May 21, 2022
In London, we visited Judges Scientific (London: JDG). This British investment holding company was founded by David Cicurel, who still owns over 11% of the shares. Despite its great success, Cicurel has remained very down-to-earth and even poured us coffee. This down-to-earthness also came to the fore during our conversation, during which various current topics were reviewed.
We asked Cicurel about the problems in the supply chain. This was not an issue for Judges in 2020 at the start of the corona crisis, but in 2021 the British investment holding company also began to feel the problems. Judges makes specialized scientific measurement instruments, which are often developed for specific purposes. However, one has adopted a clever strategy, choosing generic components as much as possible rather than custom-made ones. These are less expensive and available in much greater quantities.
However, sometimes these components are taken out of production, an issue that Judges is more affected by due to supply chain issues. Then a redesign of the machines must take place, which can be costly and time-consuming. Customers get this, however, these are mainly scientists and they are patient. So it is only delaying turnover. Often the designers for new products have to work on the redesign, but Cicurel foresees that this is only temporary.
Despite the fact that central banks are raising interest rates, or intend to do so, Cicurel expects interest rates to remain lower than inflation. This is because governments cannot afford the higher interest rates. With the central bank, the United Kingdom can support its own debt, resulting in a lower exchange rate for the pound. That in turn is good news for Judges as an exporter, the machines are built in the UK and then exported abroad, where Judges thus earns another currency profit.
From left to right: Maurice Essers, Rob Rutten, David Cicurel (Judges Scientific), Erik Klinkers and Michael Gielkens
Cicurel mentions that inflation recently hit 10%, but costs have not gone up by 10%. However, Judges is able to raise prices by 10%, thanks in part to the aforementioned currency effect. This is a major advantage of being based in the UK over foreign competitors and industry peers. What is also very important is that Judges’ portfolio consists of niche companies with relatively few competitors, giving the investment holding company considerable pricing power.
Takeover market
Since Judges has not made any acquisitions since 2020, we asked Cicurel about the takeover climate. Cicurel: “An entrepreneur of 65 is thinking about selling his company and does not want to leave his partner with a company without management. Selling is a huge and irreversible decision. In a bad year, you don’t want to sell. As a result, our acquisition pipeline was not filled during the covid period. Sometimes you just have periods without acquisitions. However, an entrepreneur in his 60s, after surviving the corona crisis, considers that he has weathered several crises, and now wants to sell to secure his retirement and legacy. Then Judges is a reliable party that always sticks to the agreements made.”
Judges has some 2,000 companies in the selection, and 100 become available each year, according to Cicurel. The entrepreneur can and will then sell. However, Judges is very critical and wants to get the cherry-picked. Of those 100 companies, perhaps only five are really good ones to be considered for the portfolio.
We also asked Cicurel about the business conditions after the sale: “If a founder sells, they sometimes stay on as director, but we don’t assume that in principle. Then there is always a plan B. Usually a successor who is already working in the company, because the businesses require specific niche knowledge. The sales director is often highly educated with a lot of knowledge of science, so this is the preferred route for Judges to succeed the founder. However, it does not always work; sometimes the intended successor is not ready. Then a part-time interim director from another portfolio company, who had already retired and can train the successor, is appointed.”
Judges Scientific, led by Cicurel, has comfortably beaten the British smallcap index since its IPO
Succession Cicurel
Since David Cicurel is already 71, we asked him about the availability of a successor. Cicurel let us know that he is far from wanting to sit behind the geraniums. However, should something unexpected happen to him, his wife can live off the dividend, so Cicurel’s shares will remain in family hands.
Judges has an experienced management team, within which Mark Lavelle has excellent knowledge of the company and its subsidiaries, which he visits monthly. In addition, someone will be needed to do and amass the acquisition deals, as that is currently done entirely by Cicurel. Current management is well capable of completing a deal, but someone is needed to fill the acquisition pipeline and select candidates.
Recently Judges appointed a commissioner who worked for 17 years as the mergers and acquisitions officer in charge at Oxford Instruments, like Judges a company that develops instruments for highly specialized applications and makes many acquisitions. Also appointed is a commissioner who does due diligence for private equity parties, so by definition vetting acquisition candidates. Director Mark Lavalle gained extensive experience in mergers and acquisitions at Halma, UK, and Bank of America. In short, there is sufficient acquisition knowledge and experience to replace Cicurel in this area as well.
Organizational structure
Judges Scientific has few people at headquarters, only 6 people, three of whom are dedicated to the finances of Judges and the subsidiaries. The subsidiaries are very autonomous, but need to pass on many figures to Judges. They are characterized by the presence of a good manager and benefit from Judges’ good, solid corporate culture. Despite the autonomy, the subsidiaries can always signal to headquarters when help is needed.
Skin in the game
A very important item for us in the selection of our portfolio companies is the degree of skin in the game. Cicurel is the largest shareholder, but what about the rest of the company? Cicurel: “33% of the employees are shareholders, so they want the company to do well. We offer a tax-advantaged share buyback program for employees, allowing them to buy shares for GBP 1,800 from their gross salary. Judges then matches that with GBP 600 pounds, so employees can buy GBP 2,400 a year of Judges shares on very favorable tax terms. That seems little, but after a few years the counter starts running quite a bit. That’s a good motivator for our staff.”
After a successful meeting, with clear answers to our questions, and a photo for the newsletter, we thanked the top man for his openness and hospitality. Cicurel was quite annoyed, though: “Never take pictures with those big Dutchmen,” he said with a wink.
