Barclays Private Equity backs MBO of Direct Group

Barclays Private Equity, the pan European mid-market private equity house, has backed the management buy-out (MBO) Direct Group PLC. Barclays Private Equity has purchased a 47 per cent stake in the company, replacing the founder John Dunhill as the main shareholder.  

Direct Group is one of the UK's leading providers of business process outsourcing for the UK financial and insurance markets in respect of insurance products, including credit protection, total loss, warranty, rescue and recovery, legal assistance helplines and other specialist products. The company offers policy development and fulfilment, together with risk management and claims administration services. These are predominantly linked to loans provided by consumer credit finance companies and motor retailers, such as Cattles plc, Blackhorse, HBoS plc, Reg Vardy plc and Dixon Motor Holdings.  

John Dunhill, Nigel Clack and Geoff Woodhead have developed Direct Group over the last 13 years with revenues increasing by over 85 per cent in the last two years. Initially the business provided credit protection and motor breakdown insurance to motor dealerships before becoming a fully integrated business process outsourcer for both the finance and motor businesses. Direct Group is the only significant independent player in the market.  

The company’s activities encompass three markets that all have a history of strong and steady growth:

• UK consumer credit market – over the last five years the non-mortgage consumer credit market in the UK has grown on average by approximately ten per cent per annum, from £116.3 billion in 1997 to £172.2 billion in 2001.
• Business process outsourcing – in 2001 the market for outsourced administration of CPI stood at £49.1 million, and it is predicted the total business process outsourcing market will grow by 23 per cent by 2004.
• New and used car markets – in 2001 new car volumes increased for the first time in a number of years, rising by 10.7 per cent on the previous year.

John Walker of Barclays Private Equity who led the deal said: “Direct Group supplies a unique service that no competitor can match. Through this deal, we are backing a proven incumbent team, with an excellent track record and exciting growth potential in a three fundamentally strong markets. We have invested significant additional funding in Direct Group to support its growth ambitions, which will be aided by the entrepreneurial culture within the Group.  

"In recent years we completed transactions worth over €750 million in the financial services sector. This deal underlines our expertise and enhances our portfolio of companies which already includes Preferred Mortgages, Admiral Insurance and Clydesdale Financial Services.”

Nigel Clack, CEO of Direct Group said: “Whilst insurance companies will perform our services in-house for commodity products, such as house and car insurance, the larger insurers do not administer these services for 'niche products'. As a result, they have to turn to a business process outsourcer, like Direct Group, as we have the requisite skill base and the ability to add significant value to their business.  

“The existing management chose Barclays Private Equity as our preferred investor due to their experience in this sector and their professional approach. With the backing of Barclays Private Equity we have the opportunity to significantly grow the business, both existing and new, and further develop the Direct Group in our chosen markets."  

Tony Cook from the Leeds office of Barclays Leveraged Finance provided the Banking. Frank Herlihy of KPMG Corporate Finance advised Barclays Private Equity, with Peter Halpin of Eversheds, and DLA handling the legal discussions. The Leeds office of N M Rothschild advised the vendor.