Are recruitment rollups even a thing?! Literacy Capital thought so - and made 10x on Kernel Global

95% of the people reading this article have interacted with a recruiter at least once. Moreover, if you have lived or worked in the UK, you must have come across Dartmouth Partners: a recruitment firm exclusively focused on the finance industry.

Top-notch recruiters are well-informed, convincing and, above all, highly productive salespeople. Yet they can also be short-terministic and transactional when it comes to relationships. Big egos are but one of a long list of reasons why private equity has largely eschewed executive search. Other reasons include scalability; regional brands that don’t “translate” cross border (i.e. from the UK into the US); and revenue cyclicality. 

The UK private equity firm Literacy Capital either didn’t know about these issues, or didn’t care. Either way, it went all-in on Dartmouth and was rewarded with a 10x ROI.

Here’s how. 

The Literacy Capital backstory

Literacy was founded in 2007 by the father/son duo of Paul and Richard Pinder. Paul is the founder and former CEO of Capital, while Richard earned his stripes first at KPMG and later at Lonsdale Capital Partners, a London-based buyout fund.

Literacy is a closed-end investment company focused on the UK. Beyond investing, it has a charitable angle, donating 0.9% of net assets every year to literacy charities. The company is independently owned and managed. It invests across all sectors, provided the financial metrics are strong, the business is understandable, and the firm can add value.

The returns have been stellar. Since the June 2021 IPO, Literacy’s market cap has increased 2.5x, tracking the growth in Net Asset Value. This is well ahead of compounders like Constellation Software or Judges Scientific, but also ahead of listed alternative managers like Blackstone or KKR. 

The Dartmouth deal exemplifies the kind of bold calls that Literacy has had to make to earn this standout performance. 

In 2018, it supported Dartmouth’s CEO Logan Naidu on the MBO. 6 years, one bolt-on and one rebranding later, the enlarged business - now called Kernel Global - was recapitalised by another sponsor, netting Literacy a 9.8x return on the original investment (including 6.7x on the realised portion and 3.2x on the retained minority stake). 

How did they achieve that? 

In this article, we deep dive into:

• The story behind Kernel / Dartmouth Partners

• What attracted Literacy Capital to the business

• The value creation playbook

• Financial and valuation metrics

The beginnings: a preppy brand for the preppy crowd

Logan Naidu started his career in finance, with stints at JPMorgan and PwC. In 2005, he founded The Cornell Partnership in 2005 - which he exited 7 years later to the other two founders. 

Logan’s next steps were a) get married, b) become a parent, c) battle cancer and d) establish a new recruitment boutique. All 4 were successful.

Thus Dartmouth Partners was born. 

Logan’s innovation was to invest into relationships with junior investment bankers, thus benefiting from repeat business down the line. The “Classroom to Boardroom” concept - with a preppy name to boot!

Things quickly took off. By 2018, Dartmouth was making £7.3M in sales and £2.4M in EBITDA. 

And yet, from the PE investor point of view, Dartmouth was not a desirable asset. Far too small. Financial services recruitment was (and is) far too cyclical. Brexit had damaged the UK’s investment appeal - something that Dartmouth’s fledgling German and French operations could not make up for. 

Why bother?

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