Minority capital for majority impact
Flexibility has long been the key to building businesses with sustainable growth, and today’s environment may make this more important than ever. We are proud to be able to provide £10-250 million of equity per investment and can be flexible with the level of partnership we offer – from minority to majority stakes, and with dedicated funds to reflect the nuanced needs of each.
Inflexion’s Partnership Capital Fund is focused on providing minority funding to allow owners to maximise the value of their business whilst de-risking their personal finances – all while retaining control and gaining flexible funding and support for growth.
Recent events may have caused business owners to change their growth plans. Whether it meant postponing new ventures or modifying production to accommodate fluctuations in demand, most firms are now considering how to build a sustainable plan back to growth. This may also entail a change of ownership structure as some longstanding owner-managers look to release money they’ve built up and seek to put succession plans in place. For these reasons, it may mean businesses could benefit from expertise as well as finance.
However, the idea of selling one’s business doesn’t appeal to everyone, and so many owners may rule out the idea of a private equity backer. But this needn’t be the case, says David Whileman, Partner and Head of Partnership Capital at Inflexion.
This is where minority funding can play a role. Though lesser known than its buyout counterpart, minority investment has been around since private equity started, with David’s three decades of private equity experience belying industry norms to have been focused almost entirely on minority funding. “It offers an alternative to selling a business by allowing a founder to retain control whilst getting the capital and expertise to help support the business’s next level of growth.”
Because Inflexion has a Partnership Capital Fund dedicated to minority capital – which raised £1 billion in 2018 and so is well capitalised – each deal can be structured to fit the business it is backing, offering maximum flexibility. “The mindset in a minority fund is different. We can’t force an exit, we can’t change management – we are very much a supportive passenger rather than in the driver’s seat for the journey,” comments David.
This funding, combined with the support to bring through the right individuals to steer the business through its next stage of development, can maximise the chance of the founder’s legacy remaining intact rather than being absorbed by another business. It can also maximise value of the business on an eventual sale if it has a robust, proven management team that is staying on board.
Despite the different model, businesses partnering with Inflexion’s minority fund have the same access as the rest of its portfolio to Inflexion’s network and proven value creation methods. “We have overseas offices, digital experts, in-house head-hunters for building talent and experience in supporting over 200 acquisitions. The business owners we provide minority capital to are able to pick and choose which of these growth levers they wish to engage.”
The proof is in the pudding, with strong returns created for management as a result of the minority partnership: out-of-home advertising specialist Outdoor Plus saw EBITDA grow 38% and headcount 40% during the two-year partnership prior to being acquired by Global Radio in 2018. CloserStill Media used Partnership Capital’s funding to expand internationally and build its portfolio of exhibitions, during the nearly three-year partnership international revenues grew from 20% to 50% of turnover and the business completed eight acquisitions.
Minority investing allows you to have your cake and eat it. You still own your business, but you get capital to grow and you get expertise to help you identify and pursue opportunities. It helps stop the clock on retirement – owners are reinvigorated and can sell eventually or not– but they will have more options and everything remains on their terms.
Operating since its 1990 founding on Anglesey, Wales, builders merchants Huws Gray had grown organically and acquisitively to operate 62 branches by 2017. The success was down to the hard and clever graft of its founders Terry Owen and John Llewelyn Jones, who nurtured the then fledgling business by working from 5am to midnight in its early days. It meant they knew every aspect of the business, from the sales ledger to accounts.
Despite its fast-paced growth, Terry was aware of the importance of succession planning. Having spurned an approach from a national, Huws Gray sought an alternative road to flourish. “Initially we were very much about a majority investor, but as we went through the process it became very appealing that minority backing gave us a far better return in the longer term. We ended up with Inflexion because of the people there,” explains Terry.
Since the April 2018 partnership, Huws Gray has been able to look for larger acquisitions. “The transformational acquisition of Ridgeons in the south helped us double in size overnight; had we remained independent, we’d not have achieved it. Inflexion gave us the confidence and support to pursue that.”
Today Huws Gray operates from over 80 trading locations across Wales, East Anglia, the North West of England, the Midlands and Yorkshire with over 800 staff.