Innovation, acquisitions and empowering your team

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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. And in this episode, we'll consider the fortunes of Aspen Pumps, a specialist manufacturing firm based in Sussex that conquered the global marketplace for air conditioning and refrigeration systems.

Adrian Thompson

We decided to take out the bulk of our master importers and actually invest in our own sales team and take the market directly and that really did transform the business.

Malcolm Coffin

Brilliant product-centric business, global opportunity and that was led by some really clever distributor management across the globe.

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 Inflexion points that are a part of every success story. Inflexion made an initial investment in Aspen in 2007. Since then, the business has completely transformed, both organically and through acquisition, and expanded its geographic reach. After an exit from Aspen in 2015, Inflexion reinvested in the business five years later, unable to turn down the chance to support its continued growth, and to once again partner with its chief executive, Adrian Thompson, who I'm delighted to welcome to the studio today. And I'm also joined by Malcolm Coffin, head of Inflexion's Enterprise Fund, who sat on the board during both investment periods. Welcome to you both, and thanks for joining us. Adrian, can I ask you exactly what the business does? Air conditioning pumps sounds so exciting.

Adrian Thompson

Oh, it's a rock'n'roll world, Tim. Let me explain it to you. So air conditioning is two types of systems. There's the American ducted system, which are only designed so Bruce Willis can climb through the buildings, or there's the more European system that most of your listeners will be used to, which is having that wall in the room. And an air conditioning system, it's a kind of like heat transfer. So the refrigeration produces very cold surface. And as part of that, then that produces water, as condensate, and then you require a pump to pump it away. So Aspen is the world leader at making lovely, sexy small pumps to pump that condensate water away from the air conditioning system.

Tim Smallbone

So they're little tiny pumps that go in every air conditioning unit.

Adrian Thompson

Yeah, they're only around about 6 inches big and they can be used in any air conditioning system themselves. But obviously we do a lot more than that, as I'm sure this story will outline.

Tim Smallbone

So you joined the business when? 2007.

Adrian Thompson

I actually started in 2006 because it was a very unusual investment. You were looking, as at the time it was an entrepreneur who was running the business, a fantastic product-based business, but really it was being held back through growth opportunities. So Inflexion saw the opportunity and needed someone to come in as a CEO and also a chairman. And then my guru in life, actually a guy called Charles Thompson, recruited me. So in 2006, I actually worked with the Inflexion team as part of the investment and actually putting the case forward. So it was very interesting. So it was in the very beginning, in 2006, and then finally we bought the business in March the 7th, 2007.

Tim Smallbone

So it's quite a small business then. Not many products, not many countries. Just give us a description of what it was like at that time. And what did you see in it?

Adrian Thompson

The business, I mean, it was an incredible business. It had got to 10 million and it was basically run by Bernard on his own. He had no management team, just a small manufacturing unit below. and he was dealing with at least 30 companies himself individually while running that operation. But it was all built around a really excellent product base, but that was all around the condensate pumps, but it brought in a range of accessories as well to also help with installation of the air conditioning system. 90% of the sales were around these condensate pumps, which he was pumping internationally in. It's done a great job because the air conditioning market is structured in a unique fashion. Most of the air conditioning is made in China and Japan and Korea to one standard. So the products here designed in Hailsham in Eastbourne, which is God's waiting room, we're able to ship those internationally. So there's very few barriers to entry really. So it was a great opportunity to grow an international business very quickly.

Tim Smallbone

Mal, what was, going back, if you can remember about that far, what was our thesis at that time?

Malcolm Coffin

Back then, there were really two main drivers to the opportunity. So firstly was around taking the business beyond Bernard and then building out the capability set of the team into seizing the growth opportunities. But the other main drivers around internationalisation. So as Adrian said, a brilliant product-centric business. global opportunity and having the management team to then drive that opportunity set of taking it from, I can remember 30 or 40 countries when we first got involved, to over 100 by the time we exited it first time around. And that was led by some really clever distributor management across the globe.

Tim Smallbone

You came into the business as a professional manager. There was the founder. You were taking the business forward very successfully. How did that relationship work? Did you end up with sort of tensions between the two of you as to where you wanted to both take it?

Adrian Thompson

Yeah, it's a very good question. I think you naturally get tensions with an entrepreneur and founder against an individual like myself. And I'd see myself, not as an entrepreneur. I think there's people who are shipbuilders and I think they're sailors and I'm a sailor. I've never set a business up, but give me a business situation and I'll try and sort out the problems and grow it forward. And I think those two different skill sets worked very well in the beginning. And we were able to give Bernard what he actually wanted, which was to focus on the international sales side of the business and the product innovation, which was absolutely excellent. As we grew though, we had to bring a sales director in to support that, Serge Becker, a great individual who speaks seven languages, and moved that forward. And as Bernard then was focusing on the product development, there was just a natural parting of the ways that the business grew. So I wouldn't say there was overly too many tensions. It was all handled very well. But these things sometimes can get messy. And I think, you know, everybody was very mature, the chairman, the management team, the founder, and also Inflexion. So we found a happy ending for everybody.

Tim Smallbone

So product development and pump's a pump, isn't it? I mean, what else did you develop?

Adrian Thompson

There's a lot of sex you can bring to this industry, Tim. Don't underplay it. I mean, the air conditioning pumps, the key thing the installer wants is obviously reliability and the design of the pump to do that. But the second, where Bernard was a real expert, it's fit and function. Being an ex-AC engineer, and in fact the business was formed by three AC engineers, they really understood the installers, their daily lives and how to make the product really simple to install to meet their needs. And that's one of our clear differentiators, and it still is.

Malcolm Coffin

When you think of the role of the installer, what he wants is to install a pump for it to work effectively and then for him to go on to the next job. What he doesn't want to do is then get called back by an angry customer saying, this thing you've just installed hasn't worked. So having a product which is easy to fit, easy to install, that he can know exactly what he's got to do with it and then have the confidence it's really reliable, then that's what the installer wants.

Tim Smallbone

So that was our differentiator, was it, from the start, understanding the installer's needs. So it was producing a pump that presumably price was then less relevant. It was about ease of installation and reliability.

Adrian Thompson

Oh, very much so. The design of the product and the product's ease of entry, as I said before, is part of the DNA of the business, but reliability is all for the product itself, but also you've got to be able to install them in very confined spaces and also aesthetically as well. When an installer gets to site, he's not sure of what pump he'll require and what obstacle he'll meet, because obviously we work where gravity can't, which is a British invention. So it may need to travel for a long distance and certain heights. So you need to be able to make the product so it can fit into tight spaces, but also have the pump performance that will meet the requirements.

Tim Smallbone

Because the business was doing very well. And yet we decided that we were going to make a change.

Malcolm Coffin

I think what it also enables us to do, though, was make sure that there was proper alignment along the now expanded and very talented management team who'd come in to sort of drive that next growth agenda. And by the time that we did the deal in 2012, you know, we were several years in, we were sort of full hold period in, but there's so much more to go after. And so it enabled us to reset the clock, so to speak, to make sure that equity was in the right hands and the people who were really driving value, who were driving that sort of pace and urgency in the business, were properly incentivised to do so. it was a situation that really worked for everyone. Bernard enabled himself to focus on his needs and then take a step out of the business and then have the leadership team who are really driving performance be incentivised to do so.

Adrian Thompson

And that's a very good point, actually, because we could reset the clock and that worked well for the new people who'd come in because they weren't going to get the benefit of the exit. And we thought that was important to get more equity spread around the management team. And that's something we've continued to do.

Tim Smallbone

And that released some energy within the business to empower the individuals.

Adrian Thompson

Oh, very much so. You know, the incentive within PE of having sweet equity cannot be underplayed.

Malcolm Coffin

And one of the great hallmarks of the Aspen story has just been the quality of team that Adrian has managed to assemble over the course of the various chapters of growth. And having that real focus on bringing the best team around you and making sure they're incentivised to both do their job and rewarded for doing so has been one of the real hallmarks of the success that Aspen has achieved.

Tim Smallbone

We took it on to a period and then we decided to sell. Inflexion sold out. So what was the rationale? Because the business was just powering ahead.

Adrian Thompson

Yeah, it's always a good question, isn't it, of why do you sell a business? But we had been with Inflexion for seven years. Malcolm outlined the strategy and that had been delivered. You know, we've got the business to over 30 million and a very good level of EBITDA. And I think there comes a natural time when you do need to look at working with someone else in the traditional ways of PE. Now, obviously, there's different mechanisms that are available. But the only way in those days to really realise the value for the management team and also the private equity company was to sell the business. But it was a decision that Inflexion didn't take lightly. And we had a lot of discussions. In fact, we were going to exit earlier, but we managed to stay for another year, year and a half. And that had a massive increase in the equity value for everybody. So that worked very well. But these things, as you know, they come to a natural timing within your funds as well. And also the management team, because that gives us an opportunity to take some managers out and then them to make and realise their investment and incentivize the new set of management team. And we could also move that equity deeper. So that gives an opportunity to give equity to 70 of the staff that we had at that time. And yet again, that's back to our value. And we see that as very important.

Tim Smallbone

So an interesting theme there is that there was a continued expansion of the equity base within the employees, within the value creators, within the business.

Adrian Thompson

Very much so. And if you talk to some private equity firms, investors, They would argue that staff don't see the value of equity and that you're wasted giving to them. I would argue against that. So we spread it very wide and deep. And if you'd been at those meetings when we did our exit in 2020 back to Inflexion and those people and the equity that was put into their hands, that was more important actually, I think, for the management team than actually the money they made.

Malcolm Coffin

And one thing that we noticed is what it does for the culture of the organisation. So it's really a success culture and people are really bought into the goals and the achievement that the business is looking to to foster, primarily because they know that they play a part in it and they'll also be rewarded for that part in it. And that goes into a sort of virtuous circle of driving this real performance, real success culture.

Tim Smallbone

You took it on with 3i for a while. That was very successful. So why then did 3i then want to sell it? Because it's been successful for each stage of the ownership along the way. We came back in 2020. What was the rationale for going on again?

Adrian Thompson

Well, It's about investment cycles, and during the time with 3I, when we were selling the business, and there's something that doesn't get discussed, PE are very, very good at selling businesses, so you do due diligence and you really do an MBO on your business. And when we started to do that exit process with Inflexion, we could see that the distribution strategy was really holding us back. We had 27 master importers. And during that phase of the investment, then it was time to change that and also look to start doing a buy and build. So it was a natural progression when we moved to 3I to put those in place, change our sales force to a direct sales force, and then start acquiring businesses. And at the end of that five years, we had actually hit that phase. We'd hit the targets that were agreed, and yet again, it was time to reset the clock.

Tim Smallbone

And when you refer to master importers, can I just understand that? The route to market for each individual company is to an individual business distributor within each country.

Adrian Thompson

Bernard, the founder, set a very clever and entrepreneurial way of doing the distribution of the product to start with when he was trading with over 30 companies internationally. In each country, he would establish at least one master importer. And then against that, master importer would take the bulk of the pumps and then distribute to the wholesaler. And our key customer is the wholesaler within the ACR industry. So 100% of our sales go through the wholesaler channel. Now that is great to start with because it's not labour intensive and you can get good traction within the business. But what you start to have a situation or a pivot point where you're then managed by the master importers themselves. And there is an incentive for them not to grow too large or to at least block the channel for you. So we decided to take out the bulk of our master importers and actually invest in our own sales team and take the market directly. And that really did transform the business because you're not just internalizing the margin from that benefit, but you're also building a direct relationship with your wholesaler customers, which gives you an opportunity then to expand that distribution network.

Tim Smallbone

Your master importer becomes a bit too powerful.

Adrian Thompson

Yes, or a blocker. When we started buying the master importers out or moving directly, we actually found that Aspen was the biggest competitor to ourselves on pricing policy. because we would ship the products to Italy, France, Germany. We didn't care where it was sold. So our master importers were competing against each other, which was then causing problems with the ultimate wholesaler.

Tim Smallbone

So your Italian was selling into France when he should have been selling only to Italy?

Adrian Thompson

Who would say it was the Italian staff! You said it first.

Tim Smallbone

Bigfoot. Now, this doesn't mean anything to our audience, but it's something Mal keeps referring to, and I have no idea what it is.

Adrian Thompson

So Bigfoot, it's a slightly different part of the Aspen business and something that we really love. And when we originally bought the business, it was only 600,000 pounds turnover. That's now doing 20 million. And what it'll basically do, is mount just a small air conditioning unit that you'll find outside your house, all the way up to making a platform in the sky that can take over 150 tonnes and mount the air conditioning unit, all of the service and pipework, and also the shuttering around the system. So really building a platform in the sky that can handle all the M&E requirements for that air conditioning system.

Tim Smallbone

Just geographically, what's been the hardest territory to get into?

Adrian Thompson

That's a very good question, Tim. I would say two markets have been hard to get into, or two regions. Southern Europe, because of the reason of the structural barriers there, because condensate pumps are not used as often because it's a more domestic marketplace and also had a different pricing level. And there was some incumbent competition there as well. So Southern Europe has been somewhere historically we weren't strong and we had to grow that out for extending the product range, but also acquiring companies within that and making ourselves become Spanish and Italian. And we're getting some very good traction in those businesses. The other area that most UK businesses struggle with is the USA. Now we've grown incredibly successful market leader there, but we got lucky. And that's the one area where we've kept our master importer because they've been able to work with us to grow the market, where we've created great products, but we've leaned on their relationships. And that's where we've kept in place that long-standing relationship and managed to get a strong position in the market.

Tim Smallbone

How to get into the US is a theme that we're constantly challenged with. So your trick was, you say you got lucky — well, that was just chance. You got the best possible partnership there, did you, to help you make that bridge?

Adrian Thompson

Exactly, yeah. It was one of those lucky things that the business that we were working with was acquired by a larger group and we built a very strong relationship with them and they had great access to market and were able to work together to grow the Aspen Pump brand.

Tim Smallbone

You did well all over the world, including into India, China and across Asia.

Adrian Thompson

Yeah, that was a very interesting project. And in the early days, we decided we would gamble some money to see if we could grow the market in Asia. And we started out looking at China, working with Xuan, who was the internal Inflexion consultant, and also Rohit in India. The Chinese business, we actually got off the ground and got some growth, but we found some very interesting barriers to work within the marketplace itself, so we closed that down. However, the Indian business has gone from strength to strength now and we're doing over 50,000 pumps in that marketplace and investing, we have six individuals and have a market leading position in that market as well. And that was all working together with yourselves as a team and also Rohit to build out what is now a really nice commercial operation.

Tim Smallbone

As you've grown the business? Have you witnessed people reaching the limits of their capabilities and looking at which are the key individuals and key moments where you've had to bring key people, perhaps in different territories or perhaps to managing particular commercial areas of the business?

Adrian Thompson

I think Aspen overall, if you look at the management team, has been very lucky. And a lot of the people that we recruited have actually gone all the way through the journey, including myself. I've run the business now for 17 years, which shows a little bit of talent can go a long way. or as Warren Buffett would say, always invest in a business that an idiot could run because one day he will. So if you look at the fundamental core of the business, actually, we've kept a lot of the key people who were there. But yeah, there are also those points that come into the business where either you require a different skill set or the job has got too big or it's got expanded so the area is too large and you've had to recruit new people. And I think every three years you have to look at the management team, look at the strategy, and you do have to rebuild the business really in all areas. And that's something that's consistently happening in Aspen. But People understand that. We work very closely with the staff. People understand their position, what the plan is and their involvement in that plan. So we've never had a problem swapping people out. It's become natural of what's required. It's become something that people really do understand.

Tim Smallbone

For a business that was just in Sussex to a business that's now truly global, how have you managed to retain that cultural success?

Adrian Thompson

And that is very hard as a business. And what we've tried to do is not to centralise. And I talk a lot to the staff about centralisation because that kills energy. And the role of the CEO is about managing the energy of the business, taking away the barriers so people can go to work and actually have a good day. So you have to build very consistent units that can see an opportunity that they can actually make a difference, that they are in control of the pricing policy, the distribution policy in their areas. You know, there's overall rules, but their ability to actually go out there and perform their role and function, but also have a lot of contact with the center throughout supporting them and working with them and making sure that they can deliver. So it's trying to take that Aspen culture, try not to put bureaucracy on it, break it down into small, really effective units, then really feed them and support them and give them energy.

Malcolm Coffin

And at its heart, Aspen is a people-centric business. So we talked about clarity of purpose, clarity of focus within those different units, as Adrian described, but then also having a sort of clear understanding of where the business is going at the collective level, but also at an individual level. And that enables the people in the management team to know how their roles are going to expand. And in certain situations, for senior members of the team, where their roles got too big and they need to bring somebody else in so they can really focus on an area of excellence and allow somebody else to come in and make that their area of excellence without any sense of being too proprietorial or territorial, but really focused on the overall success of the project.

Tim Smallbone

You used the word energy, which reminds me that this is a business which has grown in an environment of global warming. So air conditioning, the demand is obviously continuing to rise enormously. And yet we are, air conditioning is a big user of energy. What is Aspen's role in minimizing the amount of energy used in air conditioning?

Adrian Thompson

Yeah, it is that juxtaposition where Aspen Pumps, on one side air conditioning is seen to be using energy and using energy inefficiently. But at the same time a heat pump is an air conditioning system which is also used for heating and is the future for boilers in the UK and heating systems across Europe or even globally. So on one side air conditioning is seen to be a negative use of energy, but a lot of people now live in zones where you can't live without air conditioning and it's just going to be realistic. However, those systems will be designed ultimately, and those are now starting to be rolled out, where they'll be running off solar panels with battery systems. So the air conditioning system itself will be using a lot less energy. But the positive side of the story, as we said, and where Aspen's been aligning itself with its new product ranges, is that we're very much lining up with the heat pump market, which will be fast growing, replacing gas boilers and the old fossil fuels. So there's a positive side to that story as well.

Malcolm Coffin

And within the broader air conditioning piece, if you think of the role of Aspen, having the most efficient pumps, having the most reliable pumps and the broader range of accessories that the business has, it makes the air conditioning unit itself more efficient. So where there are air conditioning units in play, the role of Aspen is to make that air conditioning unit as efficient and therefore as energy, limit the energy consumption as possible.

Tim Smallbone

There were a number of Inflexion point changes along the way as you bought out the founder, you sold onto 3i, bought the business back, which gave you moments to reset the incentive structures within the business. But also along the way, you've grown by developing new product, but also acquisitions. Were there some step changes of acquisitions that you could think of which changed the story, changed the note of the business?

Adrian Thompson

Yeah, it's very interesting. During the ownership with Inflexion from 2007 to 2015, we didn't do any acquisitions. We were very much focused on the professionalization and continuing the sales momentum and the product development. And it's only during 2015, starting again with 3i, where we'd lined up some acquisitions, we started that process. And to be fair, they were quite transformative. The first business we bought was Propipe in Australia, which you think would make a strange choice. However, we decided to work with Propipe because they had a great management team, Brett and Steve, who we could work with, we could trust. And we knew Australia was a great market for us, and that business was initially doing 5 million Aussie dollars, and it's now doing 30 million over that period of time, and that's from 2015. So what we found with acquisitions, it gave you either quicker access to market and relationships or product ranges that we could globalise and put through the Aspen channel. So we weren't on both sides of the equation. So we found a buy and build strategy has been very successful for us. And last year alone, we did 6 actual bolt-on acquisitions in supporting that and are looking to do another six this year.

Tim Smallbone

We've been an innovator in terms of the design of what we do. Have we been copied?

Adrian Thompson

Look, you're always going to get imitations. And obviously one of the concerns for any of the investors that are coming to the business is, will the Chinese copy our product? And there are many barriers around that product in the design and the IP itself and also the distribution channel. But that means you have to keep growing and driving the innovation agenda. And the final factor, as we talked about — reliability for the product — is installation. But during the COVID years, more of these products were being used in a domestic environment and noise of pump became more and more important. And a combination of bringing in a new technical expert who came with his experience of electronic design, we've been able to move the product away from just a physical design to now an electronic IP-centric with firmware, which is totally different to any of our competition. So the quick answer to that really is you've just got to keep moving.

Malcolm Coffin

And the competitive environment has remained stable. I mean, the question got asked, can this product be copied back in 2007 when we first invested, and then 2015 and again in 2019. And as Adrian says, if you look at the channel itself, if you look at the needs of the installer, what he wants is a high quality pump that's reliable, that is easy to install. And ultimately, he's not the one paying the bill. The homeowner or the commercial property owner is the one paying the bill. So price is less of a driver for him than it is the quality and the reliability and the quietness in the situation of the pump. And therefore, the market itself is geared around high-quality production rather than low-cost copies.

Tim Smallbone

You've been remarkably successful in taking this business from such a small beginning to where it is now as a global business; what worries you about where we are today?

Adrian Thompson

I get asked that question a lot, and it's changed over the years, and I think we can all see that globally the world is changing, and it's not really the competition that I'm concerned about now as a business. I think the geopolitical environment has become very concerning and the fact that we're starting to see huge trade barriers come in across the global economy. And I think that's my biggest concern is around the geopolitical nature, but also around recruiting good talent. As a high-growth business, we have to be able to find the people who can fit within the culture and bring core competencies to support our plans and what we're doing. As an operation, we're now looking to move into manufacturing. We have a business in China and Malaysia and Italy and a UK operation and we're looking to expand out and it is growing pains there to find the people who can support that and bring the skills we need to be a world-class manufacturer.

Tim Smallbone

And what's the next big step change? What's the next big thing for Aspen?

Adrian Thompson

The start to this answer is really boring and it's very much as we've always said to any new investment, it's more of the same. There's so much potential growth still within the existing Aspen model. As you look for the pump or the mini pump growth, as you say, air conditioning is a fast-growth business. We've also talked about the opportunities that will be caused by heat pumps within the marketplace. and the businesses that we've acquired and the range of products that we've still got to put through the Aspen distribution. So there's a lot of built up momentum already within the Aspen model that is coming through. But on top of that, we're really focusing on three main areas. And we've talked about the US and we see that there's a great opportunity. But we're also with Bigfoot, there's a great, great business there that with investment and a buy-and-build strategy itself could have its own future as a side to the business line. And then on top of that, we've been working very much on bulking out our tool strategy. We call it a funky tool strategy. I'm not allowed to say that in front of Mal, but that's the management operational business. And we have acquired the tool businesses now. We're getting stellar growth on those businesses and there's great opportunities to yet again build that out. So we hope over the next three to five years to have really kind of like three legs to the stool of Aspen: the core business, the Bigfoot business where it should be, and then also this funky tool strategy on the side.

Tim Smallbone

Adrian, thank you. It's been a fascinating story of product development and expansion internationally by acquisition. Such a multifaceted story with a series of step changes along the way as you've changed the ownership and released the equity to many different people. Thank you to Adrian and to Mal for joining me. Remember to subscribe to Inflexion Point wherever you get your podcasts so you don't miss an episode. And check out the Inflexion website if you would like to learn more about how we back ambitious business owners to help them to accelerate sustainable growth. Thanks for listening.

About the episode

Inflexion Point tells the story of Aspen Pumps, the Sussex manufacturer whose small condensate pumps made it the world leader in air conditioning and refrigeration, and how a founder-run business grew into a global player. Host Tim Smallbone is joined by chief executive Adrian Thompson and Malcolm Coffin, head of Inflexion's Enterprise Fund, who sat on the board across both investment periods. They reflect on the moments that shaped it: the shift from a business run single-handedly by its founder to one with a strong management team, the decision to take the market directly rather than through master importers, the internationalisation that grew its reach from 30 or 40 countries to more than 100, and the choice to reinvest five years after selling. Along the way, they talk product design built around the installer, spreading equity across the team so everyone shared in the upside, and why getting the team, the product and the international reach aligned at the same time is when the magic happens.