A Non-Executive Viewpoint: Growth and opportunity in business services

Sarah McMath, Non-Executive Director at LDC portfolio company Stonbury – a water and environmental management services business – has deep experience in business services,
built on three decades of leadership in the water sector.

Throughout her career, Sarah has been responsible for driving innovation and collaboration to ensure her organisations and markets deliver on customers’ needs. Here, she shares her views on the importance of investment in business services to support the UK’s wider economic
growth, what makes a successful operation, and where Non-Executives can add value.

How businesses services are the foundation of UK growth

“There’s a growing realisation that, if we want to foster economic growth across the UK, we need to build a thriving ecosystem where every sector is supporting another. That’s what the business services sector can help to deliver, and why it is so significant.

“Take the water services industry as an example. If we don’t have the capability to deliver and then maintain water infrastructure, it’s going to be impossible to grow as a country. Get it right, however, and we’re in a strong position to deliver real innovation.

“Data centres, for instance, are critical to supporting our national economic ambitions, but are also one of the fastest-areas of water consumption for cooling. Without business services, the infrastructure we need to build and operate these sites simply doesn’t get off the ground.

“All of this makes business services such an important, and exciting space, where future investment is a necessity – not a nice to have.”

Common characteristics of successful business services firms

“From my experience, the most successful businesses exhibit three things: client understanding, cultural alignment, operational focus.

“Client understanding is all about really knowing, and being sensitive to, the client’s environment; their market, competition, standards and obligations. Sectors like water, energy or financial services, will also need to meet regulatory requirements, which are constantly evolving at pace.

“If business services providers can demonstrate they really get the regulatory challenges their clients face, it helps them to stand-out when winning new business in what is often a crowded market, and ultimately helps them deliver a service that better meets their needs.

“Alongside client understanding, cultural alignment is particularly important when it comes to protecting and enhancing reputation. While this is something that every business cares about, the nature of business services – where the supplier may be working as an on-the-ground extension of the clients’ operations – means this takes on particular importance.

“Finally, I’ve found that the smartest business services firms have unfailing clarity on their own strengths, and typically take on work that carries sufficient value and aligns with what they’re best at.

Business services sector M&A

“I see a lot of interest and a lot of potential for consolidation in the business services sector, particularly in subsectors like environmental water quality, which are made up of lots of smaller boutique providers.

“Consolidation can unlock significant benefits from all parties involved – from expanding geographical reach and unlocking synergies, to deepening capabilities.

“A great example of what can be achieved is Stonbury’s acquisition of Panton McLeod – the industry-leading advanced inspection and cleaning specialist of public, commercial and industrial water assets.

“For Stonbury, it bolstered its reputation in supporting the water and environment industries to mitigate the impacts of climate change, while enabling Panton to accelerate its growth pathway and join an organisation that was already operating where it wanted to be in the market.”

How to get the most out of a private equity partnership

“A private equity partner can bring a transformative mix of capital and expertise to help businesses deliver on their ambition. But businesses considering taking on a private equity partner need to make sure they’re working with an organisation that is the right fit for them.

“This means seeking a good strategic alignment but, most importantly, cultural connection. It’s likely that you’ll be working with your partner for many years, so it’s essential, above all, to be around the table with people that you genuinely respect.

“It’s important to be open-minded in working with your private equity partner. Having an investor that asks challenging questions is a good thing. In my experience, successful management teams don’t view this approach as a criticism or get defensive, but rather see it as opportunity to benefit from other perspectives, and challenge the status-quo.

“That being said, the best private equity partnerships should be just that: a partnership. I think that really encapsulates LDC’s approach – they work with management teams, and ask great questions.”

What value does a Non-Executive Director add?

“The important thing to stress is that Non-Executive Directors shouldn’t be seen as a threat or a barrier – they are there to make a board’s life easier and assist a business’ growth.

“A Non-Executive Director will encourage a board to look at opportunities and hurdles from a different perspective, thereby increasing the likelihood of good decisions. It’s all about positive challenges. They’re also likely to bring specialist knowledge or experience, so can be very effective in helping move forward in specific areas, drawing on their network of connections.

“Their contribution needn’t be solely operational – it might also be important areas such as improving equality, diversity and inclusion within the business, something I’m personally passionate about, or helping shape a business’ purpose, in line with environmental, social or governance (ESG) pillars. For some business services companies, ESG is still a tickbox, and for others, it’s a critical function of their success as a business. There is an opportunity to
support management teams to consider what organisational changes – such as inclusive policies, with a link back to commercial benefits – can create a pipeline of talent and increase diversity, which ultimately will benefit the business, and the sector overall.”