Keeping your eye on the exit

David Turley, Caltec Ltd (Oil and gas production technology)

Dave Turley of Caltec

David Turley, Caltecs founder, told us his inspirational story:

Caltec provides solutions to enhance production from oil and gas wells using patented technology. Our technology consists of compact inline pipe components with no moving parts and requiring no maintenance. It makes the best use of the available energy such as high pressure wells to increase production of lower pressure wells, with huge environmental benefits as this energy is normally wasted.

Caltec started out in 2003 with just 3 engineers and a student and in 2008 we sold to Petrofac Limited – a FTSE 100 international oil and gas service provider – for £30m!

What led you to become an owner manager? We established Caltec in 2003 as an MBO from our previous employers BHR Group. Our vision was to create value in the IP we had generated over a period of 10 years working on compact inline solutions to enhance oil and gas production. We were frustrated at being part of a consultancy based company which had other issues and priorities and wished to establish Caltec as a valuable product exploitation company, driven by profitable high margin product sales. Gerard supported us by providing advice on business strategy which was much appreciated.

Did your business evolve as you expected it to? Not really! The initial year was tough as there were onlyfour of us, two on the road presenting to clients and two in the office. We had an overdraft and cash management was critical. Our strategy was to finance the companys growth post MBO by raising venture capital. We had no problem finding VC’s willing to provide finance although the terms attached were quite onerous. We had growing pains establishing our business in Aberdeen which consumed a great deal of cash without much benefit. A consolidation of the business proved much more successful.

At the start of the business we had a clear strategy leading to exit and in the end that’s what happened achieving a value for shareholders broadly in line with expectations.

What were the main challenges you faced in achieving your goals? Initially, raising the money for the MBO was our first challenge because banks were generally not helpful. Once we’d done that, we had to find the champions within the major oil companies who were willing to trial our new technology. Marketing to the oil and gas companies and securing those first critical sales plus product and technology development were some of the many challenges we had to face, particularly in the early days. We then had to secure VC funds for growth. We pursued our strategy for growth with a focus on core business and market opportunity. At the same time, to deliver the growth, we had to recruit and maintain an excellent board, management team and staff and keep everyone aligned and happy!

What strategies did you employ/help did you seek to overcome those challenges? We sought the best possible external advice to address these challenges. We focussed on key target customers like BP and Shell for quick wins and to establish our track record and we established collaborations that facilitated technology developments and demonstrations.

We made sure we differentiated Caltec products from the competition and won technology awards which helped us to position Caltec as a high value company. We also had to establish strategies for scaling up the business such as standard processes (ISO 2001) and development of rentals.

In terms of people, we provided share options to retain and motivate the board members and staff. And because we focussed on exit opportunities from the very start, we made sure we retained the best advisors that would help facilitate the best value at exit.

I first met Gerard when he visited us shortly after completing our MBO in 2003. At the time, he was offering free advice on business issues for SME’s. Always keen to receive free professional advice, I was delighted to discuss Caltecs business and challenges because at that time I was preparing a business plan/prospectus in order to secure VC finance. Gerard provided much needed advice on securing VC funds and offered to help us to find suitable VC’s and understand how to avoid pitfalls.

Gerard also introduced me to an MBA marketing student who was in need of a suitable project to complete his degree. John Kerr was a final year MBA student who provided Caltec with a marketing strategy which proved most useful in securing finance. As a result of Gerard’s input, we received offers from two VC’s that were prepared to invest in Caltec. This resulted in Caltec negotiating the best possible terms and achieving £1.72m of funding in return for 25% of the company.  This was the first such investment in the UK by a Norwegian fund.

John Kerr of Caltec

The strategic marketing plan that Gerard and John prepared became our adopted plan for the next five years and was a major factor in the early success of Caltec. We subsequently offered John a senior management position as Executive Finance Director.

During these early years, both John and I kept in contact with Gerard. In 2006, he encouraged us both to participate in an in depth business growth & development programme that he was running. We both found this programme to be very helpful in crystallizing our thinking on our strategy for Caltec and how to realize the best value at exit. Our learning from the programme greatly influenced our attitude and the effective management of risk. As a result we took better decisions which help us to realise better value for the shareholders. Without doubt, I believe the advice and learning we have received from the programme, and from Gerard in particular, has helped Caltec shareholders to realize millions of pounds of additional value.