How Duke Street acquired TeamSport

The rise of thrill-seeking leisure spenders was just one reason why private equity house Duke Street invested in go-karting firm TeamSport, but what else did it take to get the relationship off to a racing start?

The process all started on a wintry Saturday afternoon with the kids, prompting Duke Street partner Jason Lawford to take his family to an 800 metre indoor north London karting track. Lawford was impressed by the customer experience and he knew leisure was a growth market, which TeamSport understood. Go-karting was not an obvious choice for the mid-market London-based private equity firm, which has invested €2.5 billion (£2.19 billion) in more than 50 companies.  

However, conferring with colleague James Almond, they agreed TeamSport was a unique business, which did fit Duke Street’s leisure focus. The next steps would be to look at its mechanics to find out what underpinned its success so far and what its potential could be.

Duke Street

Duke Street concentrates on four sectors – consumer; healthcare; industrials and engineering; and services – and targets companies with an enterprise value up to £400 million. In the period since the financial crisis, the average deal performance has been a 2.3x multiple on invested capital and a 29% gross internal rate of return (IRR).

The company has a unique hybrid-funding model. It adopted a deal-by-deal funding strategy in 2012, subsequently raising committed capital to invest alongside its co-investment mandates. Duke Street itself invests substantially in each deal, ensuring maximum alignment with its investors and portfolio company management teams. Most of the deals closed (about 86%) are proprietary, meaning they are sourced outside competitive auctions.

In the traditional private equity fund model, investors commit capital to the fund on a blind-pool basis and depend on the fund’s investment team to identify and execute investment opportunities.

In a deal-by-deal fund, a dedicated deal-specific vehicle is created for the purposes of making an investment in a single target. Investors considering an investment in a deal sourced by Duke Street bring their capital through the co-investment vehicle. The remaining capital is provided by professionals from Duke Street, as well as the Cornerstone Fund, which is a discretionary fund similar to a traditional private equity fund. Therefore, co-investors in the deal, which provide close to half of the capital, have full transparency on the underlying investment and are able to perform their own ‘M&A-style’ due diligence on the investment.