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Not buying businesses but partnering for success

Author: ICAEW Insights

Published: 16 Aug 2021

“Partnership” is a word ever more talked about in the private equity world but for Growth Capital Partners (GCP), it forms the basis of their business model to invest alongside ambitious and like-minded owner-managers and offer them hands on strategic support.

A seasoned investor, GCP has a 21-year track record of partnership investing but its flexible, pragmatic and people-focused approach is key, the ICAEW members at the helm explain. With three or four investments made each year, backing the incumbent team is at the forefront of every deal.

At the turn of the millennium, the founding partners made the conscious decision to create a private equity business focused on providing flexible capital for partnership investments as its guiding principle as opposed to the highly geared, high equity stake approach often seen in the industry.

“The ethos has always been that existing shareholders and management teams are central to everything we do,” says Emily Henderson ACA, Investment Director at GCP. GCP looks to invest £10m-£50m in high-growth UK headquartered businesses for an equity stake alongside a meaningful reinvestment from management and a “strong alignment and genuine partnership at every stage of the relationship”.

“We don't think about buying businesses,” adds GCP Partner Richard Shaw FCA. “We think about becoming shareholders alongside entrepreneurs and helping them to make the best of their business.” In addition to enabling shareholders to realise some of the value created, the investment also means being able to access strategic input from GCP. “The managers are already great at what they do and we respect the success they've had. We can bring complementary skills and experience to the table and work alongside them to accelerate value growth”.

“We often hear phrases like: ‘we want someone to help us take the brakes off’, or ‘we want someone to be a catalyst for change’,” says Shaw. “Together, we're trying to double or triple the size of the business through our investment period.”

Growth can be both organic or through acquisition, in the UK or internationally. “We’re a flexible investor. We don't try to impose a cookie cutter approach. It’s about us working together towards the best outcome at exit, usually over a three to five-year period,” says Henderson.

Typically though, there will be a focus on people, systems and processes. “We will work with founders to identify where there might be gaps in the management structure or where investment in recruitment, training and development can support a business’ growth plans,” Henderson says. “Another area in which we can support is through our Network Director who can make introductions, for example to target clients.”

Hendersen cites the example of Leeds-based digital transformation consultancy Infinity Works, which received a GCP minority investment in 2019. “The revenue was growing at a rate of 56% and at that time, the founders were still wearing multiple hats,” Shaw explains. “The investment by GCP enabled Infinity Works to hire a chief commercial officer, an operations director, a permanent CFO and a partnership manager at the same time as helping to build out the second senior tier of leadership.”

At the same time, the funding facilitated investment in professional services automation software and CRM systems to allow Infinity Works to be more proactive in its sales approach to continue their fast growth trajectory. The business subsequently continued to expand across Leeds, Manchester, London, and Edinburgh and during the investment period grew from 240 billable people to 450 in two years. “It’s often about supporting entrepreneurs to focus on long-term growth without having to continually worry about their personal balance sheet whilst recognising that the key reason the business was so successful in the first place was its entrepreneurial culture and so seeking to protect and maintain that at scale.” says Shaw.

Companies ripe for international growth that GCP focus on typically have profits of between £1m and £10m on revenues of between £10m and £70m. “By that point, a company with a strong UK market position often starts to attract interest from international customers. In this scenario, a more proactive sales and marketing strategy that builds the profile is one of the least risky ways of expanding internationally and we often help with that as a starting point.”

Another approach is to build the business development function by getting boots on the ground. This is the approach undertaken with London-based CubeLogic – a risk management software company. The company had offshore development in Bangalore, India, an operation in Berlin, Germany, and seven people based in the US. “At CubeLogic, the founders wanted to hire more senior resources at board level and, rather than just doing it in the UK, we’re going to do that in the US,” says Shaw.

Organic growth complemented by acquisition is another approach, as illustrated by Medical communications company Fishawack Communications. “Originally this was a UK business, but it went on to acquire businesses in Europe. We then helped them with a material acquisition on the east coast of the US to scale their US operations and that brought onboard a senior US executive – one of the founders of that US business,” says Shaw. “This all helped to drive US expansion. Ultimately that investment went on to a tertiary buyout and now they're a significant player in the US.”

With about 50% of GCP’s deals in the technology space, a boom in demand for digital transformation during the pandemic has created numerous opportunities. “On the one hand, some entrepreneurs have seen that most of their wealth is tied up in the business and they will seek investment from us to help them de-risk. Secondly, they may see opportunities for further acceleration of growth, which means getting funding into the business to make the most of the opportunity for further software development, sales and marketing capacity, or international expansion, for example,” says Shaw.

“As businesses come out the other side of the pandemic, some have an increased appetite for our type of investment. Often, it's about making the business truly sustainable for the long-term,” Shaw adds.

“We’re a focused investor,” says Henderson. We want to invest in 12 to 14 businesses across a fund with around three to four deals a year so we need to make every single one of them count. We do our diligence to understand how the business performed historically and to confirm that it is well-positioned in a growing market. We look to get under the skin of what's driving the business plan and then ultimately we're backing experienced entrepreneurs to execute on that plan with our support.”

What is more, everyone at GCP invests personally in each business in which the funds invest. “It’s not just someone else's money we're investing” says Henderson “and that helps to make it a true partnership from day one.”

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