Businesses the world over are carefully assessing their plans in the light of the coronavirus pandemic, with new opportunities manifesting as the corporate backdrop shifts. If you want flexible funding as well as the support of an experienced private equity backer but wish to retain control, minority funding could be for you. David Whileman, head of Inflexion’s Partnership Capital, talks about the benefits of this unique funding opportunity.
The idea of selling one’s business doesn’t appeal to everyone. Some owner-managers want to release some liquidity but retain control of the business they’ve carefully built and therefore seek a long-term succession plan. They are looking at what’s next, whether for personal reasons or professional, including pre-IPO funding, M&A or super-charging their growth, possibly by entering new geographies or markets.
Here is where minority funding can play a role. “Minorities have really been around since private equity started,” recalls Inflexion Partner David Whileman, whose three decades’ private equity experience belie 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.”
“Our Partnership Capital model is different because it offers genuine minority capital,” enthuses 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.
Having a fund dedicated to minority investments means each deal is 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 wholesale – we are very much a supportive passenger rather than in the driver’s seat for the journey.”
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 digital experts, an in-house team focused on building talent, experience in supporting over 200 acquisitions and overseas offices. 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 – but on their terms. This means entrepreneurs can pursue more of a plural life, whether it’s spending more time outside of work or redistributing wealth outside of the family business – they can do all this whilst retaining control of their baby,” David concludes.
"Inflexion are unusual in that they didn’t try to take control. I’d had offers from a number of other private equity firms over the years but they’d all wanted to buy a bigger stake and take control rights."
Arnold Levy, CEO, Medivet
Supporting M&A with minority funding: Radius Payment Solutions
Looking for an investor to accelerate its growth but with an effective employee ownership programme in place, Radius Payment Solutions CEO Bill Holmes didn’t want to lose control of the business he founded in 1990. “We’d been exploring ways in which we could achieve the next stage of our growth and felt Inflexion Partnership Capital had the right culture, expertise and support to grow the business further with its exciting overseas network.” Indeed less than a year after a sizeable investment from Inflexion Partnership Capital for a minority stake in January 2018, Radius entered the telecom sector through the acquisition of Adams Phones. The following year, a number of add-on acquisitions were made, including five in a single month, in the UK, US and Ireland.
This article is written by Inflexion Private Equity Partners
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