Helen Villiers joins YFM

13 June 2019

YFM Equity Partners (YFM) has today announced the appointment of Helen Villiers as Investment Manager. Based in the London office, Helen will be focussing on supporting YFM’s new investment activity, working with the existing team to deploy funds into growing businesses at points of transformational change.

Helen’s appointment comes at a time of significant activity for YFM, with investments in The Protein Works from its Buyout Fund 1, marking the eighth investment from the fund, as well as recent scale up capital investments in Frescobol Carioca, Elucidat, Wooshi and Tonkotsu from its two advised VCTs.

Helen, a qualified chartered accountant, joins from Grant Thornton’s Corporate Finance team in London, where she worked closely with management teams and entrepreneurs on a range of transactions, primarily in the Human Capital and TMT sectors.

Colin Granger, Partner at YFM said: “Helen is an important addition to the team at YFM.  We are experiencing increasing levels of opportunity to provide funding to UK based companies, particularly in our core investment range of £2-10m.  Helen’s experience in the market will be invaluable as we look to scale further in the future.”

Helen Villiers added: “I am delighted to be joining YFM at an exciting time and I’m looking forward to working with the YFM team to meet interesting businesses and ultimately to back dynamic, ambitious founders, entrepreneurs and management teams to transform and grow their companies.”

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Tonkotsu partners with YFM for next phase of growth

11 June 2019

Tonkotsu, the Emma Reynolds and Ken Yamada-founded ramen restaurant group plans expansion after partnering with investment firm YFM Equity Partners (“YFM”)

The group, which is led by Managing Director, Stephen Evans, operates nine restaurants in London and one in Selfridges Birmingham, with two more due to open later this year in Peckham and Shoreditch.

Reynolds and Yamada continue to be involved in the business, and Yamada says, “this partnership will allow us to grow our business, enabling us to open a handful more Tonkotsus. Our commitment to the quality of our food, our homemade noodles and the way we treat our people, who are the heart of this business, has been fundamental from day one. We chose YFM as our partner as we felt they shared our ambition to grow the business in the right way to maintain the culture and the brand”.

Entrepreneur and Dragon’s Den star Sarah Willingham, formerly of Pizza Express and Bombay Bicycle Club, will Chair the business. She says, “Tonkotsu’s ramen is the best I have ever tasted, and I’ve been a huge fan for many years. I love the culture and look forward to working with Emma, Ken and the highly-motivated management team, led by Stephen.”

Stephen Evans added “the casual dining sector is experiencing some well documented issues, but the partnership with YFM is proof that well-run brands, with a distinct and value-led offering, continue to attract investment. This is an exciting time for us, our financial performance over the last 12 months has been strong, and this additional investment from YFM will allow us to continue to grow and bring our ramen to a greater audience”.

Funds advised by YFM the specialist private equity fund manager are investing £5M in Tonkotsu for a minority stake.  YFM has a track record of backing businesses across all sectors in the UK. Mike Clarke and Jamie Roberts led the investment for YFM. Mike Clarke commented:

“The team have done a fantastic job in building the company, a unique brand and a loyal customer base despite real challenges to the restaurant sector. We are delighted to be working with Tonkotsu to support their continued growth over the coming years.”  YFM’s has other investments in the consumer market including Friska and Frescobol Carioca and YFM’s previous investments in the sector include – Go Outdoors and Gill Marine.

YFM’s legal advice was provided by Jon Gill at TLT LLP, Organisational Review by Anna Cornwallis of Stratton HR, Tax structuring by Phil Snell of James Cowper Kreston and Financial Due Diligence by Stephen Reed of Price Bailey.

Will Baxter, DSW and Grant Thornton acted as lead advisor to Tonkotsu, and Tim Bird of Field Fisher provided legal advice.

 

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YFM Equity Partners invests £3.6m to support the growth of Wooshii

10 June 2019

Funds advised by YFM Equity Partners (“YFM”), the specialist private equity fund manager, have backed a £3.6m investment into Wooshii Limited (“Wooshii”), a disruptive video agency. YFM’s investment comes from its two advised VCTs, British Smaller Companies VCT plc and British Smaller Companies VCT2 plc.

Wooshii, founded and led by Fergus Dyer-Smith, was built to capitalise on the increasing demand for fast-turnaround digital content, offering clients the convenience and quality of a traditional video marketing agency paired with a decentralised, global creative network. The result is the ability to provide clients with a video content solution that scales with their needs, with feet on the ground across the globe, making localised video content production faster and more affordable.

Growth in recent years has been impressive, and today Wooshii works with a number of blue chip corporate clients including Coca-Cola, Microsoft and Booking.com.

YFM’s investment will be used to support the continued growth of the business, with Wooshii planning to strengthen its team in the UK, the US and across Europe. These newly created roles will enable the business to further expand its international footprint and client base, and to further develop its technology platform.

Colin Granger and Adam Hart led the investment for YFM.  Colin Granger will join the board of Wooshii at completion and commented: “Wooshii have successfully built a decentralised video production model that solves the key issues facing corporates today with a growing demand for content across a global market. We’ve been hugely impressed with management’s vision and the quality creative network and technology platform that the business has created. Having a solid platform, international reach with the opportunity to scale, it’s the type of early-stage, high growth business we look to support, and we’re excited to be part of the Wooshii journey as it continues to gather momentum.”

Fergus Dyer-Smith, founder and CEO of Wooshii, added:

“It’s a really exciting time for Wooshii, and the funding from YFM will allow the business to capitalise on the huge opportunity that lies ahead. We selected YFM as a partner given their knowledge of our market as well as having supported numerous businesses like Wooshii through this planned phase of growth. We have built a great relationship with Colin and Adam during the process and have enjoyed their straight-forward and pragmatic approach. We’re delighted to have YFM join the team.”

YFM’s legal advice was provided by Chris Reed and Poppy Wilkinson at Gateley Plc, Commercial Due Diligence by Geoff Rampton and Suzy Urch of RPL Ltd, Financial Due Diligence by Robert Ledger, Organisational Review by Anna Cornwallis of Stratton HR and IT Due Diligence by John Dowell of Turous.

Dane Phillips of NOR Capital acted as financial advisor to Wooshii with Sam Mabon of Brabners providing legal advice.

 

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YFM leads the buy-out of The Protein Works

7 June 2019

YFM Equity Partners leads the buy-out of  THE PROTEIN WORKSTM with a £6m investment from its Buyout Fund I

YFM Equity Partners (“YFM”), the specialist private equity fund manager has backed the MBO of THE PROTEIN WORKSTM from B&B Investment Partners

Dan Freed and Andy Thomas lead the investment for YFM and this announcement marks the 8th investment from YFM’s Buyout Fund I taking it past 70% invested.

Founded in 2012, THE PROTEIN WORKS™ is a direct-to-consumer sports nutrition business that sells a wide range of protein powders, snacks, supplements, and foods, manufactured at their 34,000 square foot facility in Runcorn, Cheshire. The business has won several awards including New Business of the Year 2014 at the National Business Awards.

Consumers in the UK and the EU can buy directly from THE PROTEIN WORKS™ through their website, and the business sells to markets across the globe via a network of international distributors. The company has enjoyed a sustained period of growth, buoyed by the development of a leading vegan range, unique snacks from its in-house protein bakery and best of breed flavours. It now expects to reach £13 million of sales this year.

The business is run by CEO Mark Coxhead, who co-founded the business, and Marketing Director Laura Keir. As part of the transaction, Arvin Ghoora will join the business as Finance Director. The team plan to make further board appointments in the coming months as the business gears up for further growth.

Andy Thomas, Partner at YFM commented:

THE PROTEIN WORKS™ is ideally placed to serve customers seeking to make protein and other healthy supplements part of their everyday lifestyle. The team have developed an exciting proposition that consumers can trust, and we’re looking forward to working with them to grow the brand, both in the UK and globally. YFM is delighted to be part of THE PROTEIN WORKS™ team”.     

Mark Coxhead, co-founder and Managing Director added:

“It’s a very exciting time at THE PROTEIN WORKS™ as we embark on a new phase of expansion. The brand’s premium range of products have been well received in diverse markets and cultures around the world, illustrating its incredible potential. Partnering with YFM will help us to make this unique brand truly global and give millions more the opportunity to snack healthy on everything from Protein Crunkies to Loaded Nut Butters.”

Sam Davies, Corporate Finance Director at Cowgills advised YFM and its management said, “Mark and his team have rapidly built TPW into a leading premium sports nutrition brand, the partnership with YFM matches the team’s growth ambitions. The management team met a number of equity partners but had a strong cultural fit with YFM which has an excellent track record supporting MBOs and consumer sector deals. The team have been a pleasure to work with and we look forward to continuing to support them as an independent business”.

Sam Davies of Cowgills provided corporate finance advice for the acquisition. YFM’s legal advice was provided by Mark Winthorpe and Andy Walsh at Pannone Corporate. Financial Due Diligence was undertaken by Iain White of DSG, and Commercial Due diligence by White Cap Consulting. OneFourZero undertook Digital Due Diligence, and Marsh completed Insurance DD. Will Munday of DWF provided legal advice to the management team. Paul Satchell of Spayne Lindsay and Crispin Bridges Webb and Gareth Cook of Shoosmiths advised the vendors.

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YFM backed Matillion raises $35 million

5 June 2019

YFM-Backed Matillion raises $35 million in series C Round to further advance its leadership in data transformation in the cloud

Investment led by Battery Ventures will fuel continued rapid expansion and new products in response to strong market demand

Denver, Colo. and Manchester, England – June 4, 2019 – Matillion, the leading provider of data transformation software for cloud data warehouses (CDWs), today announced a $35 million round of funding.

The investment will allow Matillion to capitalize on its leading category position while continuing to deliver accelerated growth, and extend the capabilities of its flagship product line, Matillion ETL. Following the $5m series A investment led by YFM  this latest round led by Battery Ventures, brings Matillion’s total funding to-date to $65 million. Series B  investors, Sapphire Ventures and Scale Venture Partners also participated.

Continued strong demand for Matillion’s data transformation software, purpose-built for the cloud, led the company to deliver triple-digit revenue growth in 2018 for the third consecutive year. The new investment, based on Matillion’s sustained success, accelerates the company’s expansion both within and well beyond its native-built solutions for CDWs.

“It’s our view that every company in the world needs to compete using data,” said Matthew Scullion, CEO at Matillion. “And most of the time they’ll do this in the cloud. Only the cloud offers the speed, agility, power, and economics to cope with this demand for data insights, and to manage the exponentially growing data volumes and complexities that we work with today. As the leader in purpose-built data transformation software for cloud data warehouses, Matillion is perfectly positioned to help our customers compete and win using data. That’s why we’re so excited to raise this round, partner with the great team at Battery Ventures, and to once again accelerate our business and the development of our current and future products.”

“Matillion has built an innovative, cloud-native, data-middleware product from the ground up, and the company partners with some of the fastest-growing cloud-data warehousing platforms that enterprises are deploying today,” said David Hall, managing  partner at YFM Equity Partners. “As enterprise IT shifts to the cloud, and the ability to analyze data underpins the digital-transformation process at all companies it is a testament to Matillion’s progress in this market that it has attracted not only further investment but  added depth and capacity to its shareholder base”

“Matillion has established itself as an essential component to the modern enterprise’s data analytics tech stack,” said Denise Persson, CMO at Snowflake. “Our shared focus on innovation has made us great partners, and this latest investment reinforces Matillion’s leadership in cloud-native solutions for data transformation. We’re excited to see them continue their growth trajectory as they advance their industry-leading technology to serve our joint customers.”

Matillion’s software empowers customers to extract data from a wide number of sources, load it into their chosen cloud data warehouse, and transform that data from its siloed source state, into useful, joined together, analytics-ready data – ready to be consumed in analytics, machine learning and artificial intelligence use cases. Purpose-built for the cloud, Matillion does this at scale, delivering fast time to value, high performance with pay-as-you-drink economics – simplicity, speed, scale, and savings.

Matillion’s software is used by more than 550 customers across 40 countries, including global companies like Bose, GE, Siemens, Fox and Accenture, as well as high growth, data-centric companies like Vistaprint, Splunk, and Zapier.

 

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3 Reasons Why Private Equity Loves to Subscribe

18 April 2019

Mike Clarke
Investment Director, YFM Equity Partners

Ask anyone in private equity what they look for in a new investment. A strong management team and a growing market are a given, but then you will hear something along the lines of recurring revenue, contracted income or a subscription model.

These are attractive business models – once a customer is signed up, the hard work is done and when they want to move on, more often than not, it proves to be more of a hassle to cancel or change provider than it is to move to a new one. There’s nothing new in it, we have all signed up to a 12-month gym membership in January with the best intentions, only to fall back into bad habits in February.

But the subscription model has become fashionable of late with buzzwords like ‘SaaS’ and ‘disruptive technology’ being thrown around the board room like David Brent on overdrive. Outside of the tech sector, all parts of the market have taken note and now there are all kinds of quirky subscriptions, such as vegetable boxes delivered to your front door and different tea bags through the post. In the menswear and male grooming markets, the appeal of simplicity and not having to go to the shops has proven popular for normally mundane everyday items such as razors, socks and underwear.

Even routine services we have been using for years such as window cleaning and taxis are being marketed as a monthly subscription with no upfront fee! Uber is now looking to charge users in America $15 a month for a ‘ride pass’ which offers discounted fares. It feels as though the success of Amazon Prime, Netflix and Spotify have made paying small monthly subscriptions appear acceptable and just something we all now do.

It is true that typically, companies with recurring revenue models are valued much higher than companies without a subscription model but it is equally important to demonstrate a captive base of customers paying monthly fees with low levels of attrition after the trial period or honeymoon phase. Here are the top three reasons private equity love to subscribe:

Risk is reduced

A predictable revenue stream allows subscription-based businesses to make decisions and invest for growth, particularly in the current uncertain economic climate.

Subscription-based businesses disrupt the market with lower up-front costs and greater flexibility. Whilst all companies are vulnerable to losing customers to their competitors, it takes an aggressive and strong offering to steal market share in a subscription environment.

You get closer to the customer

Subscription models have much better visibility of the customer from their ongoing monthly interactions which should, by definition, mean a keen insight into the needs of customers and a better-quality service. The customer has the added benefit of spreading the cost and convenience.

There are loads of stats

Whilst profit is the main goal of any successful enterprise and we love to talk about EBITDA, it can be a very poor indicator of the value of a growing business, particularly a subscription business in the early stage of growth.

A high operating profit in a growing business could be a signal that the company is not keeping pace with sales and marketing spend or the need for continued improvement of its proposition to stay ahead of the crowd. The metrics that matter most to subscription businesses, are more likely to be annual recurring revenue, lifetime customer value, churn and acquisition cost and these can invariably be tracked in real-time providing critical management information.

So….recurring revenue models are not a panacea.  But they can create very successful businesses which attract high valuations if they can be scaled successfully.  Just what private equity investors are looking for!

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YFM backs Frescobol Carioca

26 March 2019

YFM Equity Partners supports significant investment into Frescobol Carioca, the luxury men’s resort wear and lifestyle brand

Funds advised and managed by YFM Equity Partners (“YFM”), the specialist private equity fund manager have backed a significant investment into Frescobol Carioca Limited (“Frescobol”).

YFM’s investment comes from its two advised VCTs, British Smaller Companies VCT plc and British Smaller Companies VCT2 plc.

Founded in 2013 as the brainchild of friends Harry Brantly and Max Leese, Frescobol’s roots lie in their Brazilian heritage and travel experiences which are reflected in a range of luxury men’s swimming trunks and resort wear that references and brings to life the Rio beach lifestyle.  Growth in recent years has been rapid, now with over 200 stockists in the world’s most exclusive boutiques including Harrods, Mr Porter, Matches & the One & Only resorts, bespoke collaborations with major luxury resort operators such as Aman Resorts, three retail locations and growing online sales to a global customer base.

YFM’s funds will be used to support the continued growth of the business, especially focussing on furthering the global customer base, developing ecommerce opportunities and investing in additional resource to build on the brand’s growing reputation.

Charlie Robinson and Adam Hart led the investment for YFM.  Adam Hart commented:

“Harry and Max have done a fantastic job in building a leading brand in the sector from a standing start in a very short space of time.  Their vision for the business is exciting and we look forward to bringing our experience in supporting young fast growth companies to deliver the next phase of development of the company.  We are particularly attracted by the global appeal of the products and believe Frescobol taps into an increasing interest in luxury travel and lifestyle.  We are excited to be part of the Frescobol team.”

Harry Brantly, co-founder of Frescobol, added:

“Max and I are delighted to have YFM on board for this next stage in our growth. Their track record in supporting SMEs is stellar and throughout the process we have felt a strong sense of collaboration and genuine desire to do what is best for the future of the brand. We look forward to sharing the journey with YFM with particular thanks to our YFM team Charlie Robinson, Paul Cannings and Adam Hart.”

YFM’s legal advice was provided by Nina Searle at TLT LLP, Digital Due Diligence by Becky Jasper of more2, and Organisational Review by Anna Cornwallis of Stratton HR.

Andrew Jakins and James Black of Highstead acted as financial advisors to Frescobol Carioca, and Patrick Martin of PTM Law provided legal advice.

 

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International expansion – buy it, or build it?

05 March 2019

Jamie Roberts
Partner, YFM Equity Partners

Private Equity houses invest across most sectors and industries, and at different stages of business life cycles.  The one thing that all the businesses invested in by Private Equity will have in common is they are run by ambitious management teams with strong plans to deliver growth.  That growth will often include international expansion.  Perhaps that isn’t surprising given that a 2018 Mckinsey report suggests that cross border commerce is going to double to $4bn over the next 2 years as the world gets more connected through technology and movement gets cheaper and more efficient.

A lot of time will be spent by Private Equity investors working on international growth plans with their investee companies – and the biggest debate will be whether to buy into a new territory with an acquisition, or whether to  take the time to build it from scratch.  As you would expect there is not a one size fits all answer, it will often depend on the business, where it wants to expand, cultures, customers, capex requirements etc etc.

A classic example of this buy or build decision was made by GTK.  In 2013 YFM led the MBO of a cable manufacturing business in Basingstoke.  The business made around 1/3 of its cables on site in the UK and outsourced 2/3 to the Far East.  When YFM invested the strategy was to support the team to continue their organic growth through growing the customer base, doubling the capacity of the Basingstoke site and growing the existing Far Eastern relationships.    By 2016 it became clear that GTK was missing out on a lot of work from existing customers who wanted a lower price than could be delivered from a UK facility but did not want the long shipping times and IP issues of their designs being sent to Far Eastern manufacturers.  GTK therefore looked for a near shoring solution and Romania was the natural place to go due to geographic position, business friendly regulations and infrastructure.   We knew that potential acquirers of GTK would value the business more highly if there was a higher percentage of in-house manufacturing vs outsourcing, so we began a project to explore whether it would be better to buy an existing manufacturer or build something from scratch.

It was a tough decision. Having explored both options in detail we concluded with the team that given the availability of property and skilled work force it would be cleaner to build a facility from scratch.  Identifying a local business agent was key.  They helped to source a site and work through the red tape, they also helped with recruitment and found a great facility manager.  The site was operational within 6 months and it broke even within 12 months with over a dozen staff all sourced from the local town.

As with many fast-growing business in the UK, international expansion is going to be key to their success. Many businesses will face this classic buy it or build it decision.  For GTK, building from scratch turned out to be the right decision.  When GTK was acquired by Volex Plc late last year one of the key attractions was the double-digit percentage growth in UK manufacturing and the in-house Romania site which is on track to double capacity in the next 12 months.

Private Equity investors will always work with their investee companies to determine the best option for each company to address the best way to achieve international expansion.

 

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ACC acquires global aviation consultancy Aerotask

28 February 2019

YFM backed ACC Aviation, acquires global aviation consultancy Aerotask and is recognised in the Sunday Times as one of the UK’s fastest growing international sales businesses 

To support ACC’s ongoing expansion into Asia, Africa and the US the group has acquired the Dubai based aviation consultancy Aerotask.  The acquisition will complement the existing ACC capabilities across ACMI leasing, aircraft charter and the aircraft seats aftermarket bringing additional customer and geographic diversification, whilst also adding asset management and advisory expertise.

ACC CEO, Phil Mathews, comments: “The incorporation of Aerotask as part of the ACC Aviation Group represents a significant milestone in the journeys of both organisations. Aerotask reinforces our presence within the Middle East, expanding our existing revenue lines, grow our customer base and allowing us to provide a market-leading end-to-end service offering to our global airline partners.  We are also very proud to have been ranked as one of the fastest growing companies in the country – it is a fantastic achievement and a testament to the hard work of everyone at ACC and the support YFM have given the business since the management buyout in 2014.”

Aerotask MD, Rob Watts, comments “This exciting new chapter as part of the ACC Aviation Group provides a foundation upon which to accelerate the growth of our business. We look forward to working with Phil, his team and YFM as we realise the full value of joining this truly global organisation.”

ACC Aviation Group has also been ranked as 127th in the 10th annual Sunday Times HSBC International Track 200. Phil Mathews, CEO, commented: “This is a fantastic achievement and a testament to the hard work of everyone at ACC. We have opened new offices in Asia and North America in the last 12 months as we continue the expansion of our global footprint” Jamie Roberts, who led the investment for YFM and sits on the ACC board commented: “The ACC team have done a great job since we invested four years ago and we look forward to supporting the team to deliver their ambitious growth plans.”

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A management team that understands the commercial model is essential

YFM’s Partner, Charlie Robinson, was recently asked to participate by BDO in their blog on “Where the real value lies between Sales and Technology?”, giving his views on a crucial subject for many of the businesses that private equity investors work with.  Key themes Investors look for include:

  • clarity over the core value proposition of the business and an understanding of value derived by customers from the technology;
  • an appreciation for the challenge of scaling up commercially, and openness to external input and advice;
  • the beginnings of a ‘product management’ mindset in the business to ensure decisions around technology take commercial considerations into account.

You can read the full article here or Charlie’s contribution below:

‘This is a hugely relevant and important topic for us as investors, especially in terms of the stage at which we get involved with companies. We only tend to work with businesses that have already established some meaningful sales traction in financial terms, so they’ve done the hard yards of proving the technology and getting beyond proof of concept.

‘One of the hardest things for us to assess is always: how good is the sales engine of a business? So we ask: Does the business have a very clear view on their proposition and where the value sits for their customers? Can they articulate that vision to people who, like us, aren’t living their business day in day out, in a way that can give us confidence once we invest? And, given, that most of the time our investment in these kind of companies is to help them scale up, which normally means recruitment of resource, we also need to know: Is there the infrastructure and the strength in depth in the business to start delivering growth when we flip the switch? Or is there going to be more work required to refine the go-to-market and be effectively patient to give people time to deliver?

‘This whole piece has become more and more important to us over time, because you can’t afford to spend too long waiting for a business to get its value proposition right and develop in a new market or even in an existing market place. If the founder or management team struggles to make the business case clear for their customers, if they’re too technology-centric and not customer-centric, then that’s an area that we’d want to look at very closely, and we would need to work out if that can be fixed. Even in a high-growth tech business, the technology is not enough. A management team that understands how to drive revenues and how the commercial model works is essential.

‘The classic scenario you see is where a product gets over-engineered because it’s what the first customer says they want or because it’s what the founder had in mind as a vision, but the business neglects to adapt to changing market demands or needs. It’s so important with software and technology assets that you understand what difference your offering is going to make for the user – what the use case is, what the return on investment is, what customers’ purchasing drivers are, why they’re going to buy it, how long they’re going to use it for and so on. Because if you haven’t got all that in mind, you’re very likely to take on external investment and continue to develop the product in a way that the market may not require.

‘We increasingly look for what I would call product management skill sets within the business, or at least a recognition that they might be required. By product management, I mean the interface between the front-end sales & marketing side of the company and the research & development side, to make sure that you are developing your product in a way that meet the needs of the customer and make the best use of your resources.’

‘To support businesses here, we use a variety of measures, such as interims or consultants that can go in and assess the state of affairs. We’ll also recruit senior sales resource into the business on an informed basis. We look to bring in external expertise wherever possible because moving the needle with B2B sales is hard. Sometimes you just need someone who really understands the base disciplines of the sales pipeline, the rigor around how you manage a sales team to make sure that you’re getting the most out of them, and the quality of opportunities that you’re looking to progress.

‘So, from our perspective, a big part of the attractiveness of a business is a sense that the team has given some thought to commercialising their offering, and to the back-end of how they would actually operationalise the selling. These things can often be fixed, and our capital is there to help businesses do that and develop their proposition further. But we do look for a recognition in the business that this is an area they need help with. And that’s positive for us because we can do something about that. We can’t do a lot about the founder who sees themselves as the best and only salesperson for the rest of the company’s life because that just won’t scale.’

 

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YFM’s 2018: £30m invested and 5 exits in £600m of deals

Dave Hall
Managing Director, YFM Equity Partners

What next?

2018 somewhat confounded our predictions. We sold five investments to a mixture of overseas and private equity supported buyers, with one making for us a record-breaking Enterprise Value in excess of £350m delivering a 25x return.

Investment rates were also strong with over £30 million invested throughout the UK including 7 new investments in markets ranging from augmented reality and film production to fire security and infrastructure services.

We had predicted a year where Brexit and general uncertainty about slowing international growth might put a cloud over events and perhaps dampen investment appetites. So clearly, we need to replicate that prediction for this coming year and the inevitable strong portfolio performance and diverse investment range will inevitably follow.

Is there still buyer appetite?
Eamon Nolan, who had a large hand in last year’s 25x return looking at 2019 said “Well, we have another five prospective disposals being lined up”. He added “There’s a broad cross-section of industries represented in these five investments which gives us a good understanding of the similarities and differences in outlook from different sectors. Whilst it is early days the initial view from those disposals that are most advanced suggests there remains broad international interest ranging from US to Asia in the portfolio. Those of our businesses with geographically diverse customer bases or premium names in their customer base seem to have a more global appeal. UK mid-market Private Equity still seems to be very liquid and are looking to invest directly and through their portfolios which is great news when we are looking to dispose”.

Jamie Roberts who works on new investment activity and was involved in the sale of GTK to AiM-listed Volex plc in 2018 echoed that point. “We’ve already seen some speculative inbound interest for our investments from UK businesses backed by private equity on the lookout for acquisitions and those strategies don’t seem to be altering. As the businesses we back tend to have built out their management teams this can make this a viable option for all involved”.  Unlike last year we won’t predict the outcomes, but the Brexit backdrop hasn’t clarified and doesn’t look like it will in the timescales originally envisaged and the outlook for the global economy hasn’t changed, but as we invest for the medium term we are actively looking for opportunities where there is a good growth strategy.

What about the climate for growth and buy-out in UK small businesses?

Ian Waterfield who is also involved in new investment activity reckons “Experience suggests that investing through the cycles continues to result in delivering returns. In particular we find investing perhaps when there’s a softening in the economy and there is some uncertainty, like we are seeing at the moment, pays dividends in the long term”.  2018 was a strong new investment year for YFM and the way that 2019 has started is really encouraging with enquiries already up compared to last year.

“It is early days but there’s been across the board interest in demand for new equity investment in 2019. What’s really encouraging is this demand is right across the range of small business. Whether it’s a business that’s developed and has got off the ground that is looking to accelerate growth or where a team is looking to buy-out their owners” commented David Hall, MD of YFM. “We expected to see demand from our existing growth portfolio for investment and that looks like a prediction we can still be solid on. However, the early interest and demand we are seeing for our £2-10 million of growth and buy-out capital is really encouraging. We are adding to our investment capacity in the early part of this year and that’s looking like the right call.”

YFM generally holds investments for 5-7 years and that ability to invest in uncertain times and realise when cycles change is something that having longer term funds allows when supporting the UK’s small businesses.

As we’ve said before there’s no one recipe for success for the UK’s small businesses, but by continuing to innovate, deliver well and being that bit braver than you thought you were going to be, you may be surprised at how much more you can do.

 

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Bigger or Better?

Paul Cannings
Partner – Head of New Investments

The UK’s growth capital industry invests money into small businesses to help them to grow.  And building bigger businesses means good financial returns for investors.

But, for a moment, I want to think about whether the growth capital industry is just building bigger businesses.  Or whether it is also building better businesses.  I mean better for people, our society, and our planet?  Perhaps three answers………Yes, Normally and Could do better……

Yes …. Growth Capital investment is used by UK businesses to help them to grow, which nearly always means more jobs, typically means more exports, and often more British led new technology.  For example, we recently had a look at YFM’s own portfolio and found:

Normally… Bringing a professional investor into a business should also make a real difference to its governance.  I don’t just mean proper board meetings and an independent chair.  But also making sure Health& Safety is on every board agenda, making sure there is an Anti Bribery & Corruption policy in place, and ending any bad tax practices.

Could do better… However growth capital investors also have a unique opportunity to put “Impact” on the agenda of the businesses they invest in – ie Impact on people, society and the environment.  At YFM we have asked each of our portfolio of businesses to think about their Impact and to score themselves against 40 Impact criteria.  We will then help them to pick 1 or 2 specific things that they will target for improvement next year.  This will then go on the monthly board agenda and hopefully a measurable outcome reported when the Impact review is done again in a year’s time.

It’s early days but we have already had some interesting commitments from our businesses to: reduce energy consumption through a factory efficiency programme, switch to green tariff energy, ensure all waste aluminium is recycled, improve gender staff ratios, start a work placement scheme with a local college, and put in place mental wellbeing support for employees.     All sound ideas that are good for business and good for people, our society and our planet.

There are about 1000 business funded by VCT investors in the UK and many more funded by other growth capital investors. What if they were all encouraged to commit to 1 or 2 things to improve their Impact?  Not a bad thought for Christmas time.

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