Entrepreneurial but unpredictable

UK mid-market firm Gresham recently generated a twelve times return on its original investment when it exited Penn Pharmaceuticals – and it invested £30 million in bottle manufacturer Esterform Packaging. PEO caught up with Paul Thomas at Gresham to discuss these investments and wider trends in the mid-market.

PEO: What have been the highlights of 2007 so far for Gresham?
PT: The exit of Penn Pharmaceuticals was obviously an important highlight. We sold the business for £67 million (€98 million, $134 million) to LDC and generated a twelve times return on our original investment. We originally backed the £12 million management buyout of the business in 2000 and de-merged it into two businesses, one of which we sold to a US oncology business in 2004, and the other of which became Penn Pharmaceuticals.

PEO: How are responsibilities allocated at Gresham?
We have a sector structure – we are not a sector specific fund but we do have two or three people who focus on each sector. The deal team is split into three bits too – deal origination, new investments and portfolio investments.

PEO: Where is Gresham in the fundraising cycle right now?
We closed our fourth fund on £340 million in July 2006 so we haven’t really started thinking about raising for our next fund yet. We have 29 LPs, four from the US and the others from the UK and continental Europe, and we may think about getting some Asian investors on board for our next fund. We used Doug Miller as a placement agent for both this fund and the previous fund. He is an expert at raising funds for spin-out businesses like ours. We had a good re-up rate from the previous fund, only losing three investors, one of which closed, and the other two changed investment strategies.

PEO: What are the advantages of being a lower mid-market player?
We think the lower mid-market is more entrepreneurial and creative – it’s more about people and lateral thinking. However, one of the disadvantages is that it is not so concentrated and so more unpredictable. Whereas, in the upper mid-market and buyout segments, you are up against the same competitors in every deal, in this space, you never know who your competitors are going to be. Our deal space (£10 million to £100 million) is not actually as competitive as you might think. It is the upper mid-market that is really competitive and where you have huge amounts of capital chasing not enough deals.