Entrepreneurs are rightly ambitious for their businesses. But too many sell up early with a lingering feeling of regret that they didn’t take their business as far as they could have. And while some business owners may be attracted to the principle of accepting external investment, they sometimes assume that the unerring focus of a private equity investor will be to build a business for sale in three to five years.
But this is far from reflecting reality as have seen in our own investment portfolio. Our contribution of financial and intellectual capital helps businesses to actively pursue their growth ambitions and there comes a natural point when they start to consider where the next stage of their development lies as they continue along their long-term growth trajectory.
There is no one answer to the question, where do we go next? What suits one business or management team may not suit another. Certainly not all are heading for the door marked “exit”, and we have worked with a number of our companies both to identify the right next step and to help them achieve it.
Exit via sale to trade buyer
For some a full sale is the right move and with the right help, a business can become an attractive acquisition prospect for a trade buyer. Take Cascade Technologies, the gas sensing instruments manufacturer, which was acquired in December 2014 by U.S.- headquartered global manufacturing and technology company Emerson, generating a strong return for both management and Panoramic.
Cascade is a fantastic UK manufacturer that developed the world’s first real-time technology for the detection, measurement and monitoring of gas emissions using quantum cascade lasers. With our support, the business was able to triple revenues, expand its customer base, attract high quality staff and ultimately win the attention of a large multinational company. The sale to Emerson has given the business valuable new opportunities to increase its international presence and achieve further growth.
Exit via a secondary buyout
A sale may also be motivated by the requirement for a more significant level of investment. In May 2015, we sold our stake in Specialist Tours Limited, a niche multi-brand tour operator, in a secondary buyout to private equity investor, Kings Park Capital, and management. This course of action best met the needs of the management team. Having enjoyed rapid growth in our two and half year investment period, they were looking for significant additional capital to support five to six acquisitions over the next few years and also wanted to take some cash out to derisk their personal positions. It is an excellent example of how the private equity food chain works well to support the needs of fast growing businesses.
Additional equity funding rounds
Another option is to commit a further round of capital to a growing business. Captify, one of the fastest growing advertising technology businesses in Europe, -– which we initially backed with £1.2m of Series A funding in 2013 -– is a great example. Over two years, Captify’s revenues increased by 300% and its workforce grew six fold. Its search intelligence technologies and data network helped it to attract business from almost 200 media agencies across Europe, as well as from the world’s largest brands.
With that track record, Captify was well-placed to launch a Series B funding round last year, when it was seeking capital to consolidate its market leadership in the UK and pursue further international expansion. We were delighted to provide a follow-on commitment as part of the £8m Series B fund-raising led by Smedvig Capital.
Sometimes, the next move will be to secure new debt facilities that can support the business’s growth ambitions alongside its equity funding. This was the case for Heck, the premium sausage manufacturer that we backed with £1m in 2013.
Our funding has enabled the business to invest in enhanced marketing and sales, with Panoramic partner Stephen Campbell giving further support as a member of the board. That support has included helping the company to refinance its debt facilities in order to put the optimal financing structure in place for the business as it continues to grow. As Heck discovered, the increased credibility of a business that is working with an established investor – boosted by improvements in governance, reporting standards and, above all, financial strength – often enables it to negotiate a much more appropriate and attractive debt facilities with its bank.
With the right capital structure now in place, the company is going from strength to strength, with run rate revenues now in excess of £10m and distribution deals in place with nationwide retailers such as Tesco, Asda, Morrisons and Waitrose.
Venture debt/Mezzanine finance
Panoramic also helps businesses explore different forms of funding such as venture debt and mezzanine finance as part of their next funding step. This can often be an effective way to move a business forward to a new valuation point, without requiring an exit from investors or any dilution of shareholders’ equity.
There are many uses for this type of finance. For example at high-tech component manufacturer Precision Technologies, mezzanine finance was an important element of the funding structure alongside the £2.2m investment by Panoramic in the buy-in management buy-out in December 2015.
Venture debt/Mezzanine can be used either to fund a particular project or more generically as a cushion of additional capital that provides comfort when a business expands rapidly.
Our role as a supportive investor is to help our businesses find the optimal finance mix to meet their needs that provides an appropriate mix of flexibility and cost.