Catapult steers through new waters

Andrew Morgan, managing director at Catapult, says that the most important factor in deciding to help finance the move was the firm's positive relationship with company management.

"It's in a market in which there's some growth coming," Morgan says, referring to the possibility of upcoming regulations that will expand the number of passages that require compulsory pilotage. "I think management have got some pretty interesting growth initiatives and, now that they're the owners, they'll implement them."

The ARP deal is the first investment for Catapult's newly formed Arrow Fund, which is intended to facilitate MBOs. Positive experiences assisting with MBOs of Australian Rural Exports and GRM Futures in 2009 were decisive in fashioning the strategy. Helping management buy their companies turned out to be more rewarding than committing growth capital, which Morgan had experienced at a previous firm.

"When you're investing in expansion capital, even though you might get on very well with the management team, there comes a point where you've got to work out percentages and valuations, and what stake your investment's going to make," Morgan says. "That conversation might go well, but that's a point where you're actually in conflict with them."

Along with avoiding conflict, another attraction of the ARP investment is that the buyout leaves the company under the control of its employees. That means they are more motivated to build the business to success, and need less of a push from stakeholders.

"When people actually own their own business, the care factor is heightened," Morgan says. "And that caring is actually contagious. The people that work in those businesses enjoy working there, even though they may not be the owner of those businesses. And it comes because the key people set the culture and the tone for the business, they're actual owners."

At this point Catapult is not thinking about exits. One of the firm's chief aims is to avoid what its website calls "PE disease," when an investor tries to exert too much control over a company without leaving any freedom for the management.

"Private equity gets itself into a lot of trouble by managing companies to exit," Morgan says. "I did it myself when I was working for a large PE firm. You sort of overplay your importance. But PE's role, or an investor's role, is to invest, and help where we can. We are in the trenches with management and we've got to have that good relationship with them."

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