned out to be a winner for Archangels and for Scotland.”

After the Optos flotation, Souter Investments was launched in December 2006 with the larger vision to create a wide-ranging portfolio, supporting well-established companies growing to a combined turnover of £1.2bn. Andy Macfie, who has spent 20 years working in private equity, was appointed to run the portfolio.

“Andy Macfie and his investment team of Calum Cusiter and John Berthinussen have been doing a brilliant job. They are worth a profile in anyone’s book,“ says Brian.

“It has been a very busy year for Souter Investments, we’ve been bedding down the investments that were made in 2011. I’m very happy with the way our portfolio is developing,”

Sir Brian told BQ. Its brands and people have won a string of top awards over the last 12 months, including Colin Robertson, of Falkirk-based Alexander Dennis Ltd, named Scottish Entrepreneur of the Year in July.

Souter Investments’ largest deal was the acquisition of Istanbul Deniz Otobusleri (IDO), the world’s biggest municipal ferry operator, from the Municipality of Istanbul. Souter co-led the deal with three Turkish partners. IDO operates 52 vessels and carries more than 50 million passengers a year.

In Poland, Souter Investments launched, an innovative inter-city express coach service offering great value fares, free on-board Wi-Fi and high standards of customer service.

Since launch in June 2011, has carried over 450,000 passengers to 17 cities in Poland as well as four European capitals. Souter Investments also invested in Pure, a health and fitness chain based in Warsaw and founded by ex-Fitness First founder Mike Balfour, and the management buy-out of EMCAS, a claims management business based in Devon.

The portfolio also acquired a minority shareholding in a new Latin American mobile virtual network operation, trading under the brand Virgin Mobile Latin America.

Sir Brian was also part of the syndicate which supported the management buy-out of esure by the entrepreneur Peter Wood, and they also have a stake in, one of the top price comparison websites.

They have also backed Sunseeker, the leading luxury motor yacht brand, and we featured an interview with its managing director Stewart McIntyre last year in BQ Scotland.

Sir Brian is particularly delighted with the success of Alexander Dennis Ltd, Britain’s largest bus and coach manufacturer, which has been winning huge business in the United States and overseas with its environmentally advanced buses.

Employing 1,850 people and producing 1,750 vehicles a year, it is one of Scotland’s brightest engineering gems.

“Colin Robertson has been recognised for the great job he has been doing at Alexander Dennis. We’re proud that Souter Investments have been able to help in the expansion,” he says.

He also says that Argent energy, largest biodiesel plan in the UK, using animal and cooking fat, is also suitable for the next generation of green buses. But Brian Souter has always been keen to support emerging Scottish companies, working closely with Archangels.

The sale of Mpathy to Coloplast for £22m in 2010, an Archangel supported business, has meant a return for Brian Souter, while there are investments in CXR Biosciences, a Dundee-based bio-tech business.

“Scotland desperately needs people like the Archangels to support enterprise, initiative and hard work. And it needs people who want to make a difference, are prepared to take a calculated risk to build new companies in Scotland and make a bit of money in return,“ he says.

The full tale is told in a forthcoming book out in the new year called: Archangels: Scotland’s Bleeding Edge Investors.

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