Gresham restructures lowers fund target

Six partners are leaving – including Paul Marson-Smith – as Gresham targets £150m-£200m for its next fund.

Gresham Private Equity, a UK-based buyout firm, has reduced its partner base almost by half as it prepares to come to market with a smaller fund.

Five partners have left the firm recently while another partner will leave shortly, reducing the total number of partners from 13 to seven over the last year. The restructuring comes as Gresham prepares to come to market later this year, when it hopes to raise between £150 million and £200 million for its next fund, Gresham 5.

Former managing partner Paul Marson-Smith is among those to have left the firm. He only moved to the role of chairman six months ago, but will now retire from the business completely, according to statement.

Partner Ken Lawrence has also retired, a source told Private Equity International, while partners Dan Hatcher, Peter Lahoud and Mitch Titley have already left the firm and James Barbour-Smith will leave shortly. It is understood their departures have not triggered a key-man clause.

This follows the departures of five other investment professionals last year – two senior executives and three mid-level investment professionals.

Gresham declined to comment beyond the statement.

Last year, Gresham – which is now led by chief executive and managing partner Simon Inchley, who took over from Marson-Smith in July – pushed back fundraising for Gresham 5 until 2014, PEI exclusively reported in July.

The firm, which initially planned to target £300 million, started to speak to investors in April 2012, according to one source. However, after speaking to LPs, Gresham decided that investors needed to see a few more exits before considering re-upping.

Inchley said Gresham 5 would target smaller deals than its predecessor, investing in businesses with enterprise values of up to £50 million – a “less competitive lower mid-market niche”, according to the statement.

“Gresham’s investment strength has always been our ability to identify smaller private companies with high-growth potential through our regional network. Today’s announcement signals our intention to build on this core and niche strength as we continue to prepare the firm for its next phase of development,” Inchley said today.

Gresham will continue to focus on realisations in the coming months, the source added. The firm’s £340 million Fund IV, a 2006-vintage, is fully invested and has so far exited three businesses.

Earlier this month, Gresham sold footwear company Hotter Shoes to Electra Partners, delivering a return of “more than 3.5x”, a source told PEI at the time. Last year, Gresham sealed two exits: it sold recruitment firm Swift Technical Group to Wellspring Capital Management for a 2x return and training company 7City for approximately £90 million, netting the firm a 3x return.

Fund IV has had one high-profile failure. In 2009, Betts Global, a toothpaste tube manufacturer, went into administration, after the business failed to keep up debt repayments. Gresham bought the company in 2007 for £110 million – including £75 million of debt – from a consortium comprising UK buyout firm Permira and Scottish banks RBS and HBOS. In 2009, Marson-Smith told The Telegraph that “things didn’t go according to plan”, but that most of the investments in that fund were performing well.

Gresham’s third fund, a £235 million 2004 vintage, is understood to have delivered LPs a 2.2x return to date.