Real Deals Q&A with Dominic Dalli

Drawing on more than two decades of experience, our Managing Partner Dominic Dalli explains how Sovereign finds opportunities through a commitment to technology, talent and ESG.

Why does Sovereign invest in the areas that it does?

Dominic Dalli: The three sectors we invest in today are the same as those we have invested in since we were founded: business and tech services, healthcare and pharma services, education and training. We see these as resilient sectors, ones which have been able to grow regardless of economic conditions.

We are experts in finding niches. The businesses we invest in aren’t necessarily the biggest in their sector, but they do tend to have the best revenue visibility. If we are providing a specialist service that is valued by the underlying customer – whether that be individuals, government departments or enterprise-grade corporates – we think those services remain relevant and therefore resilient.

How has your approach to deal origination changed during the past two decades?

In the beginning, it started as a very human and relationship-led activity. We would have multiple conversations with owners of potential acquisition targets and entrepreneurs about what good looks like, building our knowledge base by following our noses.

During the last 23 years, our approach has become more tech-enabled. We use data science to develop tools to track companies and identify them before their performance necessarily becomes public.

We are currently monitoring 16,000 companies in the UK and our target markets, and automation tools enable us to screen a lot more effectively. We can assess those that are growing faster than others in specific niches, screening and filtering those that fit our criteria. Then we get some pretty patient humans involved to build those relationships!

In the lower midmarket, I think we have the most sophisticated and developed approach to deal origination in the space. We start with a thesis and carry out the research to determine whether our thesis stands. If it does, we will pull out all the stops to identify investments in that sector. If it doesn’t, we are equally happy to put that thesis on the shelf and revisit it in a couple of years.

How has Sovereign’s value enhancement strategy evolved?

I joined Sovereign in 2002, when value enhancement was almost something we did by accident! Now it is a core part of our investment model. We had the M&A experience – which remains integral to our approach – but in the last 10 years in particular, we have homed in on a few areas. Tech-enablement and digital support is now a significant part of our approach, as you can see with our car park management business Agena Group. It may sound like a basic service on face value, but data and automation have become integral to how Agena serves its clients.

Another key area for us is talent enhancement. We have a dedicated in-house team that identifies and secures talent, this has really added value to our firm and our investments during the last 12 years. When we first started, we would typically help appoint a CFO or a finance director, but over time we have become bolder and can now facilitate high-quality recruitments in all C-suite areas, including CEO, chair, CTO and more.

Why does the lower mid-market offer opportunities for growth?

Because, ultimately, a lot of what we do with regard to value enhancement centres on helping professionalise businesses. That is not to say these businesses were not professional before our investment, but we are bringing a new level of rigour and methodology. For example, entrepreneurs often do not want to risk – as they see it – the appointment of new talent. But that ability to professionalise generates disproportionate incremental gains.

ESG principles are integral to Sovereign. What’s the business case for them?

That is another area where we have helped support our portfolio companies and we view this as a key tenet in our approach to value enhancement. When it comes to ESG, many of our companies knew there was something to be done, but they didn’t quite know what to focus on or what level of progress they needed to evidence to their clients and stakeholders to show the good work they were doing. I think we have been instrumental in changing that. That is our business.