There is a 2.6-kilometre looping trail around the edge of 45-hectare Cabinteely Park in south Dublin. A scenic walk meanders between forest, wildflowers, a pond, and an 18th-century country house. It is a trail that private equity fund partners Jonny Cosgrave and Peter Garvey became familiar with during Ireland’s first wave of lockdowns. 

From August 2020 on, they reckon they might have lapped the park almost ten times as they discussed investing in Salmon Software with its founder and chief executive John Byrne. “It was a non-traditional way of doing things,” Cosgrave recalled. “But it was during Covid-19 so meeting indoors wasn’t possible. By the time we did a deal, we knew every nook and cranny of the park.”

Garvey and Cosgrave were raising a €160 million fund at the time for their business called Melior Equity Partners, and they wanted Salmon to be one of their first investments. 

As Melior’s co-founders got to know Byrne, trust developed. By March 2021, talks had begun about investing in Salmon but Byrne, at 65, was understandably cautious.

He had founded Salmon in 1985 and poured decades of life into growing the business organically and creating an award-winning product. 

Byrne had built up a team of 30 people funding expansion primarily out of cash flow. His treasury management software firm had offices in Dublin and Kent with a customer support team in the Czech Republic. 

It had blue-chip customers like Ryanair, Airbus and CRH that were the envy of larger rivals.

“For a small Irish company to have that client list was amazing,” Garvey said. “It speaks to the quality of the product. The business has doubled in size in the last five years so it is working. But we felt it could grow even more.”

Byrne didn’t want to flip the business to just anyone. The company was profitable so he wasn’t under pressure. He wanted to partner with someone who would help him and his management team scale the business while de-risking things somewhat by allowing him to take some funds off the table. 

As they lapped Cabinteely Park, a deal gradually began to come together. Melior’s internal team was running the numbers, but it also asked some of its senior advisors to take a look.  

One of them is Cam Dyer, who is a former global co-head of the Carlyle Group’s technology, media and telecommunications team. He’d invested in hundreds of companies and knew the treasury management and software sectors. 

“Cam was super helpful as he’d previously served on the board of one of the largest treasury management businesses in the world,” Cosgrave said. Dyer loved the product and could see its potential to do even more. 

Melior also asked another advisor, Conor Jones, a senior director in Google who specialises in large customer sales, to give his opinion on how Salmon could grow. “Conor really looked at Salmon’s sales function and how we could help Salmon’s great product reach a bigger market,” Cosgrave said. 

Melior also felt it could help Salmon by making warm introductions to more potential customers through its Carlyle relationship and network of advisors. “Salmon has about 60 customers,” Cosgrave said. “We feel we could introduce them to 100 more customers that need treasury management. Will they all convert? No. But a portion will, and that could step-change revenue.”

By March 2022, Melior and Salmon were ready to announce a deal. “The Melior investment will allow us to grow and invest further in our team, extend our support and sales infrastructure, and deliver product enhancements including a superior cloud-hosted offering,” Byrne said. 

“The global treasury management software system market is valued at €1 billion and is forecast to grow strongly over the coming years. As a leading independent provider with strong reference customers, Salmon Software is ideally placed to meet this demand,” Cosgrave added.

The financial terms of the deal were not disclosed, but The Irish Times reported that Melior had invested €15 million in Salmon for a majority stake. 

*****

Melior Equity Partners was born out of a previous fund called Carlyle Cardinal Ireland (CCI), a joint venture between global investors Carlyle and Irish firm Cardinal Capital. 

Cardinal put John Dolan, a former partner with Investec Ventures, in to represent its interests in the fund while Carlyle decided to hire a recruiter to find them a small team to work alongside him. 

In late 2013, Garvey and Cosgrave were both living in west London when they were picked to join the fund. Garvey had worked in McKinsey before joining Goldman Sachs as executive director in its private equity group. Cosgrave, a qualified pharmacist, had spent almost a decade in Warburg Pincus. 

“We didn’t know each other before,” Garvey said. “We met up for a BBQ in Johnny’s house in Fulham and we hit it off right away.” The two men had young children that were similar ages, and they thought about business in the same way. “We had similar values and we thought about the opportunity in the same way,” Garvey said. “From a Carlyle perspective, they saw two people who are quite different but also complementary.”

They both had shared skills in investment analysis, but Cosgrave’s background was investing in healthcare, while Garvey was more experienced in financial services. “We also both saw the opportunity in Ireland,” Cosgrave said. “It was very under-penetrated from a private equity perspective.” 

Working with CCI, an early challenge was to convince owners of Irish businesses, who were shell-shocked afterthe financial crash, to trust them. “Private equity was seen as negative,” Cosgrave said. “We spent a lot of time telling people we were not going to buy their company, fire everyone, and drain the well. We had to tell them that our vision was to grow the business, invest in it, take it international, add more products, go into new markets and that we wanted you as the founder/owner to come alongside us.”  

Over time, this became easier as CCI built up its track record. “We created our own momentum by allowing people to see the positives of working with private equity,” Cosgrave said. 

Garvey said the Irish Strategic Investment Fund (ISIF, which has invested in both CCI and Melior) played an important role in fostering Ireland’s nascent private equity sector. 

“ISIF looked internationally and saw that private equity was in every other developed market,” Garvey said. “If you look at Switzerland, Austria, Denmark there are probably 10 to a dozen private equity firms, but there were almost none here,” he recalled. “They seeded a number of funds, and that has allowed the industry to take off.” Garvey said private equity was now part of the conversation when corporate finance houses sat down with businesses to discuss their future. “There are a lot of management teams who have had very significant wealth creation opportunities because of private equity investing,” Garvey said. “The more people hear those stories, the more they want to get involved.” 

When CCI started investing in 2013/2014, overseas funds were not prepared to invest in Ireland because its economy was seen as too shaky. Today, Garvey said, international investors were prepared to invest in specific areas like technology and healthcare, but they still stayed away from other sectors.

“The challenge now is, there is more capital chasing opportunities,” he added. “In some areas you will see overseas funds looking particularly in the larger end of the market. But for more traditional businesses or for deals of a certain scale or in certain sectors there is less competition, so that is an opportunity.”

“For us, it is about upping our game and really proving the value we can add to the companies that we invest in.”

“What we try to do is provide confidence.”

Peter Garvey

Jonny Cosgrave said an example of a successful investment made by CCI was chocolate maker Lily O’Briens, which the fund invested in in early 2014. “The investment thesis was straightforward,” he said. “Build more capacity in the plant, add more products and sell internationally.” 

Irish banks were reluctant to lend despite the Kildare based business having reached maximum capacity.

“The business was trading really well,” Cosgrave said. “But it had a bit of an existential crisis because there was no bank finance. They were thinking of selling the business, they were in defensive mode.”

CCI said it wanted to invest in the business. It took out small shareholders and gave the firm’s founder some liquidity. “This gave the business a high risk tolerance,” Cosgrave said. 

“We partnered with the management team and founder Mary Ann O’Brien to add more capacity,” he said. “Fifty per cent of revenue was in the UK but they only had one salesperson there so we increased that to five.”

“We also tried to level out seasonality by launching all-year-round products,” he recalled. “We also invested in its desserts business.” Cosgrave knew Steve Newiss, a former vice president of European sales at Kraft Foods, so he asked him to join the business as a non-executive director. “He really helped the company think more strategically about selling into the UK and about how to approach the big multiples,” he said. “During our investment period, we doubled sales to supermarkets in the UK.”

“All in, sales went up more than 50 per cent and profits more than doubled during the time we were there,” he said. In December 2017 Lily O’Brien’s was sold to a Polish company called Colian Holdings for €40 million, delivering a strong return to its shareholders. 

Garvey said founder/owners often found themselves in similar situations to Lily O’Brien’s. “They have built a business over 15 to 20 years and are doing fine,” he said. “When big opportunities come along like an acquisition they might say no because, what if it goes wrong?”

“What we try to do is provide confidence,” he added. “When someone is able to take some money off the table and become secure they are more open to making that acquisition.” 

“People become unburdened,” Cosgrave added. “It is more of a shared burden.” 

“It is a very lonely place being a founder,” Garvey said. “We or one of our senior team can sit alongside them or we can put in a non-executive director in to help them make sensible business decisions that they might have been looked at as high risk before.”

Melior said it could not disclose the returns of the CCI fund, which is still working with a small number of investments, having successfully exited by sale Carroll Cuisine, Learningpool and AA Ireland among others. “You live or die by your track record, and the track record of our first fund was very good,” Garvey said. 

An origin story

The name Melior Equity Partners derives from melius, the Latin for better. “We want to do private equity better, and help management teams do business better,” Garvey explained. Melior is a generalist, sector-agnostic fund. It doesn’t do hard-core venture capital funding where there is considerable product risk, and it doesn’t do property.

“If a business is on the island of Ireland and is a good business with a good team in a good market, then we are interested,” Cosgrave said. He said the decision to set up Melior with Garvey was a natural progression after CCI, and that its break-up with Cardinal was amicable. 

“The natural time for us to part ways was at the end of the investment fund,” Garvey said. 

“We still have a few left so we still work together,” Cosgrave added. “Our goal ultimately is to ensure a very positive experience for investors.” 

Melior, Garvey said, had met many of its investors in person in the months before Covid-19, but the fund itself only closed during the pandemic.

“We are fortunate as a business to have a supportive pool of investors,” he said. Both the state’s sovereign wealth fund ISIF and Caryle re-invested in Melior, which is two-thirds backed by international money, with the remainder from Ireland.

“Investors want to see parties who have watched you perform over a number of years investing again,” Garvey said. “It gives other investors confidence.”

Three of the founders of Carlyle – Bill Conway, David Rubenstein and Daniel D’Aniello – have all personally invested in the fund. Forbes estimates each of the founders to be billionaires, and Garvey said they were a supportive part of Melior’s network. “Part of our pitch to businesses is we are only down the road,” Garvey said. “But we also have an international network. When we made our first investment in BHP Insurance, Bill Conway rang me to say how much he liked the company, and to let me know he can help. He is one of the greatest private equity investors so to have his help is a real differentiator for us.”

Melior’s typically invested between €10 million and €30 million per company, but it could team up with others to do larger deals when needed. “We want to do around 10 deals in this fund,” Garvey said. With the CCI fund, Ireland was just emerging from recession, suppressing valuations. Was it easier? “It wasn’t easy,” Cosgrave said. “It was never a slam dunk. There was always risk-reward. We backed good teams but we had to work really hard with them. It took time to find the right businesses, and hard work to create more value.”

Garvey said the skills to find good deals required not just being able to find the right business, but also being able to execute the right plan with it. 

He said Ireland had little history of institutional private equity investment in businesses versus, say, Britain or the United States. “In the UK, private equity has been around for 30 years. If you need a private equity CFO in the UK there is a list of 100 who know what PE wants from a business and how it operates. Here in Ireland, we don’t have that.” 

Melior’s experience of the Irish market, he said, put it at an advantage as a result. “Small businesses growing rapidly who want to go international sometimes need additional people at non-executive or management level who have done it before to help them get there,” Garvey said. “We have found some really great people over the years like Brendan Nevin who is the chair of BHP.” Nevin was previously the chief executive of AA Ireland, a former portfolio company before it was sold to Further Global for €240 million in 2020. Set up in 1998, BHP Insurance is an independent non-life insurance broker in the not-for-profit sector in Ireland with over 5,000 clients.

“Brendan has run a business that was five or ten times bigger than BHP, but there are a lot of parallels between his old business and what Martina Westphal (the CEO) is doing with BHP. He is a great sounding board and resource for the business,” Garvey said. “Building a network of good management talent and really good board members is really important.”   

Three out of five “shots on goal”

Finding businesses where private equity investment can create more value is a key skill. Melior has built up a small team of 10 people to find new investments and manage existing ones. It hired Jonathan Dalton in August 2021 from Key Capital where he was head of corporate finance as a managing director. Its other managing director is Esmond Greene, who previously worked with them in CCI, and before that Evercore Partners and JP Morgan Cazenove.

Its CFO Elaine Hill previously worked with food business Sprout & Co. “The things we are really focused on are what are the value-creating levers in our control in an investment,” Garvey said. “Whether that is expanding a sales force, investing in a new product line or entering a new market.”

He said Melior liked to identify five potential “shots on goal,” to grow a business where it only needed to execute on three to succeed. “That’s what we’re looking for, you need lots of shots at goal as not everything will work,” Garvey said. “Only in a very few cases have we not retained management. What we find with founder-owners is they want to stay with us for, say, five years and then sell out with us. So an important thing we do is manage succession. We help find the right person and groom them to be the next leader when we sell to either a trade buyer or another private equity firm.”

Melior typically only adds a small amount of debt to its transactions. Historically, it said it had worked with AIB, Bank of Ireland and Ulster Bank. 

“It is a shame Ulster Bank has left the market as they were big supporters of ours,” Garvey said. “But that said, AIB, and BoI have been tremendously supportive too.”

“With Ulster, it has been a long glide out,” Cosgrave said. “It has already been a two-bank market effectively for us for a period of time so we’re not too concerned (about Ulster’s exit).”

Melior said part of its job was to work with management to institutionalise the businesses it invests in, in order to make it attractive to larger future investors or buyers. “That means a proper finance function, proper reporting, a succession plan and so on,” Garvey said. He said Melior had seven senior advisors that it could draw upon as mentors to companies it invests in. One of these, Garvey said, was Laura Heuston, a cofounder of SustainabilityWorks, a specialist in ESG. “Laura helps us before we do an investment in due diligence, and afterwards when we invest in making an ESG plan so that by the time we exit we have everything right in place as it is really important to institutional investors,” Garvey said. 

Other advisors include Fergal Leamy, group CEO of Glen Dimplex; Jimmy Tolan, former CEO of VHI; and Ulric Kenny, chair of PrePayPower. Each brings different skills to the table. “Jimmy is brilliant on healthcare, macro and M&A,” Garvey explained. “Fergal knows manufacturing, industry, and the consumer. Ulric has a tremendous track record and challenges our thinking.” Another advisor is John-George Willis, who founded the corporate department in Belfast law firm Tughans. He helps them with its Northern Ireland investments.

“Private equity is about more than just money. It is what we can do for a business,” Garvey said. “Having great advisors and international connectivity through Carlyle and the founders of Carlyle means we can show companies great examples of the type of introductions we can make,” Garvey said. 

Melior said it would also fund strategic acquisitions. Cosgrave said when CCI invested in eLearning company Learningpool, it funded four acquisitions. 

“The first two acquisitions were about customers, the third was about a great new product and the fourth gave us more capacity in North America,” Cosgrave said. “It is about organic growth but also sensible strategic acquisitions, not just getting bigger for the sake of it.” 

Melior said it tried to find companies that had the basics right. “We are looking for good economics…meaning good margins and returns on capital, but also a growth pathway,” Cosgrave said. “The businesses we invested in before had strong demand even during Covid-19. The AA, Carroll’s, the Sports Surgery Clinic, McCauley Pharmacy… they are all persistent and stable businesses.” 

“Our job is to invest through the cycle in good companies. We are not macro investors. We are micro in that we like good management teams and good companies,” Cosgrave said. “In 2019 we felt valuations were getting high so we invested in rock-solid businesses like CityBin and the Sports Surgery Clinic.”

“We didn’t add on lots of debt and we have never really invested in an energy-intensive business,” Garvey added. “We do think about inflation, so we like to have something that has some pricing power and that is not too people-intensive, cost-wise. The other key factor is management. We want teams that know how to work together and with others.”  

“It is great to make money but it is also about making money the right away, and losing money the right way.”

Jonny Cosgrave

Melior was linked to a bid for Davy Stockbrokers earlier this year working with Carlyle. “We have looked at several businesses worth 100s of millions,” Cosgrave said. In 2016, for example, he said CCI teamed up with Carlyle Global Financial Services Partners to buy AA Ireland for €156 million. “Our investors are happy to give us more if there is a bigger deal and it is the right one,” Cosgrave said. 

“We take a portfolio approach,” Garvey said. “With smaller deals, it is very intensive and hands-on but you can make four or five times your money.” Carve-outs – where large companies sell off divisions, as happened when Aryzta sold Carroll Cuisine – tended to have more structure and established management teams so returns can be lower, he said. “There are less obvious things to do,” Garvey said. “But equally there are less things that can go wrong.”

And Davy? “Our job is to see every deal that is done in the Irish market, and if we don’t we are upset,” Garvey said. “We have lots of our existing investors and others who would be delighted to partner with us. The stockbroker that you mentioned is a tremendous business with a great brand. If something like that comes along we would do that all day.” 

Cosgrave said Melior was ambitious for the future, and with two deals done expected to close more later this year. He said the business was not, however, prepared to do any deal. “It is great to make money but it is also about making money the right away, and losing money the right way. We don’t want to lose money but it is important to treat people with respect and do the right thing. We agreed that very early on when we first met, and that remains our focus.”