2018 was a year that confounded predictions. We had predicted a year where Brexit and general uncertainty over slowing global growth might cloud events and perhaps dampen investment appetites.
However, during 2018 YFM sold five investments to a mixture of overseas and private equity supported buyers, with one Vision RT whose medical technology is used in Surface Guided Radiation Therapy, generating YFM’s record-breaking return that delivered 25x the original cost.
Investment rates were also strong with over £30 million invested throughout the UK including 7 new investments in markets ranging from augmented reality and film production to fire security and infrastructure services.
In 2019, we need to replicate that prediction and the inevitable strong portfolio performance and diverse investment range will inevitably follow.
Is there still buyer appetite?
Looking at 2019, Eamon Nolan, (Portfolio), who played a large part in last year’s 25x return, said: “We have another five prospective disposals lined up. There’s a broad cross-section of industries represented in these five investments which gives us a good understanding of the similarities and differences in outlook from different sectors.
“While it is early days, the initial view from those disposals which are most advanced suggests there remains broad international interest ranging from US to Asia in the portfolio. Our businesses with geographically diverse customer bases or premium names in their customer base seem to have more global appeal. UK mid-market Private Equity still seems to be very liquid and is looking to invest directly and through their portfolios which is great news at a time when we are looking to sell.”
Jamie Roberts, (Investment) who was involved in the sale of GTK to AiM-listed Volex plc in 2018, added: “We’ve already seen some speculative inbound interest for our investments from UK businesses backed by private equity on the lookout for acquisitions and those strategies don’t seem to be changing.
“The businesses we back tend to have built their management teams which can make this a viable option for all parties involved.
“Unlike last year we won’t predict the outcomes, however the details of Brexit have not been clarified and it is unlikely to be agreed within the timescales originally envisaged. The outlook for the global economy hasn’t changed, but as we invest for the medium term we are actively looking for opportunities where there is a good growth strategy.
Climate for growth and buy-out in UK small businesses
Ian Waterfield, (Investment) responsible for new investment activity at YFM said: “Experience suggests that investing through the cycles continues to deliver returns. In particular we find investing when there’s a softening in the economy and some uncertainty, as we are seeing at the moment, pays dividends in the longer term.”
David Hall, MD of YFM, added: “There is clearly interest and demand for new equity investment in 2019. We are encouraged to see the demand from a range of small business, whether it is looking to accelerate growth or a team is looking to buy-out their owners.
“We expected to see demand from our existing growth portfolio for investment and that looks like a prediction that will hold true. However, the early interest and demand we are experiencing for our £2m-£10m of growth and buy-out capital is very encouraging. We are adding to our investment capacity in the early part of this year and believe that is the right call in the current climate.
“YFM generally holds investments for 5-7 years and that ability to invest in uncertain times and identify when cycles change is something that having longer term funds allows when supporting the UK’s small businesses.”
So 2019 hold your nerve; continue to innovate; try and focus on gaining market share rather than defending it and if the wind blows, build a windmill not a wall.