If you think private equity is all about losing control, think again. Minority funding allows owners to maximise the value of their business whilst de-risking their personal finances – all while retaining control and gaining flexible funding and support for growth. David Whileman, head of Partnership Capital, talks about the benefits of this unique fund. 

Private equity has proven itself very good at buying and selling businesses, with the UK and Europe clocking up myriad success stories underpinned by expanding overseas, M&A and organic growth. Once an entrepreneur builds a business to a certain level, he/she may seek capital and/or expertise to help get the business to the next level. They may even find people knocking at their door to try and get them to sell. So begins many a private equity deal.

However, the idea of selling one’s business doesn’t appeal to everyone. Some 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.

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

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.

Initially we were very much about a majority investor, but as we went through the process it became very appealing that minority backing gave us a far better return in the longer term. We ended up with Inflexion because of the people there.

Terry Owen,

Founder and Managing Director,

Huws Gray

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 overseas offices, digital experts, in-house head-hunters for building talent and experience in supporting over 200 acquisitions. 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.”

Supporting an international roll-out: Mountain Warehouse 

“They came onto my radar when they launched their Partnership Capital Fund. There aren’t many firms that genuinely do minority”, Mark Neale, CEO and Founder, Mountain Warehouse. After tracking the business for a decade, Inflexion provided funding to the outdoor clothing and equipment retailer for a near 20% stake in July 2018. The firm was operating its multi-channel offering in 15 countries and sought a partner to support its further roll-out, as well as a backer who could strongly support its digital enhancement.