How the right private equity partner can turbo-charge growth

Patience and chemistry are key for building businesses – and for football, according to Inflexion Partner and football lover Tim Smallbone

Ambitious management teams could do worse than to consider private equity (PE) backing to turbo-charge their growth. As an active partnership between the investor and management, it can be a very effective way of creating value. Unlike a loan, which may stymie growth by restricting capital flows, PE firms align their interests with management teams through equity stakes. It means PE is more than funding; it's also valuable experience in helping businesses grow in myriad ways, and so is ‘smart’ capital. 

Whatever the type or size of investment, finding the right backer is paramount to helping companies accelerate growth. Yet, finding the right PE firm that will add value beyond capital is easier said than done with a vast selection to choose from. Finding the right guidance is crucial, and not just in the business world, as recent developments in the Premier League illustrate. 

The perfect match 

Tottenham Hotspur named José Mourinho as their new manager at the end of November, hoping the acclaimed manager could sprinkle some of his gold dust on the club. But after a strong initial bounce, it seems the self-proclaimed ‘special one’ may not be a sure route to the top of the Premier League. Rival north London club Arsenal recently faced a leadership vacuum when Unai Emery – who succeeded a very accomplished Arsene Wenger after 22 years as manager – proved to be the wrong fit for the team, which seemed out of puff as they slid down the league table. 

In PE as well as football, it’s about the chemistry of working together. Realising the need for fresh talent at the helm whilst acknowledging the importance of cultural fit, former club great Freddie Ljungberg was appointed interim head coach at Arsenal until another former Gunner, Mikel Arteta was named manager in December. A history of playing with the club meant he quite literally could speak their language – a deficit that may have contributed to Emery’s failure there. Communication is key, and it is no different for growing businesses. 

Patience is a virtue

Such analogies remind us of the need for patience. PE, like football, relies on tactical victories propelling long-term success, though the former is no guarantee of the latter. Following the initial transaction, a company should hit the ground running with a 100-day plan, with developments bedded down so that their efficacy can be assessed. This is particularly true with M&A, where select acquisitions can transform a company. Inflexion has supported over 220 acquisitions globally for our portfolio companies, 25 in the last year. Most of these are front-ended, typically into the first year of our partnership, so that we have ample time to work with management to integrate the businesses to ensure they are a sustainable success. 

Fleet telematics and payments business Radius, for example, has made eight acquisitions since our minority capital partnership in January 2018, and we remain partnered to support the careful integration of these companies.

New developments

Increasing fund sizes mean that the top PE firms have unprecedented levels of capital to deploy. While this may seem good news to sellers, it is important to remember these PE firms aren’t cowboys; enviable track records mean they are astute financial investors. They are aware that the wall of capital chasing precious few deals is driving prices up. Think of it like the Premiership – the best talent is attracting eye-watering price tags. And so PE houses, like football managers, need an angle to ensure their investments generate strong returns. In owner-managed businesses, this usually means an excellent product (or service) backed by a very ambitious and proven management team and several years’ sustainable revenue and profit growth. This last point is crucial since the business will be growing faster under PE stewardship and may look to invest in acquisitions or product and/or geographic expansion.

Another fairly new development is digital enhancement of a business. Initially, it meant launching mobile sites and apps for companies, but now it’s about cleverly unlocking the data your company has – whether that’s transforming ponds into lakes or starting from scratch – to provide you with intelligence that can help you better serve your customers and therefore improve your margins. 

The case of Virgin Experience Days illustrates the point well. At the time of partnering with Inflexion in September 2017, the firm did not have a focus on technical innovation. Together they cast their focus towards mobile and personalised customer experience based on a flexible, cost-effective and best-of-breed technology infrastructure, and it has delivered a significant impact. Now the business has an effective in-house UI/UX and development team working towards clear goals. The firm has also engaged in robotic process automation using Blue Prism software to allow its staff to focus on frontline customer service rather than repetitive data entry. 

While digital enhancement can reap myriad benefits for businesses, I can’t say the same for football – the advent of VAR has done little to enhance the sport, and I’d go as far as to suggest it’s eroded the enjoyment of spectating!