黑洞社区

Journalists are often accused of revelling in bad news. A bad news story, the theory goes, is sexier than a good one. But in reality, it鈥檚 not the negative that demands attention - it鈥檚 the unusual or surprising. And so, in construction, where firms are going to the wall with alarming frequency, the success story has become the one that cries out to be heard.

Such is the case with Lakehouse, a medium-sized contractor, ranked a lowly 93rd on 黑洞社区鈥檚 Top 150 Contractors and Housebuilders (see pages 30-37). Twenty-five years old this year, Lakehouse鈥檚 last set of accounts show a company in the ascendant, with revenue growth of 44% to 拢154m and operating profit up 87% to 拢4.9m between 2011 and 2012. Back in 2008, it was turning over about 拢50m and making 拢1m profit. The company, which focuses on work in London and the South-east, has also won a clutch of awards, not least 黑洞社区鈥檚 own Small Contractor of the Year in 2010 and this year.

The man who can take greatest credit for Lakehouse鈥檚 recent performance is Stuart Black, its executive chairman. Black鈥檚 timing was unfortunate, to say the least, buying an equity stake in what he saw as a successful business with major growth potential at the back end of 2007. Unsurprisingly, the subsequent crash prompted a thorough review of Lakehouse鈥檚 strategy. Perhaps more unusually, the result of that review led to a concentration on investment and growth, rather than retrenchment.

鈥淲hen I got involved, Lakehouse had already done incredibly well. It had got to about 拢50m in revenue and 拢1m in profit,鈥� says Black. 鈥淏ut if you鈥檙e turning over 拢50m and making very low margins, particularly when we didn鈥檛 know how deep and long the recession was going to be, you鈥檙e in a fairly dangerous position. So we set out a strategy to take advantage of the opportunities as we saw them, but also to come out the other side a more substantial and sustainable business.鈥�

So, how has Lakehouse managed to achieve such strong growth when so many other medium-sized contractors have contracted or bitten the dust? And how, given the current state of local government finances - on which much of its work depends - can that growth be maintained?

Safety first

An affable Glaswegian, Black laughs easily and is a genuinely warm character. He and other members of Lakehouse鈥檚 senior management team take their responsibilities to their staff extremely seriously, regarding themselves, Black says, as the custodians of other people鈥檚 livelihoods.

But given that the headcount at Lakehouse has grown from 150 to 650 over the last five years, the weight of that responsibility has increased dramatically. It is therefore no surprise that, over the course of the interview, Black repeatedly uses the word 鈥渟ustainability鈥�, not just in the environmental context but also in terms of the sort of business he is interested in growing.

This is reflected in the strategy that he helped craft back in 2008, which was based on moving towards long-term, reliable income streams and growing the business organically. 鈥淭he majority of the business in 2008 was construction related and single project related,鈥� he says. 鈥淲e had to be continually bidding for work. So the strategy we set out wasn鈥檛 rocket science. We wanted to move the company away from being transactional and towards more framework contracts - we wanted to develop a long-term order book.鈥�

We haven鈥檛 done anything outrageous. Our debt levels are very conservative

Black and his team also realised that they were best off sticking to sectors and geographies that they knew well, rather than bidding for every contract that came up. Consequently, Lakehouse concentrated largely on winning housing and education work with local authorities in London and the South-east.

The strategy proved successful, with a major win from Camden council four years ago to provide regeneration and maintenance services for 55,000 homes in the borough for 10 years, bringing in around 拢30m a year. In turn, that deal helped Lakehouse to win a similar contract with Hackney. 鈥淚t allowed us to bring more people and skills into the business and gave us critical mass,鈥� says Black. 鈥淲e鈥檙e not a national organisation, but the credentials those two contracts give us give clients the confidence that we can handle anything that they throw at us.鈥�

Lakehouse鈥檚 bidding strategy was aided to a great extent by its shareholders鈥� decision to reinvest all profit back into the business every year for the last five years. This allowed Black to invest in and grow the company鈥檚 finance, HR and, most importantly, bid teams. 鈥淲e put in the infrastructure around the business that wasn鈥檛 there previously and that is now capable of sustaining a bigger business,鈥� he says. 鈥淲e鈥檝e invested hugely in the bid engine and we鈥檝e probably got the best bidding record of any company I鈥檝e been in. We win one contract for every 2.5 we bid for.鈥�

Time to buy

Having established a long-term order book and strengthened Lakehouse鈥檚 bid team, last year Black was able to move onto the final part of the strategy he laid out back in 2008. 鈥淭he plan was always to grow the business organically and then when we were a stable business to supplement that with acquisitions,鈥� he says. 鈥淭hose acquisitions were always going to be in services [companies] and were always, hopefully, going to be companies that had higher margins than we had so that overall we achieved higher margins.鈥�

Lakehouse is now in the process of purchasing its third business - Black says that the deal should be done and dusted by the end of the summer - having bought out gas maintenance firm K&T Heating Services 18 months ago and Allied Protection Fire Protection Services last November. Both those acquisitions were intended to broaden the social housing services Lakehouse could offer clients. While he can鈥檛 go into details, Black says that the firm he is in the process of buying is 鈥済eographically complementary鈥� and has a 鈥渟trong sustainability business鈥�.

The acquisitions were funded through a mixture of cash and bank debt, which now stands at around 拢8m. 鈥淲e haven鈥檛 done anything outrageous,鈥� says Black. 鈥淥ur debt levels are very conservative. It was nothing before the acquisitions and it all comes from buying the companies.鈥�

The acquisitions strategy, says Black, has worked well so far - the businesses have started winning additional work from each other鈥檚 clients - and that has encouraged the company to continue scouting for opportunities. He adds that Lakehouse has a further two acquisitions in the pipeline, both aimed at strengthening the company鈥檚 environmental sustainability capability.

So, what can we expect when Lakehouse鈥檚 results for the current year are published? 鈥淲e鈥檒l have done a bit better than last year,鈥� says Black. 鈥淎gain we鈥檒l grow - we鈥檒l just about hit the 拢200m-turnover mark - and next year鈥檚 business plan is looking very interesting.鈥�

If that proves to be the case, Lakehouse will have grown its revenues by a further 30% a year and quadrupled the size of the business since Black鈥檚 arrival.

However, it is clear that Black will avoid getting too carried away with his acquisitions and is wary of taking on too much debt.

鈥淲e鈥檙e an acquisitive business, but we鈥檒l only do it if it鈥檚 sustainable,鈥� he says. 鈥淣o one鈥檚 going to get racy or raise too much debt to fund acquisitions that aren鈥檛 sustainable. I have a duty to the 650 people we employ now and I take that duty very seriously. If we don鈥檛 have a sustainable business, then their roles are in danger.鈥�