Astra interview – UK SME acquirer with a tech edge

Additional disclaimer: After being impressed by the team and their vision, I’m joining Astra as an adviser.

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Gustaf: Hi Amit, what inspired you and Sergey to found Astra?
Amit Rai: Gustaf, preserving SME owners’ legacies in the UK and driving innovation through technology are our two key motivators.

Both our fathers ran successful SME businesses, but the businesses had to be shut due to a lack of succession planning. Watching that unfold was tough – not just for our families but also for the employees, customers, and suppliers who depended on those businesses.

Fast forward to today, there are around 260k SMEs with revenues from £2m to £20m in the UK. Shockingly, over 30k of them are likely to close permanently in the next five to ten years due to poor succession planning and a lack of institutional money flowing into this segment. That’s a lot of wasted potential, and it’s a fate we’re determined to help British entrepreneurs avoid.

Our second motivator is the transformative power of technology. During our time at BCG X, we saw how digital and AI could spark growth and improve productivity in large companies.

AI alone is predicted to significantly boost productivity. Yet, we’re witnessing SMEs struggling to adopt it. Astra’s mission is to bridge that gap, bringing AI and digital solutions to high-quality SMEs to unlock their productivity and growth potential.

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Gustaf: What have you and Sergey accomplished at Astra so far?
Amit: Convincing our spouses that leaving cushy consulting jobs to build an SME-focused serial acquirer was a sane idea is probably our greatest achievement – we’re still not sure they’re convinced!

On a serious note, the last few months have been exhilarating. We’ve closed our first two deals after reviewing nearly 200 businesses and meeting nearly 50 inspiring SME leaders.

We assembled a strong group of investors, featuring a US-based multi-asset PE fund, a family office, and senior leaders from private equity, hedge funds, and consulting.

We’ve also created an exceptional extended partner team for deal sourcing (buy-side and sell-side), execution (financial/legal due diligence service providers and bank financing), and portfolio value creation (digital and accounting support).

This has enabled us to build a strong deal pipeline, with two to three amazing businesses landing on our table every week. We’re proud to bring global capital and innovation to drive growth in the SME sector – a way of “levelling-up” various UK regions, which is needed.

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Gustaf: Why focus on capital-light, industrial businesses?
Amit: We’re in this for the long haul, aiming to build a permanent holding company that stands the test of time. That means focusing on sectors that are essential, resilient, and positioned to thrive in the UK for decades to come. B2B businesses – active in energy management, building maintenance, warehousing and logistics – fit the bill perfectly.

Plus, many of these businesses are resistant to offshoring, a perk in an increasingly globalized economy. On top of that, they offer rich opportunities for innovation – using technology and AI to enhance customer centricity, improve service quality, and boost productivity.

Pockets of these verticals are fragmented, capital-light, and possess strong moats, making them ideal for the serial acquirer model. The durability of such firms allows for incremental improvements, benchmarking, and long-term incentives aligned with FCF per share growth.

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Gustaf: How do you ensure sustainable growth post-acquisition?
Amit: We’re not trying to reinvent the processes that in Darwinian fashion have been deemed to work at the best-in-class acquirers, such as Addtech, Lagercrantz, and Lifco. For example, already good SMEs oftentimes paradoxically offer more low-hanging fruit than lower-quality targets. And combining efficiencies through pull education with clear KPIs at firms with strong management creates favourable odds for long-term value creation.

These learnings applied to our specific skillset have boiled down to Astra’s three-pronged approach:

First, we’re introducing transparent KPIs tied to both short- and long-term incentives to give everyone clear goals and shared rewards. Our goal is to introduce ownership schemes for the hard-working employees of the businesses we acquire, something most don’t have today.

Second, with our hands-on operational background, we’ve mapped out a comprehensive playbook, educating subsidiaries (and promoting the sharing of insights) on everything from strategic planning to optimizing day-to-day functions like sales, pricing, and field services.

And third – differentiating us further – is to pragmatically leverage useful AI and tech. Beyond streamlining operations, we’re using technology to develop new offerings that help our companies win market share and deepen customer relationships.

We like to say we’re bringing Silicon Valley tools to SMEs but leaving the hoodies and beanbags behind. Of course, there’s no shortage of challenges, but that’s what makes the journey rewarding.

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Gustaf: What are Astra’s long-term goals?
Amit: With around 260k SMEs in our target segment in the UK alone, the opportunity is enormous – and it multiplies when you, in a longer perspective, include the rest of Europe.

Long term, we’ll measure our success through three lenses:

1. Legacy: Have we grown the businesses we acquired to the satisfaction of employees, customers, and suppliers?

2. Impact: Have we injected capital, talent, and technology to benefit the communities where we operate?

3. Returns: Have we delivered industry-leading returns for our investors? (Nordic serial acquirers are incredibly well-run, so the bar is high.)

Ultimately, we want Astra to be synonymous with preserving legacies, driving innovation, and creating enduring equity value.

To wrap up, we’re excited to participate in the upcoming Redeye conference this March in Stockholm. If you’d like to connect, feel free to message me directly on LinkedIn or visit us at https://www.astraholding.uk

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