Record £1.75 billion raised in minority fund push

Aleading fund raising and investment firm, Inflexion, has raised the largest ever dedicated minority fund in Europe, tapping investors for £1.75bn.

The mid-market private equity firm has closed Partnership Capital 111 at this hard cap figure, surpassing its £1bn predecessor fund.

Raised over the course of 12 months, the fund included £500m in capital from new investors, while 75 per cent of existing investors increased their commitments.

The London-based investment firm is looking to buy minority stakes in European companies with typical enterprise values from at least £200m up to more than £1bn across business services, technology, healthcare, industrials, consumer and financial services.

Leading the partnership capital team at Inflexion, David Whileman, said: “The idea of having something different resonated, particularly with new investors.” He said that the strategy has proved popular among limited partners (LP).

That was partly because it offers deal opportunities that private equity “traditionally struggles to reach.”

Whileman added: “Invest in this fund and we’ll put your money into not-for-sale companies you wouldn’t normally get access to. There’s a reason why they’re not for sale, and it’s because they’re special and their shareholders don’t want to sell because they know that as well.

“That’s why our LPS (Limited Partner) love the fund and why we’ve hit our hard cap.”

Whileman also said LP interest was driven by Inflexion’s returns on its previous two partnership funds. He cited the acquisitions of two UK businesses: builders’ merchant Huws Gray and pet care business Medivet, which were both sold in 2021 to private equity giants Blackstone and CVC (Corporate venture capital) respectively.

“When we invested, the combined value of those two businesses was £550. They were sold for a collective £2.5bn,” Whileman said.

“What are the hot sectors that we just like to have capital in? Definitely data. There’s a lot around AI, data and improving customer engagement, as well as businesses you can make more international,” he added. “We are expanding intro Scandinavia now. We’re seeing a lot more deal flow there.”

He said that although minority investment often involves entrepreneurs and founders selling stakes in their firms, larger corporate organisations are increasingly looking at doing minority carve-out deals as well.

Inflexion has already invested from its partnership capital fund into Global Data, for example, taking a stake in the Aim-listed company’s healthcare division in a deal that valued the business at £1.1bn, as mentioned in Equity News.

“For one reason or another, big corporates often need to raise capital. Often their debt is getting expensive and the general feeling among a lot of these companies is that they’re not fairly valued by the market.”

Whileman added: “The parent group is able to take money off the table, sort out their M&A strategy, de-lever and get a rerating because the City is able to understand it better. And when the subsidiary is sold three or four years later for a lot more money, the chief executive of the parent company can claim credit for it, because they kept 60 per cent of it.”

Partnership Capital is one of Inflexion’s three core fund strategies. Its flagship buyout fund is focused on majority investment across Europe while its enterprise fund is focused on the lower mid-market. In 2022, the Inflexion Buyout V1 fund closed at its hard cap of £2.5bn.

New data from Bain and Company has revealed that the amount raised in 2023 was the least the industry has pulled in annually since 2018 – down 20 per cent from 2022 totals and almost 30 per cent off the all-time high in 2021.

The decline reflects the cash flow constraints LPS are facing due to the exit slowdown and accelerated draw-downs in recent fund-raising vintages, the consultancy firm said.

In total, Inflexion has more than £5bn of committed funds from which it can invest.