August Equity, the management buyout fund, is closing three more deals through its latest £300m fund, which closed last month.
One is in technology services, the second in healthcare and the third in educational services.
Fund V has already invested in Air IT, which provides outsourced IT support, cybersecurity and digital transformation services to SMEs, within a month of closing.
August Equity funds management buyouts and growth plans in the technology, healthcare and animal care sectors. To date, it has invested £700m in 40 companies, having raised over £1bn through five funds to date.
Each August Equity management buyout fund typically invests in about 10 companies.
It works with smaller UK companies set up either by entrepreneurs or family businesses that generate between £1m-£5m in pre-tax profit, which have been running for three years or more.
Sectors it specialises in are technology services, testing and accreditation, healthcare, social care, animal health and diagnostic vet services.
Philip Rattle, managing partner, said: “We provide the capital and management expertise help these SMSs grow organically either through increased sales or acquiring businesses themselves.
“We’re looking for businesses that have growth potential. Often, these are businesses looking at areas that are nascent or emerging. It’s a very entrepreneurial, exciting area with lots of interesting companies and a lot of innovation. Unlike a lot of private equity funds, we’ve stayed within that market. It’s our home territory and it’s what we like doing.”
Typically, August invests between £15m and £40m in each portfolio company in exchange for ownership, staying invested for about four years.
One recent successful exit was in SME technology business SecureData, which wanted to expand its management and geographical reach. French telecoms giant Orange bought Secure Data last February.
Another successful investment has been in VetPartners, originally a three-clinic business in York which has now expanded to over 100 vet clinics around Britain, and has become one of the largest vet practices in the UK.
Rattle said: “The reason why owners are not put off by our taking a majority share is that they realise we can transform what they do. You create much more scale, which is a catalyst for growth. By driving growth, the value of your business increases dramatically than if you just stayed the same. Yes, you may have a third-party investor working alongside you but you’re creating more value than if you’d just stood still.
“The cornerstone of our investment thesis is that we always approach owners in an adjacent business, which they understand and appreciate. And investors see these smaller growth businesses as being entrepreneurial, which they like.”
The fact that the Fund V management buyout fund was both oversubscribed and closed within six weeks shows investor confidence in August’s model. Forty per cent of investment came from North American investors.
Rattle said: “It was an interesting time to be raising. We had conversations with a large number of investors who were attracted. They liked the strategy and people were very positive about our performance in the past three funds.”
Rattle said that investors are attracted to August’s management buyout fund model for three reasons: its strategy, it track record and the experience of its 25-strong team. First, it approaches SMEs directly in areas it can already demonstrate previous experience. Second, owners and family businesses respond to August’s experience in building scale either within their own or an allied sector. Third, they appreciate the amount of support August’s team can provide to support those plans.