Fate of firms taken over by Erinaceous: To fight another day

The corporate battles of the past few weeks may seem dramatic enough, what with Davis Langdon and Scott Wilson being encircled up by American rivals, the social housing specialist Connaught losing half of its market value and Rok losing half its profit. But cast your mind back a couple of years and these struggles pale in comparison with the career of one particular company.

Remember the enormously ambitious “one-stop-shop” property consultant that came from nowhere in 2003 and raised £9.1m by listing on the alternative investment market? You may also remember that it blew all its cash on a breakneck acquisition spree that left it £170m in the red and finally, on 14 April 2008, in administration? It was of course, Erinaceous Group.

Although Erinaceous’ defeat also wiped out most of its purchases, a handful managed to fight their way out of the trap. Some bought themselves out of administration, others set up as new entities with almost identical offerings, but all were driven by the desire to save long-established names.

As they were nearing safety, wounded but alive, they were hit by a new calamity: the credit crunch and the recession. Some defended their positions better than others, but none were overrun - and all of them have their own tale of survival which, in these turbulent times, may make heartening reading (see Where they are now, below).

’Richard graves didn’t buy back the business to make redundancies; he bought it to make it great again. I think we got the right result’

Mark Bevan, Graves Partnership

Of the firms that emerged from Erinaceous, the one that has had the toughest lot is also one of the best known: the Birmingham QS Francis Graves. The firm, now called Graves Partnership and a subsidiary of Croydon-based consultant Henry Riley, was bought by Erinaceous for £7m in September 2005. Richard Graves, the son of the firm’s founder, remained at the helm until January 2008 when, witnessing the Erinaceous nightmare unfolding, he resigned and began the three-and-a-half month process that would lead to him buying back his family business.

With the 30-strong company back in his hands by May 2008, he told Building that although he had been through the mill he was looking forward to the future and “enjoying the sunshine”.

At this stage he recruited Mark Bevan, who was business development director at the conractor Shaylor Group. Bevan says: “I’d known Richard for 30 years and he suggested I came in to look after private sector clients while he did the public sector.”

But there was a shadow over the offer: Graves told Bevan he had pancreatic cancer. Bevan was not worried at this stage, however: “I knew he was ill but he thought he’d beat it, so I took the job and we threw ourselves into it.”

The coming weeks did not go as the pair had hoped, however. Bevan says: “Richard’s health deteriorated over the next two or three months while I was still trying to get to grips with the business. It got to the stage where it was just me and the finance partner keeping the thing going.”

The company was forecast to make a small loss in its first year, but Bevan wasn’t unduly concerned because “we were effectively a start-up” and as such would not necessarily be expected to turn a profit in year one. Then came another blow: the rapid deterioration of the economy after the collapse of Lehman Brothers in September 2008. After that “the work wasn’t exactly pouring in”. As a result, Graves began financing the firm from his sickbed.

’We had a party after we bought the firm back from Erinaceous’ administrators. Our staff were happy to be back in the land they knew’

Chris Lowe, Rose Project Services

This left Bevan in charge of a company in dire financial straits. The company was forecast to turn over £1.5-2m for 2009 while its overheads and salary bill added up to at least £1m. Then, in July 2009, Graves unexpectedly lost his fight with cancer at the age of 53. This left Bevan with a financial crisis on top of his grief at losing a close friend. Bevan says: “We owed a couple of hundred thousand so it was touch and go.” Bevan initiated “chats” with firms in the hope that there might be some interest in taking over the company. But he found “there was a lack of interest owing to the risk involved.” By then, “we knew the writing was on the wall, so we sought legal advice and appointed an administrator”.

Once the firm was in administration the potential buyers came back and a deal was agreed with Henry Riley. Bevan says the logic was that the two firms had a connection - a Henry Riley partner and a Graves partner had been friends since university. In addition, Henry Riley wanted to break into Birmingham, which is notorious as a closed shop to consultants from outside the city, and would be happy to keep the Graves name to achieve this.

Rileys acquired 90% of Graves, which had shrunk from 30 to six people, in November last year and added it to its nine other subsidiaries. With the arrangement sounding similar to the deal with Erinaceous, you can’t help but wonder if this is what Graves would have wanted. Bevan strongly disagrees. “I think Richard would be comfortable with what happened. It simply wasn’t possible for us to go on, especially with Richard having been the main financier. Had we not sold, we would not be here now.

He adds: “Without this particular deal the practice would have been subsumed into another organisation and we would have lost the staff. We felt a duty to keep the family name because there’s so much sentiment attached to it among our staff and clients.”

With the financial and administrative backing of Henry Riley, Graves is beginning to get going again. It now employs 10 people and works in the auto retail, affordable housing, defence, education, renewable energy and infrastructure sectors. Turnover for this year is expected to be £600,000 and Bevan anticipates that the company will make a profit. You sense that he’s determined to forge ahead for Richard Graves’s sake. “Richard didn’t buy back the business to make redundancies; he bought it to make it great again. I think he will be looking down and thinking we got the right result.”