The North West is a hotspot for private equity

Business Insights

Carl Wormald of Inflexion talks through the region’s fundraising successes.

With record pools of capital being raised by private equity firms, it’s a great time to be a business seeking backing. Whether start-up finance, growth capital or a buyout, private equity provides a variety of support for growing businesses. While it’s often the huge deals which make headlines, most transactions see partnerships with small- and medium-sized businesses looking to grow faster: over 85% of private equity activity in the UK in H1 went into deals valued at under £50 million (CMBOR). London and the Southeast attract the lion’s share of this, with the North West the next most sought-after region for investors.

This makes the North West a hotbed of entrepreneurship. Manchester now counts 18 private equity firms in its ranks, highlighting the allure the region has for backers seeking ambitious management teams to work with, and creating an ecosystem conducive to building businesses there. Last year alone saw three dozen buyouts worth a combined £2.4 billion (CMBOR) in the region.

TMT hub

The TMT sector saw a five-fold increase in deal value year-on-year, with more than £365 million invested in the North West in 2018 – testament to the region’s importance as a hub in this space.

An example of such a business is UKFast, which was valued at £405 million in December 2018 when the cloud hosting provider secured minority funding from Inflexion Private Equity. The founders had been considering several options including an IPO, however decided to retain control of the business and chose the financial backer owing to its strong track record in scaling businesses. UKFast was launched by its founders in 1998 with just £5,000. Today the Manchester- and London-based firm serves 5,500 SME clients and 200 mid-sized businesses, and last year firm launched ClearCloud to serve the industry’s increasing appetite for public cloud. The backing from Inflexion is earmarked to accelerate its growth, and backers and management alike will keep an eye on the public markets as a potential exit route in the medium term. One of the reasons UKFast chose Inflexion was because its track record in taking companies public.

The region boasts another recently private equity-backed cloud software firm: Matillion was founded in 2011 in Manchester and today provides 550 customers with cloud-based data management software that provides extract-transform-load (ETL) services. In June the company secured $35 million of series-C funding from a consortium of VCs, led by Battery Ventures and including existing backers Scale Venture Partners and Sapphire Ventures. Matillion has raised a total of $60 million and is also based in Denver in the US.

Further proof of Manchester’s appeal as a hotspot for ambitious teams is Miss Group. The IT services businesses was founded in 2014 in Sweden, but relocated its headquarters to Manchester. The firm attracted £6 million in funding from BGF in 2018 and £13 million follow-on funding last month to fund its continued international expansion and acquisitive growth.

Partners for growth

While TMT has been sector du jour recently, the North West has a variety of impressive businesses with private equity able to add value in a number of ways. A case in point is the double-buyout of Manchester-based insurance brokers Bollington and Wilson in November 2017. Inflexion Private Equity is now working with the newly enlarged group, Bollington Wilson, to identify add-on acquisitions to support its growth through accretive M&A.

In the consumer space, greeting card business Budget Trading secured buyout backing from Ardenton Capital in March. The deal allowed a co-founder to step back and is providing capital for expansion in the UK, with an East Midlands showroom on the cards.

In addition to helping grow businesses through acquisitions and geographic expansion, the right private equity backer can help to carve a business out from a parent. Manchester-based British Engineering Services was carved out from RSA plc in October 2015 by Inflexion, and within a year made an acquisition. BES and Inflexion are still working together pursuing a market consolidation strategy.