Inflexion collects £2.5bn for sixth fund in overall ‘brutal’ fundraising year

The mid-market firm has secured its first-ever ESG-linked capital call facility to finance Inflexion Buyout Fund VI.

Inflexion Private Equity has gathered its largest fund to date after less than a year on the fundraising circuit and in an environment where LPs are increasingly reaching their allocation limits.

The London-headquartered mid-market firm held the final close on Inflexion Buyout Fund VI on its £2.5 billion ($3.4 billion; €3 billion) hard-cap, according to a statement seen by Private Equity International. It had an initial target of £2 billion when the firm began raising capital last March, PEI data shows.

Inflexion did not use a placement agent to raise Fund VI, a spokesperson for the firm told PEI.

Fund VI is double the size of its 2018-vintage, £1.25 billion predecessor.

It had a 100 percent re-up rate, with 70 percent of existing investors increasing their commitment, according to the statement.

“We had more than 20 new LPs in this fundraise and we wanted to do that because of the market changes coming onboard,” Simon Turner, co-founder and managing partner of Inflexion, told PEI. “We wanted to add some wealth money and deepen some of our relationships outside of the US and Europe, particularly in Asia.”

Some 40 percent Fund VI’s LP base came from North America; 29 percent, Europe; 16 percent from Asia-Pacific; 9 percent from the UK; and 5 percent from the Middle East.  Sovereign wealth funds, public and private pensions, insurers, and family offices, among others, committed to the fund.

Illinois Municipal Retirement Fund and Teachers’ Retirement System of the State of Illinois committed £175 million and $105 million, respectively, PEI data shows.

“It’s a brutal fundraising environment and lots of funds are coming back really quickly. There’s been the whole opportunity set around firms with an increasing tech focus – big unrealised valuations with a high velocity of capital deployed,” Turner said.

Frenzied fundraising in the last year has made LPs “quite weary” to some extent, he added.

“I think they’re also finding that the private equity asset class’s appetite for capital is straining them a little bit. It’s interesting to think about where that goes medium term, because it’s definitely causing some difficult triage decisions for quite a lot of LPs.”

He noted that a lot of “perfectly good” long-term relationships are getting dropped because LPs are having to take tough decisions on allocations.

Private equity funds commanded $733 billion of inflows in 2021, an all-time high, according to PEI’s full-year 2021 fundraising report. The average fund size was also the largest on record at $530 million – up $63 million from 2021 and an almost 50 percent increase on 2017 – as LPs continue to back vehicles raised by brand-name firms perceived as safer bets.

Dealmaking in 2022

Turner noted fundraising for Fund VI comes amid a record year of deals and exits for Inflexion. It deployed £1.2 billion across 12 investments and around 100 add-on acquisitions. It also secured eight exits with a combined enterprise value of over £4 billion. These realisations delivered a 38 percent internal rate of return and 3.8x multiple of invested capital for the firm’s LPs.

Unlike some of its peers that have capitalised on LPs’ demand for PE by expanding into adjacent strategies in recent years, Inflexion remains “resolutely focused on the mid-market”, which is its core and only strategy, said Turner.

Capital raised for Fund VI will back companies in the UK and Western Europe with an enterprise value of up to £1 billion across the firm’s sectors of business and financial services, consumer, healthcare and industrials and technology. The firm has not yet made an investment from Fund VI, it is understood.

Fund VI will be complemented by Inflexion’s existing family of funds including Partnership Capital, its dedicated minority investment fund, and Enterprise Fund, its lower mid-market fund that raised £400 million in 2019 for its fifth offering.

“We have the three core fund strategies around the mid-market and I think that’s a very comforting place for big investors to deploy capital,” Turner said.

He added that the firm is “investing very selectively and looking for value”.

“It’s not a time to do anything too racy and exotic.”

ESG-linked facility

Inflexion has also secured its first ESG-linked capital call facility to finance Fund VI. The interest rate is tied to Fund VI portfolio companies’ performance against ESG KPIs such as carbon intensity, senior management team diversity and governance best practices, according to a separate statement.

The facility has been provided by Citi Bank, Wells Fargo, Royal Bank of Scotland International and Royal Bank of Canada.