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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