Ensuring our portfolio companies have access to the most effective capital structures and terms to support growth is paramount for Inflexion, and having strong lending relationships is critical to this. Philip Edmans, Inflexion Partner with responsibility for capital markets strategy, explains the importance of knowing the market.
Philip had spent over a decade of investing with Inflexion prior to being named head of capital markets, meaning he was well versed in getting transactions over the line and then working with management teams to accelerate growth. “We are extremely active in the mid-market,” he says. “Last year we supported 70 acquisitions with a combined enterprise value of £1 billion for our portfolio across 12 countries and spanning six continents. This high level of activity means Inflexion has a strong network of lenders we are constantly speaking to, from major banks to institutional private credit funds.”
The latter emerged in Europe post financial crisis due to regulatory limits on banks’ lending capacity, but have particularly dominated in the last five years. “Private credit offers greater flexibility on size and terms, with committed capital less exposed to macro shocks. We’ve been borrowing from this asset class for over 15 years. Relationship-driven and adaptable across funds, private credit now plays a major role in our borrowing, complementing banks’ who continue to be an important lending partner as well as an important provide of ancillary banking services to our companies,” Philip explains.
This not only means Inflexion is at the forefront of market innovation when it comes to lending, but that it has real relationships with the lenders themselves, developed over 25 years of building mid-market businesses. In an industry typically about the numbers, this qualitative aspect counts for a lot – and this bodes well for businesses within the Inflexion portfolio.
“Management get the most appropriate capital structures and debt terms because we think carefully and are thoughtful about their growth journey. It’s not about having the most debt – in fact we don’t put a lot of leverage into a business – it’s actually about creating the most optimal capital structure.” He speaks from experience, having sat on boards, and this equity background a real differentiator for capital markets teams within PE houses. This is the case across the three that comprise Inflexion’s Capital Markets team, with a mixture of debt and equity experience highlighting the importance the firm places on it.
Funding for growth
“Leverage isn’t the strategy; it is the enabler of other ambitions,” Philip stresses. He maintains that, used responsibly, it can help preserve founder/manager ownership, lowers the overall cost of capital and can significantly improve management returns when paired with strong business fundamentals. However, its real benefit is for fuelling growth.
This means looking at the longer-term business plan rather than placing a hyper focus on the short-term debt pricing at the outset. “Our approach to debt always starts with the investment thesis, and for us that is always centred on driving earnings growth. We work collaboratively to understand how debt can enable that, possibly through funding organic growth or acquisitions – and equally, where debt might risk holding a company back,” Philip stresses.
This will vary from business to business and sector to sector, with expertise counting for a lot as it means the lenders understand the market dynamics and appreciate the nuances and fluctuations that are bound to occur. For this reason, Inflexion have used the same lender for two different pharmaceutical platforms. “Their insight makes them more supportive, flexible, and willing to back growth because they really understand the opportunity,” Philip enthuses.
Relationships matter
Another example of rewarding healthy relationships can be seen with Aspen Pumps, with Inflexion keeping the firm’s incumbent backer when it reinvested. “They had already built a strong relationship with management, and when combined with our own insight from our previous investment, it created a powerful mix of knowledge, trust and continuity across the equity and debt.” Inflexion reinvested for a third time and the same lender – who had supported the business through Covid – remains with the business as it expands in the US and beyond.
These relationships benefit the entire Inflexion portfolio, with lower mid-market businesses often finding themselves speaking to lenders typically present in larger opportunities. “Our different funds engage with different lenders, and our scale and strong relationships mean we can bring major institutions into smaller transactions. Lenders are keen to partner with us across all funds, giving portfolio companies access to capital they might not otherwise secure,” Philip says. He explains this stems not only from the trust they’ve built but also from the confidence lenders have in the growth trajectory of Inflexion’s high-performing “club” of companies.
Inflexion typically builds in flex to future proof terms of documentation, lenders, and terms so as to reduce the frictional need to keep going out to the market. Structures that grow with the business allow teams can focus on scaling the company rather than refinancing. This can be beneficial for M&A or capex as well as overheads such as new product lines or offices. “I know I’ve done my job well if the CFO doesn’t keep calling me to ask for amendments,” Philip states.
Fuelling growth through M&A and capital expenditure
Relationships are key because they enable lenders to see past non-obvious opportunities, trusting in Inflexion’s proven 25-year track record across different sectors to identify and nurture strong prospects.
A powerful illustration of this is the ambitious M&A strategy of Celnor, a newly established platform in the testing and inspection sector. Backed by Inflexion in 2023, the business had ambitious plans to scale rapidly by consolidating a fragmented market.
Ordinarily, a newly created platform might struggle to attract major private credit providers. “However, our long-standing relationships and the resilient nature of the sector enabled us to bring in one of the world’s largest and most experienced lenders. Their confidence in our track record and sector expertise meant they were willing to support Celnor from the outset,” Philip recalls.
With that support in place, Celnor was able to complete 19 acquisitions in its first year alone. And after two years, Celnor has moved from single-digit EBITDA to tens of millions today. The same lender is now providing further capital on flexible terms, ensuring debt service remains responsible and management can stay focused on scaling rather than refinancing.
CTC Aviation serves as a case in point for bank debt supporting expansion. Established by a team of professional pilots, CTC Aviation (now L3) is one of the world’s leading airline pilot training and resourcing companies. Bank financing helped expand capacity in its state-of-the-art simulator facilities, expand its training centre in New Zealand as well as open a new facility to train pilots in the US. This increased capacity helped the business to do more with existing clients and serve new airlines in Asia and the Gulf region. After a successful three-year partnership, the business was sold to NYSE-listed L-3 Communications.
