Carving-out GRC to accelerate growth

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Audio Transcript

Tim Smallbone

Hello, and welcome to Inflexion Point, the podcast that explores those crucial moments in a company's journey that changed the trajectory of success. Through conversations with business founders and entrepreneurs, we'll explore what those moments look like and how to recognise and harness them. In this episode, we'll hear from the founder of business-critical services and software company, Marlowe.

Alex Dacre

That's when we had the first eureka moment. Not only is it a big market, but those recurring revenues are driven by regulation.

Isabelle Pagnotta

The business has been growing fantastically well, and now we are just accelerating the growth potentially internationally.

Tim Smallbone

I'm Tim Smallbone and in my 20 years as a partner at Inflexion, I've been lucky enough to witness a huge number of those moments that are a part of every success story. Alex Dacre founded Marlowe in 2015 as a buy and build platform. The company acquired 80 businesses, listed on AIM and reached over 500 million in revenue. In 2024, Inflexion carved out Marlowe's governance, risk and compliance division. And Alex left Marlowe to run this new standalone business, now called GRC. Alex is in the studio with me as his Inflexion partner and Head of Business Services, Isabelle Pagnotta, who led Inflexion's investment in the company last year and now sits on the board. Welcome to you both. Thanks for joining me.

Alex Dacre

Great to be here.

Tim Smallbone

And Alex, were you always an entrepreneur? Have done a number of entrepreneurial ventures before this?

Alex Dacre

I've been involved in three listed businesses before GRC. I started life at a business called Restore PLC, which was a buy and build in office services. I then moved into the contract staffing space at a business called Impellam, and then I founded Marlowe in 2015.

Tim Smallbone

So a lot of the tools you learned doing that to be an entrepreneur, to be a business leader. You then made the flip to actually running a company. Were you running a business before you founded Marlowe?

Alex Dacre

I'd been sitting on some of the boards of businesses within the group, but no, I wasn't actually running the business myself. I'd always wanted to run a business. I've always been pretty entrepreneurial, and I knew at some point I'd have to take the leap. I felt back in 2015 that I'd built up the skill set and the knowledge of the B2B services arena and also the playbook to successfully use, as I say, acquisition as a tool to accelerate growth that I could take the leap. And I literally spent six or seven months screening probably 15 different service sectors and came across the fire safety market. And that's when we had the first, I guess, sort of eureka moment in the sense that we saw that in the fire market, not only is it a big market, a couple of billion in size, fragmented, very long customer relationships and recurring revenues, but those recurring revenues are driven by regulation. And that eureka moment was that we wanted to develop a business and a strategy focused purely on regulated services. And then fast forward a few years, we moved into the software market as well that stuck to that key theme of regulation. We acquired a business called William Martin. I saw when we acquired that business that by delivering a blend of SaaS and subscription service, you could achieve not just faster growth and very attractive margins and financial metrics, but also much better compliance outcomes for customers. And that blend of service and software gives us a really strong competitive advantage against some of the other players in the market.

Tim Smallbone

You started with nothing, 2015? You raised some capital, bought 80 odd businesses in what, five years?

Alex Dacre

I think it was a little longer than that. I think it was about 8 or 9 years in total. But yeah, 83 acquisitions.

Tim Smallbone

And so you had the moment where you realised you wanted to be in regulatory businesses. And then in this William Martin acquisition, that was the moment where you realised actually you could combine technology to create that GRC division. Those were the sort of two moments along the journey.

Alex Dacre

That's exactly right. Yeah. So deciding on regulation and then moving into software following the William Martin acquisition were two of the key pivotal moments in terms of our journey. And then obviously more recently, I think the next pivotal moment was the carve out of the business from Marlowe PLC backed by Inflexion at the end of 2023, start of 2024.

Tim Smallbone

Isabelle, what was it that led you to meet with Alex? Presumably, you were focusing on regulatory businesses anyway.

Isabelle Pagnotta

Yes, absolutely. Marlowe was very much in the centre of our strategy for business services in the sense that TICC and overall compliance services businesses are a lot of what we do. Before doing the carve out of GRC, we had done seven investments in the broader regulatory and compliance sector. So we had met Alex already in the past and followed the company with great interest. And at some point, we decided to engage in a discussion to carve out the GRC division because we thought that out of the two divisions, the GRC division had the most potential. This is very much tech enabled and software type of revenues with a lot of clients, over 17,000. And we could see an ability for us to accelerate the growth of this company once it was being private.

Tim Smallbone

There's a bit of a story here I just want to focus on with both of you. So Alex, who created this business, people have backed him, you built a group. And within that, there was this GRC division with the SaaS technology that you've both been referring to. It was clearly the gem. How did you manage to grab that bit and come away with that bit?

Alex Dacre

The public markets had been a really great platform to get Marlowe to where we got it to. And particularly in those early days, in terms of growth capital for funding acquisitions, it was a really efficient platform to build the business on. But fast forward to 2023, and I think the public markets were starting to hold back our growth. We wanted to internationalise the business. We wanted to continue and even accelerate the M&A program. And I think the public markets was starting to struggle to understand how this fast growth software-led business fitted with the roots of the business, which was a service business.

So we thought by splitting the business up into a pure play, tech-enabled service and SaaS business and leaving the service business on the public markets, you create two growth platforms and Inflexion shared our vision to take the GRC business forward. So we got together and we devised the strategy to carve the business out, take it private. And we're now nearly a year into running the business in the private markets.
We've got a very clear strategy to internationalise the business. We've done three acquisitions so far. We've spent about 70 million on those deals. We've moved into the cybersecurity space, which was an adjacent market that we'd had ambitions to develop into for some time. And we've got a clear strategy to further integrate the business, really develop that one-stop shop proposition to both SMEs in the mid-market, but also to larger enterprise customers, and also to accelerate our organic growth via cross-sell. So we've done a hell of a lot in a pretty short period of time.

Tim Smallbone

Once you have private equity, you've obviously been using it. I mean, this is a private equity podcast, and it's a very interesting aspect of the story that the public markets – this is not an opportunity to bash the public markets, but it's just a fact – you weren't able to get to where you wanted to be without doing that take private, without carving that bit out into private equity.

Alex Dacre

I think some of our public company investors were a bit more conservative. They didn't understand the business in the same way that Inflexion did. They didn't understand the markets and the market opportunity. And areas like internationalising a business on the public markets are more complex, particularly when you have more risk averse investors. So being able to sit down with Isabelle, Sam and Flor and really get them to buy into that investment strategy and the growth opportunity and take the business private and know that we have capital behind us so we can just focus on execution, we can focus on getting the deals done and we can focus on the organic strategy – it's been great and I'm really enjoying it so far.

Tim Smallbone

Isabelle, did you take the idea to them, to the public company? I mean, it must have been a tricky sell.

Isabelle Pagnotta

It's a very interesting point, actually, because we actually proactively went to Alex and introduced the opportunity to him to take that part of the business private. He bought into the idea and that's how we put an offer to the board and that's how it all started.

Tim Smallbone

Was that divisive around the board?

Alex Dacre

It wasn't a totally clear-cut decision, and there were definitely opinions either way, but I think the board could see that this GRC business had huge potential and the public market was starting to hold back that potential. And the enterprise value that Inflexion were able to put on the table was attractive to the public company shareholders, so it created value for the public company. And the speed and decisive nature that Inflexion were able to move at, I think, convinced the board that this was the right thing to do. It was in the interest of shareholders and it was in the interest of the ongoing respective businesses, the public one, but also the private one, and their thousands of employees.

Tim Smallbone

You've already referred to a couple of inflection points along the way, the idea of focusing on the regulatory side, then from the William Martin acquisition, focusing on the tech and the SaaS and bringing the tech to it. Must have been quite an inflection point buying the business out from the public company, a real moment.

Alex Dacre

It was definitely a milestone. It had been, what, eight or nine years in the making and there was an element to me that was sad to step back from the service side of the business because there's still huge opportunities in those markets. But it was also a really exciting moment because as I say, it's now given us the tools, the support, the investment and the armoury to focus on delivering the strategy that we think is going to be really successful in the years ahead.

Tim Smallbone

Your experience is really unique in that you founded a business on the public markets. So you had the full experience of all of the international investor relations that you have that comes with being on the stock market. And then you've gone into the private equity market. Just so you reflect on those two experiences, what would you highlight? Was more fun or more difficult or a constraint.

Alex Dacre

I mean, look, the public markets are a great platform to build a business on when it's working. I mean, in one year as a public company, I think we completed 23 acquisitions and raised about 300 million of equity capital. And it's fun because you can see the share price and you can see in real time how the work you're doing is resulting in shareholder value. But public markets are also exposed to changes in macroeconomic sentiments. And over the sort of relatively short life of Marlowe, we had COVID, we had sort of mini recessions, and you're slightly beholden to that broader economic sentiment. And sometimes that slows you down.

Tim Smallbone

You predicate your answer by saying it's a great place to be when things are going well. Is it also easier to explain when things are not going well in a private rather than a public environment? That's when it really bites.

Alex Dacre

I think that's probably a fair assessment, yeah, because you've got a board and you've got investors who get access to everything and they understand the business, they understand the people, they know the management team. So they're there to support you through difficult issues because business doesn't always go in one direction. But I think the point I was making was more that as a public company, you're exposed to those economic cycles. And there are periods as a UK public company where investors love acquisitions and really like buy and build. and want you to go faster and want you to do more. And then the economy takes a downturn and very quickly investors are saying, don't do acquisitions and buy and build stories become less exciting and become less sexy. So that change of sentiment that's kind of beyond your control can be frustrating and can hold you back.

Tim Smallbone

And Isabelle, we make a virtue of taking a longer term view, presumably, and able to look beyond the immediate.

Isabelle Pagnotta

Absolutely. Look, this is just the beginning with GRC, we are hugely ambitious for this business. This is a really big market. The business has been growing fantastically well since we've taken it private. And now we are just accelerating the growth, both organic and acquisitive. And as you said, Tim, we are a longer term investor. So, you know, we will take the time it needs to potentially triple the size of this business.

Tim Smallbone

With plenty of access to capital.

Isabelle Pagnotta

Yeah, absolutely. We view GRC as a platform and are very, very happy to back Alex and the management team to do transformational acquisitions or even two transformational acquisitions during our period of ownership in strategic markets as outlined by Alex, potentially internationally.

Tim Smallbone

When you build a business that quickly by acquisition, you end up with lots of different teams, lots of different systems, lots of different cultures. That must be quite a challenge trying to pull all that together, but you've been doing that for several years now.

Alex Dacre

Yeah, and it's look, it's definitely a challenge, but I think the point you made that we've been doing this for a long time is the key one. So when we set up Marlowe back in 2016, we always knew that acquisition was going to be a central theme of the growth strategy. So we've made sure that we have developed a playbook, built a team, and maintained a focus on really effective integration. Now that's integration of businesses, but it's also integration of minds and hearts. It's integration of cultures. And look, it's a constant challenge, and we don't always get it entirely right. But because we've done it many times before, I think we're pretty well set up to succeed on that front. And the GRC business of today has been made up of, I think, 20 to 28 acquisitions, which we've essentially integrated into two divisions, a division focused on smaller customers, which covers cyber, ISO, HR and employment law, and e-learning, and a division focused on larger enterprise customers, where we deliver compliance e-learning, regulatory intelligence, enterprise risk and health and safety software.

Tim Smallbone

And one of the other challenges was, I think you used the word carve-outs earlier on. This was a collection of businesses with no central function. And we just took them out. Presumably we had to build something from scratch.

Alex Dacre

Yeah, very much so. We've always been pretty strong believers in the way we've built the group in entrepreneurial autonomy. We had a relatively small centre and head office so it wasn't a hugely complex carve out. But even so, we did have to stand up a new head office, build a new management team, move off the IT systems that the PLC were using and develop out our CRM system, our ERP system. So thinking about it now, it was reasonably complex, but it's been a reasonably smooth process and it took probably six months to fully complete. We've done that now and now we're very much focused on the future.

Tim Smallbone

And with a business like this, where we're providing a lot of repeatable services, presumably that lends itself well to artificial intelligence.

Alex Dacre

Yeah, I think that's right. AI is a major opportunity for our business. It's a major opportunity to enhance efficiency of our internal operations, but also to enhance compliance outcomes for customers. And we're using it in various ways across the business. We're using it in our e-learning business to improve the efficiency and speed with which we can bring new content to market. We're using it in our employment law business to improve the efficiency of our employment lawyers giving advice to customers. And then we're using it to accelerate our growth. So we're using it to identify cross-sell opportunities and then promote them to the customer via our software, but also to highlight those cross-sell opportunities internally for our sales teams.

Tim Smallbone

What's the future? Presumably we're going to internationalise this business.

Alex Dacre

Yep, so we want to do a number of things. We want to accelerate organic growth. The key tool we'll use there will be cross-sell, so selling additional products and services to our existing customer base. And as Isabelle says, we've invested quite significantly on that front in the last few months.

I think the second element is continuing to broaden our range of products and tech-enabled services. We really want to be able to say to customers that we are a one-stop shop for compliance. So if you're a small or medium-sized business, you've got a whole load of regulatory issues and compliance burdens to worry about, we can take all of that worry away from you, we can deliver everything from cyber to ISO to health and safety. And there are a few other areas that we potentially could develop into. We'd probably do that via acquisition. We want to continue building additional scale in our existing markets through bolt-on acquisitions.

And then as you say, I think the other really key element of the strategy is continuing to internationalise the business. So about 15% of our revenues today are international, mainly focused on North America. By exit, we would like around 30% of our revenues to be international and we'll likely achieve that via a platform acquisition. And the two geographies that we're particularly interested in are North America and Australia. I mean, the North American market, it's about five times the size of the UK market. It's less penetrated, so it's growing at a slightly faster rate. The regulatory environment over there is really interesting. It's slightly less mature than the UK, but because of the 50 states, you've got a very complex and varied regulatory environment. And we think there's a big opportunity to replicate our successful UK strategy in a geography like North America. So build out that one-stop shop proposition in a new geography that would give us access to a much larger addressable market.

Tim Smallbone

So presumably you need a target, you need a platform to stand on there.

Alex Dacre

Exactly.

Tim Smallbone

You're not going to try and do that organically.

Alex Dacre

We do some of it organically, and our cyber business is already in the US, our risk management business is in the US, our ISO business is in the US. But to do it in a meaningful way in such a big economy, we need to acquire a platform with a strong management team, with an established presence that we will then use to act as a beachhead to promote our range of products and services. So we could, for instance, acquire something in compliance e-learning, and then we would promote our cyber, our ISO and our health and safety software and services via that platform.

Tim Smallbone

Taking the skills, the services we already have and trying to sell them through that platform.

Alex Dacre

That's exactly right, yeah.

Tim Smallbone

It's an amazing story, how you've created it from absolutely nothing, done all of these acquisitions, then carved out this GRC bit and used private equity as well as public money. It's a fantastic story.

That's it for this episode. My thanks to Alex and Isabelle for joining me. Remember to subscribe to Inflexion Point wherever you get your podcasts so you don't miss an episode. And of course, you can check out our previous instalments too, including the story behind premium skincare brand Medik8. Thanks for listening.

About the episode

Inflexion Point tells the story of GRC, the compliance software and services business carved out of Marlowe PLC, the buy and build group Alex Dacre founded in 2015, and how it became a standalone company backed by private equity. Host Tim Smallbone is joined by Alex Dacre, who built Marlowe into a listed group before leaving to run GRC, and Isabelle Pagnotta, the Inflexion partner and Head of Business Services who led the 2024 carve out and sits on the board. They reflect on the moments that shaped it: the eureka moment in fire safety when Alex saw that the recurring revenues were driven by regulation, the William Martin acquisition that added software to the services model, the decision to take the GRC division private and away from the public markets, and the run of acquisitions and move into cybersecurity since. Along the way, they talk about building a one stop shop for compliance, using AI to sharpen cross sell and internal efficiency, why the public markets had started to hold the business back, and the ambition to internationalise into North America.