WHAT goes around comes around. Or, in the case of Mark Lumsdon-Taylor, FD at Hadlow College, it goes full circle. The Kent college specialising in land-based subjects recently completed the acquisition of K College, a deal Lumsdon-Taylor describes as “serendipitous”, given the parlous state of its finances.
Hadlow officially took over the running of K College sites in Tunbridge Wells and Ashford in August after the troubled college was split up, having amassed debts of £16m. But 12 years ago Hadlow was itself in similarly parlous financial state. At the time of Lumsdon-Taylor’s appointment in 2002, there was no cash or credibility and insolvency seemed likely. Management information, profit and return, fiscal policy and sustainable investment were non-existent. Similarly, the financial status of K College was unsustainable.
“It is almost like a repeat of ten years ago. With K College, the institutional structure failed. The operational process had started to improve, and it had a tight credit and debtor ledger,” Lumsdon-Taylor explains.
After it was declared to be a “preferred provider” following a tendering process, Hadlow spent months renegotiating K College’s “very substantial debt” in partnership with the Skills Funding Agency and the bank.
“Working closely with them, we repositioned the debts and arrived at a solution that is affordable,” he says.
For a business with turnover of £17m, taking on an entity with such significant debts appears fraught with risk. However, steps have been taken to protect Hadlow College, Lumsdon-Taylor says. While the campuses have officially become part of Hadlow College Group, key red-line issues were identified prior to the merger.
“We looked at how, from an audit perspective, the organisations have separate financials. We separated the institute legally so funding is separated and Hadlow is protected,” he explains.
As Hadlow is a smaller institute, Lumsdon-Taylor put together a financial model that pulled in private investment, government funding and bank debt – something that would have been harder if he hadn’t had the experience of raising capital for a £40m plan put forward by the college to redevelop the site of the former Betteshanger Colliery, near Dover.
The development, which creates a centre for green technology businesses, took four years of planning and preparation, and gave Lumsdon-Taylor “smart insight” into how investors work.
“Leverage for the acquisition would not have happened if I hadn’t had that insight into how investors work. Investors saw a major opportunity to get a foothold in the further education market,” he explains.
“With investors, it is about leverage and speaking outside the box. Colleges shouldn’t be afraid to do things differently. Investors want a return. If you can position a return with an appropriate value proposition and give investors something they have not done before, it gives them something to hang their hat on.”
While the acquisition and Betteshanger project have dominated the headlines about Hadlow, Lumsdon-Taylor never lost sight of the finances. “You have to keep your finger on pulse. Knowing what money we have probably helps me sleep for the few hours I do sleep. You will never be forgiven if you screw cash up,” he says.
Nevertheless, the K College deal and Betteshanger project, in which Lumsdon-Taylor played a leading role in corralling funding from government and private investors, took up much of his time. The success of the finance function at Hadlow has been “dependent on hiring a good number two”.
“As we have grown as a business, we have appointed senior staff, and Paula and her team will be taking away the day-to-day processes,” Lumsdon-Taylor says.
And he no doubt sleeps more soundly now than he did in the early days. Hadlow has one of the lowest dependencies on government funding in the country. In 2006, it applied a fiscal rule to be spread over three sectors of further education, higher education and commercial development. By 2012, 34% of the business was commercial, and the organisation has invested more than £28m since 2003, deriving only £6m from funding council grants. The group has not lost money in ten years and grown from £4m to £17m.
“Everything we do commercially must support education, growth and innovation. We invested heavily in commercial assets and tasked them all with profitability targets,” explains Lumsdon-Taylor.
Those assets include land across Kent, a property portfolio and redundant buildings on its estate, which have been converted into leasable units. The estate has grown from 356 acres to more than 1,000 as Hadlow has “systematically acquired businesses”, including farms and shops.
According to Lumsdon-Taylor, a “risk-positive” approach is crucial. In the early years, this involved large investment in capital assets, staffing and development with a weak balance sheet. He made the finance function integral to the organisation and learned what the business did.
“Credibility and understanding yield trust and motivation. At budget meetings, the global position was presented as well as divisional performance. Managers saw how their contribution affected the whole business,” he explains.
Having spent much of his career advising business to improve and identify ways to be more profitable while working at MHA MacIntyre Hudson, Lumsdon-Taylor’s view was to keep it simple, be open and engage the entire business.
Hadlow was seen as an educator meeting the needs of the land-based sector, but not as a business. Staff commitment was exceptional. Put simply, it needed to harness that goodwill and channel it to develop a corporate culture, without undermining its principles.
As it was a client of MHA, Lumsdon-Taylor knew it to be a challenge. “It took four weeks to do the audit; we had to build up records from scratch,” he says.
Indeed, Hadlow’s central ledger system was non-existent and its accounts were routinely qualified with government. On joining the college he found that it had just overspent on its summer capital programme. The college was £500,000 overdrawn and within three weeks it was £750,000 overdrawn. The business was a financial basket case deemed to be failing and insolvent. Talk of a merger was on the horizon.
The first priority, Lumsdon-Taylor says, was to stabilise cashflow. “We were spending like Croesus,” he says. Hadlow had a turnover of £4.5m, but had 40 budget holders out of just 100 staff. There was no electronic control for ordering.
“I took 40 holders down to 12 and made it a form of kudos to have that control. By giving more power you trust people to stay in budget. They all did; it empowered them,” he explains. “Two years later, we introduced electronic ordering control. It is standard practice now, but was not typical in colleges.”
As finances stabilised, it was time to take a “massive gamble” and spend heavily on curriculum development. The college hadn’t spent in 20 years, and with a full inspection by the regulator due in a matter of weeks, investment was essential.
“I took a calculated risk, which on paper should never have been taken,” he says.
Following the acquisition of K College, Lumsdon-Taylor says it has provided a “great opportunity to standardise back-office systems”. At the same time, debtor controls and payment terms were aligned to 30 days. It was a case of “like it or lump it”.
Indeed, at both Hadlow and K College there was a need to “actively manage supply chain”.
“I worked with the business chain and told them, ‘If you spend this, you get that’,” he says. Some of the key supplier contracts were locked in for years, an unsustainable and costly model.
“It was a supply chain bloodbath,” Lumsdon-Taylor says. “We had to go through key supply chain by key supply chain and renegotiate terms.”
Following the deal to acquire K College, Hadlow now has a turnover of £44m. “For Hadlow and its group, it is further proof that we are a business for the long term.” Ten years on from facing its own extinction, the deal is serendipitous indeed. ?
IN BLACK AND WHITE
2002 – present Group director of finance and resources, Hadlow College Group
1999 – 2010 Non-executive FD, AIFA
1997 – 2003 Audit manager, MacIntyre Hudson