Evolution Group Holdings
Evolution Group Holdings has grown from a South East Queensland-focused traffic-control company to being the largest traffic control, traffic management and road maintenance services company in Australia and New Zealand. Arowana initially acquired 60% of Evolution Traffic Control in November 2008, which at the time was generating revenues of A$20m and an EBITDA of A$4m. Since then it has been scaled up significantly, despite having to overcome several key growing-pains inflection points on its journey, and delivered revenues in excess of A$99m and EBITDA of A$21m.
Following the bankruptcy of Lehman Brothers in September 2008, the world was on tenterhooks as to whether the global financial system would collapse. In Australia there were several high-profile corporate collapses and a government guarantee for the banking sector had to be put in place. At that time, essentially no one was seeking to deploy capital. The Arowana view was that the world financial system was too big to fail, and we assessed that the Labor government in power at the time would pump prime the Australian economy through a raft of spending initiatives, including on road infrastructure.
After researching the road maintenance industry in Australia for a year, we selected Evolution Traffic Control as the company in which to invest, as it was the best fit for our strategy to focus on a targeted high return on invested capital, fragmented “essential nuisance value services” niche of the road maintenance industry value stack. After a nine-month due-diligence period, the deal was closed a mere six weeks after Lehman Brothers collapsed.
In November 2008, Evolution Traffic Control was growing exponentially and all seemed well. At Arowana, however, we are conscious that growth is a double-edged sword. If not managed properly, a business can go from high growth to insolvency in the short space of nine months. Evolution potentially had this issue looming as its accounts-receivable position had blown out to 75+ days, putting major pressure on its cash flows. Our first priority was to tackle this issue, introducing listed company-grade corporate governance, helping recruit a financial controller and building out the accounting team, improving accounting systems and processes, and engaging external auditors.
In 2011 we orchestrated the conversion of Evolution Traffic Control into an unlisted public company called the Evolution Road Maintenance Group. This preceded a three-year period of strong year-on-year growth for the business.
During Arowana’s involvement with Evolution, there have been four major growing-pains inflection points – in the 2010, 2012, 2013 and 2016 financial years. Mostly these emerged from within the business, thanks to its step-changed growth in size. In one case, however, it resulted more from an abrupt decline in road spend on projects and maintenance, thanks to changes of State Government in Queensland and national austerity measures. At each of these inflection points, the Arowana team has come in to help circuit-break and overcome significant and complex issues, working closely with management across multiple strategic and operational facets.
Strategically, Arowana has driven an agenda of geographic expansion, the bolt-on acquisitions of complementary services in the civil sector, training and now fleet maintenance.
As we enter our tenth year with Evolution, we are proud of what it has become, but most of all we are proud of having worked with management in the trenches overcoming significant growing pains, where others would have quit and walked away. At Arowana, we are not fickle, fair-weather fans. We have turned down several offers to acquire Evolution over the years and we look forward to continuing to help its leadership team build people, build the company further and build value for shareholders.