Minority investment for maximum growth
Minority funding allows 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. Inflexion Partner David Whileman explains the benefits of true Partnership Capital.
Selling one’s business can be anathema to the passion endemic in many entrepreneurs, with the thought of relinquishing control unappealing to many. Many founders, especially now, are looking at what’s next, whether for personal or professional reasons. As well as navigating, the challenges of the current market environment, their thoughts may encompass entering new geographies or markets and possibly acquisitions, as fresh opportunities have presented themselves over the course of what has been a year of unexpected developments.
Inflexion has a fund dedicated to genuine minority capital. Its Partnership Capital fund offers entrepreneurs and management teams the same proven growth acceleration levers available to rest of the firm’s portfolio.
“Minority investment is a true alternative to selling; it allows a founder to retain control whilst getting the capital and expertise to help support the business’s next level of growth,” David explains.
M&A: Thoughtful acquisitions can transform a business. We’ve supported over 260 for our partner companies.
International expansion: A local presence is key to successful geographic expansion, and our on-the-ground experts in India, China, North America and South America provide invaluable experience and connections.
Digital enhancement: Executing a well thought out digital strategy can help businesses across all sectors provide a better customer experience and build up valuable data.
Talent management: People are at the heart of every business, and their engagement is crucial to success. We have an experienced team to support our portfolio in this critical area.
Commercial strategy: Having the right product-market-pricing fit coupled with strong sales execution is key to accelerating revenue growth and success. We have a team dedicated to supporting our portfolio on go-to-market strategies including pricing, proposition and sales.
It's clear that the right private equity partner brings more than much-needed capital; they can bring expertise crucial to support growth. In these uncertain times, a backer with experience in managing through economic downturns with a culture of support is vital.
If you’re looking to grow your business through acquisition, it’s best to seek out a firm which has relevant experience in this complex exercise. We have supported over 260 acquisitions for our portfolio companies since our founding over 20 years ago, from sourcing and approaching targets, to negotiating with them, introducing banks where funding beyond our equity was required, and to then integrating the businesses post-deal.
Owing to the care needed when integrating businesses, as well as the need to respect delicate cultures and embedded systems, we often support businesses to accelerate their M&A plans early on in our partnerships. For example, in 2018 we provided minority funding to Huws Gray, and just six months later supported the acquisition of Ridgeons, a transformational acquisition which doubled the size of the business and created the UK’s largest independent builders merchants.
Other acquisitions can offer new verticals for the firms we invest in. For example, we supported the acquisition by Radius Payment Solutions of Adam Phones, enabling Radius to enter the telecommunications market. Similar to the Huws Gray deal, this transformational acquisition was done within the first year of our minority investment to ensure ample time to bed the business down. Since then we’ve supported Radius’ subsequent purchases of Connect Total Communications, Amelix Telecom, Trinity Maxerll and CyntrX.
Expanding into new overseas markets can be achieved through M&A, organically, or a combination of both. Our portfolio now reaches 160 countries, with our in-country experts in China, India, Brazil and the US on-hand, and often instrumental, to the international success of businesses we partner with. Together we’ve supported 42 international add-ons in 19 countries to help our partners realise their global ambitions.
The presence of our in-country experts was particularly helpful during the lockdown months when travel was severely restricted, as they were able to represent our partners in their respective geographies, securing new clients and helping to facilitate the transition to remote working where required.
Over the years, our in-country experts have helped with warm introductions and local know-how. Our Partnership Capital fund invested minority funding into K2 Partnering Solutions in March 2017. The funds were earmarked for supporting the specialist IT recruitment business to accelerate its growth globally by utilising our strong track record in the sector and local presence in K2’s key growth markets of Brazil and China, and we have supported K2 in building its US team.
We’ve also very recently provided minority capital to Auxadi, a tech-enabled corporate services business, as part of a planned family succession. The Madrid-based firm was already international at the time of our August 2020 minority investment, with 16 international subsidiaries servicing its 500 clients in 50 countries. Management are working with our in-country experts to accelerate growth further, namely in the US and South American markets.
Lots of growth can take place from your office – even home office, as we’ve learned in 2020 – and we’ve spent a lot of time helping our portfolio to enhance their digital offering and capability. Whether overhauling a website to better serve clients and generate valuable data, or implementing a new software platform to streamline business operations, embracing digital can help businesses across all sectors to provide a better customer experience and open fresh efficiencies and opportunities.
A digital presence is no longer the sole preserve of high-tech companies. Mountain Warehouse is the UK’s leading outdoor clothing and equipment retailer and, received £45 million of minority funding from Inflexion in 2018. The firm was operating its multi-channel offering in nine countries and sought a partner to support its roll-out in the UK and abroad, as well as a backer who could strongly support its digital enhancement. Since the minority investment, the team have embarked on an impressive e-commerce strategy which has grown rapidly – with online sales up 100% this year.
Digital also formed a strong part of the success story at Outdoor Plus, an out-of-home advertising specialist we provided minority funding to in 2016. The company partnered with us to access our digital and technology expertise, and during our two years of working together, 12 new premium sites opened with TfL and 30 existing sites were converted to digital. The partnership saw EBITDA grow 38% and headcount 40%.
People are at the heart of every company, and so we have focused on supporting portfolio teams for a number of years. As part of growth or during times of uncertainty – whether a company is undergoing transformational M&A, expanding geographically, developing new operating models such as adjusting to new ways of remote working or just growing in complexity – attracting, nurturing and engaging valuable people is crucial.
We have a Talent Director who truly understands the importance of people power, having spent many years helping growing organisations optimise for growth, through organisational design and thorough scoping and agreement of the skillsets required to succeed. We recognise that every company needs different skills at different times, therefore we are always working with firms to understand and develop their organisations’ resources. Our network and experience in this crucial area helps teams make the right appointments, which can otherwise require a lot of time and often money. This has been particularly useful in recent times, and during the early days of lockdown our Talent Director helped to facilitate a number of C-suite appointments for our portfolio as these firms continue to prioritise a strong leadership team.
Our team can also help with international appointments, with the developments at K2 Partnering Solutions a case in point. K2 is acutely aware of the importance of people given it specialises in recruitment, but following our minority investment in 2017, our US presence and North American network proved helpful in establishing a US team for the business, whose clients include technology firms in Silicon Valley.
The range of talent resources that entrepreneur shareholders can draw upon includes assistance in sourcing and appointing non executives. For example, our recent investment in Auxadi, a tech-enabled corporate services business we provided minority funding to in August 2020 was followed by the appointment of a board of experienced non-executive professionals sourced from our network.
We also facilitate best practice sharing and partnering support to nurture and engage leadership at different parts of the journey as part of the Inflexion portfolio community. In addition to a dedicated Talent Director, portfolio companies have access to the Inflexion Network, which spans a variety of sectors and backgrounds. Professionals range from entrepreneurs to senior business leaders and policy makers, many of whom have experienced growing their business with private equity backing and so understand this journey.
Sales-led profit growth has always been at the heart of Inflexion’s value acceleration strategy – but this has been sorely tested for most firms during 2020. Focusing on retaining existing customers has been the highest priority for many businesses. As not all products and services are well suited for remote delivery, reassessing and testing your offering to tailor it to today’s uncertain world is key. We have worked closely with our 49-strong portfolio to stress test and pivot plans during lockdown, and have learnt a lot with them in the process.
Our portfolio has access to a team dedicated to commercial effectiveness. This includes ensuring businesses develop the right propositions and commercial models, with a strong product-market-pricing fit. For example, we are minority investors in specialist motor insurer Granite, which is already a clear leader in its specialist space with a 25% share of the UK taxi insurance market. Management are drawing on our industry expertise and experience in digital innovation to help grow their market share and increase efficiency.
Cross-functional topics such as pricing are often left with lingering questions around what the right value-based approach is, despite the clear and tangible impact an improved approach can have on the bottom line.
Even with the best go-to-market strategy, success starts and ends with sales execution. As businesses scale either organically or through M&A, complexity inevitably increases and transparency decreases. It frequently requires the sales organisation to go on a maturity journey to keep the revenue engine humming. Clearer and consistent processes and tools become more critical, as does alignment with other functions such as marketing. We have supported the scaling and professionalising of sales organisations many times to enable them to reach ambitious growth goals.