Looking ahead with the support of a minority backer
Minority capital can deliver maximum impact. Inflexion’s dedicated minority investment fund, Partnership Capital, is seeing record interest in a post-pandemic backdrop as owners re-engage with growth.
The last 18 months have caused many business owners to reassess their plans. While there have long been reasons to consider a financial backer, these seem to have intensified since the pandemic, as waves of uncertainty and opportunity ebb and flow. Most owners considering external funding are looking at what’s next, whether for personal reasons such as crystallising some value; or professional reasons, including pre-IPO funding, M&A or super-charging their growth, possibly by entering new geographies or markets. But what is clear is their business is not for sale and they remain very ambitious about the future.
Businesses looking to evolve through a partnership rather than create a revolution through change of ownership was a need Inflexion identified and so launched Partnership Capital Fund in 2014 as the first dedicated minority investing fund in Europe. Seven years later and the results of a dedicated fund speak for themselves: £1.4bn invested in 15 companies, over half of which involve Inflexion as the first institutional investor in the company’s history.
Some owners may be looking to release liquidity but retain control of their business, and so seek a long-term succession plan. Others may feel frustrated and limited within a larger entity whose ambitions differ to their own – particularly the case now, as corporates place a firmer focus on core activities to drive efficiencies, often to the detriment of robust but non-core units.
“Minorities have really been around since the dawn of private equity but have had more of a gentle presence at the back of the private equity stage compared to leveraged buyouts” recalls Inflexion Partner David Whileman, who has nearly 30 years of private equity experience, almost entirely in minority funding. “That feels an appropriate position given the difference in style between the two types of investing”.
A number of private equity firms may tout minority funding and typically do so from a majority fund where up to 10-15% is typically earmarked for such purposes. But given the fund has been raised primarily to invest in actively controlling positions, it will always be a compromise legally as well as culturally to do the odd one or two minority transactions. This can make a crucial difference in building rapport and trust around the Board.
Inflexion’s Partnership Capital only invests for minority positions – there is no compromise as its investors know the unique purpose of the fund – and appreciate that this difference creates the opportunity to deploy capital into businesses where traditional private equity isn’t appropriate. In today’s world where there is significant sums capital chasing a limited number of good transactions, this uniqueness is highly prized.
Businesses partnering with Inflexion’s minority fund have the same access as its majority investments to Inflexion’s value acceleration strategies, whether the international network, expertise in M&A, digital and commercial enhancement or in house talent management. “The businesses we support can draw on some or all of these as they accelerate their growth journey – it’s like a menu, their choice of how much of this they would like engage with,” David says.
And those partnerships are not just for entrepreneurs but institutions such as large corporates and PLCs.
The common denominator is that the business is not for sale and the current owners see the potential of bringing onboard a true partner that has more than deep pockets.
There have been a number of great success stories already recorded for Inflexion’s Partnership Capital offering, with a growing number of ambitious businesses joining the portfolio. Some recent examples include:
CMSPI: international growth and digital enhancement
CMS Payments Intelligence (“CMSPI”) is an independent global payments consultancy that provides data, technology and industry expertise to support merchants to navigate the ever-changing, complex payments industry. The founder was seeking a minority investor to help scale the business internationally, equity incentivise the wider Exec team and build out core expertise across tech development and data. A minority investment was made into CMSPI in March 2021, since when the Inflexion team have supported management to accelerate the US expansion strategy, expand into APAC whilst pivoting towards a tech and data led strategy.
DWS: digital demerger
Digital Wholesale Solutions (“DWS”) is a high growth software platform business providing IT, communications and cloud products and services on a wholesale basis to over 6,000 UK partners, from vendors including Vodafone, O2, BT/EE, Microsoft, and Virgin Media Business. In March this year, Inflexion provided a minority investment to support DWS’s demerger from its parent Daisy Group, with management reinvesting 90% of proceeds. The deal enabled DWS to be independent and provide liquidity for the founder, whilst also de-gearing so that it is better placed to invest for growth. Currently DWS is working with Inflexion to drive synergies from recent acquisitions as well as looking at further accretive bolt-on M&A. With the help of Inflexion’s inhouse Talent team two NEDs have been appointed from Inflexion’s network one being Paul Walker, the former CEO of Sage. The immediate focus is now on advancing DWS’s product range and making the most of its newly independent status.
Informa: carve-out and corporate partnership
In April 2021, FTSE 100 business Informa PLC chose Inflexion as its partner to bring together two complementary businesses: Informa Financial Intelligence’s Financial Benchmarking & Omnichannel Experience (FBX) business and Novantas Inc, a financial data services company. Informa were drawn to Inflexion’s carve-out experience owing to the complex nature of the deal, as well as Inflexion’s expertise in scaling data businesses and its US presence.
The carve-out and subsequent integration has created a market leading financial data and technology provider, while Inflexion’s flexible Partnership Capital solution enabled Informa to retain a majority stake in the combined business as they grow the new entity alongside Inflexion and Novantas. The business has been rebranded has Curinos and a joint project has already commenced around pursuing cross and upselling opportunities.
Phenna: supporting ambitious consolidation
Phenna Group is focused on the testing, inspection, certification and compliance (“TICC”) sector and took on minority funding from Inflexion's Partnership Capital Fund in 2021 to support its acquisitive growth as it consolidates the highly fragmented TICC industry. Following the transaction, the team asked for support in finding an experienced Chair and the management team is looking to make some further significant hires with the help of Inflexion’s Talent team.
Inflexion is well positioned to help Phenna in this ambition owing to its deep experience in this sector following investments in Alcumus, British Engineering Services and Cawood Scientific. Inflexion is using its experience to support the company’s growth through M&A to expand Phenna’s existing service offering and geographical reach, with 12 bolt-on acquisitions undertaken since the partnership commenced.
Phenna’s CEO Paul Barry was drawn to the combination of support without ownership: “Inflexion stood out as their Partnership Capital offering allowed the current shareholders to retain majority control, whilst benefiting from their resources and very relevant experience in our sector.”