Fortus Group
Accidental entrepreneur Brian Honan has a plan to consolidate in the fusty sector of wholesaling security and fire safety kit. His biggest deal yet took a year to tie down, writes Nick Mulcahy
Accidental entrepreneur Brian Honan went bust and bounced back. Now he is taking a buy-and-build strategy to the wholesale security, fire safety, and CCTV sectors
When UK chancellor Rishi Sunak unveiled his budget on March 3, there was a widespread expectation in business circles that the finance minister would raise Capital Gains Tax to claw back some of the hundreds of billions doled out as pandemic supports. So coming up to midnight the night before, on March 2, Brian Honan found himself on a Zoom call with gaggles of lawyers as they sought to finalise a deal that was a year in the making.
As it turned out, the lawyers could have put their feet up on the Tuesday evening to watch Manchester City hammer Wolves. Sunak left the CGT alone, but the budget issue had concentrated minds at Enterprise Security Distribution (ESD), a wholesaler of security and fire safety equipment operating through nine separate and independent companies with differing shareholder bases.
ESD has been in business for over 30 years and Honan sees the opportunity to modernise its operations, as he pursues his buy and build strategy. ESD is now part of Fortus, the Irish company which Honan has moulded from the ashes of business disaster in 2014. With the addition of ESD and recent bolt-on acquisition Resure Intelligence in Northern Ireland, group turnover is heading for over €100m, and Honan says he isn’t finished yet.
Not bad for a UCD engineering grad who describes himself as an accidental entrepreneur. After college, Honan (47) started working with a supplier of computer equipment such as the Windows NT 4.0 workstation. This brought him into contact with London kit distributor Osmosis Technologies, who tapped the 23-year-old to manage sales in Ireland. One year into the job, Osmosis went into administration in the UK and Honan seized his chance by buying the Irish business.
That was in 1998. The Osmosis Ireland niche was distribution of IT components and Microsoft products. At the turn of the century, Honan grew concerned about margin erosion and took himself off on what he calls a ‘sojourn’ around the world. “I wanted to have a look at what was out there,” he recalls. “I went to the States and then I went to Japan and Korea. China was after that and then I came home.”
After his travels, Honan’s new game plan was to diversify into wholesaling consumer goods such as televisions, CCTV and audiovisual products. Osmosis Ireland secured agencies for LG and
Samsung and wholesaled into retailers such as Power City. The peak was 2011, when Honan could celebrate his 38th birthday with annual turnover of €44m.
That looked impressive, but net profit that year was €116,000 (net margin 0.26%), year-end cash was €194,000 and total liabilities were €6m. Turnover collapsed in 2012 to €29m (the last filed accounts) and with trade debtors of €4.8m, Osmosis was exposed to customer default.
The tipping point for Osmosis occurred on April Fool’s Day 2014, when a receiver was appointed. The catalyst, says Honan, was a €1.8m bad debt. “We were taking commercial decisions based on having to stay in business,” Honan explains. “We were doing riskier transactions than we normally would. I went to the bank and told them this is going to happen. I don’t see any way out, other than examinership or receivership. Examinership wasn’t going to work because we would have burnt our suppliers.
“Close Brothers was a large creditor and they agreed to the receivership option, which meant that we could continue to trade in some form.
It was a massive life lesson for me. I didn’t understand what the Americans meant when they said you don’t know business until you go out of business. It certainly proved to be absolutely 100% true.”
In the Osmosis restructuring, Honan was left with OSEC, the security products distribution activity with the agency for Hikvision, the largest CCTV manufacturer in the world. “There were three guys running it and I gave them a shareholding. Working for themselves, in a few years they drove the business from turnover of a couple of million to six or seven million.”
Back on his feet, Honan next linked up with RWL Security, a company in which Tommy Lyons, a former manager of the Dublin football team, was involved. According to Honan: “Tommy approached me and asked if I would sell the business or if I would buy his security business. We decided that it was probably better for him to buy me. We had what he needed with the CCTV, and RWL had everything we couldn’t get because all the manufacturers had existing distribution deals in Ireland.”
That alliance was formalised in May 2017, with Honan having a 20% stake in the merged venture and taking on the role of managing director of the country’s largest CCTV, fire, intruder and access distributor. About a year later, Honan turned to Lyons and his RWL colleagues and told them he wanted to effect an MBO. “I told Tommy it’s time. ‘Time for what?’ he said. It’s time for me to buy you.”
The MBO was finalised in December 2018, with funding sourced from AIB, where Honan struck up a relationship with corporate finance executive Mark Brophy. RWL Security Solutions, the business Honan had taken over, didn’t disclose turnover in its 2018 accounts. Year-end trade debtors were €5m, net profit was €1.4m, 32 people were employed and bank debt was €2.3m.
Back in the game, Honan had a decision to make. He had a nice trading business with manageable debt, but was that it? To resolve the issue, Honan booked a meeting room in the Red Cow Moran Hotel from nine in the morning until seven in the evening, just for himself with nobody else in attendance.
When he emerged to motor back up the M50 to his home in Swords, Honan had determined that he wasn’t going to sit on his laurels. “I put a five-step plan together to go on a buy and build in the UK and Ireland,” says Honan. “I thought the industry was ripe for consolidation, so I went back to AIB and told them this is what I want to do and asked how the hell am I going to do it?”
Mark Brophy suggested that RWL should bring private equity on board. A beauty parade ensued, involving about eight PE firms, with the nod eventually going to Rockpool, a London player that invests c.£50m a year. With Rockpool’s capital, in December 2019 Honan effected RWL’s first UK purchase, ezCCTV, a business with a turnover of c.£10m. According to reports, Rockpool invested c.€7m in debt and equity, acquiring a 38% stake in Honan’s venture in return.
The rationale was that ezCCTV had Hikvision distribution rights in England. “The Chinese company made it very clear that we wouldn’t be allowed to distribute in the UK without buying a Hikvision distributor,” Honan explains. “That’s why we bought ezCCTV. It wasn’t in great shape but the business has really turned around after we integrated it into our structure.”
Though Honan leaves the finance and legal details to the professionals, he picks up the phone himself when he has a target in mind. “With ezCCTV, I rang up the owner and asked him was he interested in selling.
He replied that everything is for sale. We started at one price and ended up at another, because that’s always the way it happens. It can be difficult buying a lifestyle business, because people have a view on what the business is worth to them. Ringing up directly is the quickest way of doing it. With an intermediary, you’re not hearing back for three or four weeks.”
In March 2020, Mark Brophy, the AIB executive who had helped get the ball rolling for Honan, quit the bank to join the now renamed Fortus Group as finance director. His boss was lining up the Enterprise Security Distribution takeover, which would conclude a year later. As Honan tells it, the genesis of the deal was introductions made at Twickenham at the end of February 2020, weeks before Covid-19 shut down stadium matches. Executives from Pyronix, a CCTV brand, introduced the Irish entrepreneur to some of the ESD principals.
“That was probably the last time we were all out for a pint,” Honan recalls. “ESD operates from branches around England and consisted of nine separately owned limited companies. That was why the deal took a year to do, because it was so complicated. Last September we met with all the principals at the MK Dons stadium in Milton Keynes. They all came on board then, but we haven’t seen anyone in person since last autumn.
“ESD was trading for three decades and it was run like a 30-year-old business. There was no central procurement or central computer systems. We’re receiving massive kudos from the manufacturers who were weary of dealing with multiple entities in the ESD group. This industry has been slow-moving and conservative and doesn’t stick its chest out. It’s a really fantastic industry that doesn’t do itself justice.”
The market for security products is expanding, especially on the CCTV side. There’s also a shift from analogue to digital technology in fire safety systems. Honan says Fortus now has c.800 trade customers in Ireland and c.13,000 in the UK. Resure, the recent buy in Northern Ireland, adds more remote CCTV monitoring to the group offering. Honan hopes that trade customers who come to Fortus to buy equipment can on-sell the remote monitoring service to their customers, generating valuable annual recurring revenue.
“We have a lot of annual repeating revenue, which private equity likes, but ARR is better. Our aim is to develop ARR to between one-quarter and one-third of operating profit. I became an accidental entrepreneur and I’m not the type of person to sit back. What has been driving me is not so much the money as where we can get this to, and how successful we can be.
“Some people ask me how do I sleep at night because of the debt. The business is now producing nearly €9m of Ebitda every year, so in that context we’re not highly leveraged. That’s how I sleep at night.”