The family office of Sir Peter Wood, one of the UK’s most successful entrepreneurs, is joining forces with a UK-listed investment company, Castelnau Group, to invest in UK companies. Specifically, Sir Peter’s SPWOne is currently in the process of exploring a joint venture opportunity with the Castelnau team to acquire the entire share capital of Dignity, a listed funeral-related service provider.
Gary Channon, the co-founder and CIO of Phoenix Asset Management, established Castelnau, which effectively extends the Phoenix long-term investment philosophy, two years ago. The listed structure holds a concentrated portfolio of positions, the largest of which is Dignity.
Applying a permanent capital mindset to its investment portfolio, makes Castelnau “family office-esque” from a cultural perspective
“Sir Peter and Gary have known each other for quite some time,” says Graham Shircore, a non-executive director of Castelnau. “When Castelnau was formed in 2021, Sir Peter was very interested in what we were doing, i.e. putting our expertise and collective experience to work in several businesses where we have control or positions of significant influence.”
Sir Peter made his fortune in the 1980s when he revolutionised the UK insurance market by establishing Direct Line, enabling people to buy insurance over the phone. He went on to establish insurance firm, Esure Group, in 2000, before selling it to Bain Capital in 2018 for £1.2 billion.
SPWOne, set up in 1998, is a cornerstone investor in Castelnau with a £25 million commitment, making it the largest external shareholder. SPWOne also invests in various ventures, including the digital estate agent Strike, Moneyhub, a fintech company, and Power Roll, a Solar Film manufacturer.
Having identified mismanagement and business strategy concerns at Dignity, Castelnau has steadily increased its ownership stake to 20%, with the wider Phoenix funds also owning another 9%. Channon and his team want to turn Dignity into the UK’s only vertically integrated end-of-life business as it seeks out ways to add value and create a “lollapalooza” effect, coined by Charlie Munger.
“It was Sir Peter’s team who broached the subject of potentially looking at Dignity as a potential candidate to do something through a joint venture,” says Shircore. “The offer is to acquire all of the outstanding equity in Dignity. The offerors have expressed their intention to delist Dignity if the circumstances allow for it.”
Castelnau holds controlling stakes in, or wholly owns, other well-established UK brands such as the world’s oldest rare stamp merchant Stanley Gibbons; Hornby, famous for its heritage toy collections; Cambium, a wedding gift list company; Ocula Technologies, a data analytics company and Showpiece, a company borne out of Stanley Gibbons that offers fractionalised ownership of valuable items; Castelnau’s controlling stake is 80% with Stanley Gibbons holding the remaining 20%.
The investment philosophy that Channon is applying works on the premise of a “forever time horizon”. With the likes of Sir Peter’s expertise in building brands to draw upon, as well as Channon’s 33-year investment track record, there is a clear commitment to developing long-term, high-quality UK businesses. In some respects, applying a permanent capital mindset to its investment portfolio, makes Castelnau “family office-esque” from a cultural perspective. Indeed, its website refers to it as operating like a well-functioning family.
“We want to be a good home for well-run businesses that can function and grow more effectively thanks to our forever time horizon, particularly if you compare that to the sometimes myopic effects of being on the stock market. We help with business strategy, capital structuring, as well as culture and leadership,” saus Shircore.
Of course, not everyone shares this mindset. It’s entirely reasonable for people to want to monetise their investment at some point in time. The founders of one of its portfolio companies Ocula Technologies, said to the Castelnau team up front: “We want to build this, but we also want to see a way to exit over time.’”
“Without making any commitments to them, our view would be that as and when that time comes, Castelnau would retain and/or increase its ownership and seek to find ways in which fellow shareholders would be able to exit at some point in the future,” says Shircore. He says that being a listed investment vehicle, the value it creates will be reflected in the appreciation of the fund NAV and accompanying share price over time.
Castelnau regards this permanent capital approach to company building as a form of competitive advantage and can again be compared to family offices that make direct investments in companies where they, too, are willing to be patient investors.
Much of Castelnau’s investment capital is internal capital. Other external shareholders, besides Sir Peter, include Mike Ashley, the billionaire founder of Sports Direct (which trades today as part of Frasers Group on the London Stock Exchange), “who joined us when we floated. Beyond that, we have several private individuals and smaller family offices, many of whom we’ve known for years,” says Shircore.
Having a heritage toy company and a data science company in the same portfolio is not exactly axiomatic to the casual observer, but there is a logic at work. Company CEOs are encouraged to share past learnings and insights with each other. There are, for example, many ways data science and analytics can be applied to increase the value of more traditional businesses that have yet to embrace technology to improve the customer experience fully.
“If you look at Dignity, Stanley Gibbons, Hornby, these are established business brands that have been around for a long time but are perhaps not necessarily the most cutting edge. However, we think they can, and should, be able to benefit very significantly from modern working practices. Whilst the likes of Hornby and Ocula sit at different ends of the spectrum, they are there for symbiotic reasons,” says Shircore.
Castelnau and SPWOne will doubtless be hoping the symbiosis of their Dignity joint venture bears fruit, too and leads to other investment opportunities to support UK businesses.