Mid-market core

Ian Simpson co-founded placement agent Helix Associates in 1993, having previously been a director of Berkeley Govett. Here, he talks to Robert Venes about fundraising in the UK mid-market.

What recent UK mid-market funds have you raised and what were your experiences?

We’ve done four UK mid-market funds in the last couple of years: Graphite, Bridgepoint, Exponent and, at the small end, Piper. Bridgepoint and Graphite have been around for years and have a long history of success and so it wasn’t surprising that they were significantly over-subscribed. Exponent are the new kids on the block, although the partners themselves are very experienced. I think there’s a feeling among investors that it’s no good continuing to back people that have proved they can’t make money consistently; it’s better to take the risk of backing a new group you believe can succeed instead. Even though the UK market is seen as competitive (and it is competitive), I think Exponent’s success shows that there’s still room for new players who can bring something to the market and move the model on.
Is the UK mid-market seen as a hot spot for investors, and how is it viewed relative to other European mid-markets?

I think the UK is seen as a core part of most investors’ portfolios rather than a hot spot as such. The truth is the UK is and always has been highly competitive but has always produced returns. Germany has some good teams and the raw material to become a successful private equity market but it still hasn’t achieved critical mass yet. Right now, I think the French mid-market is seen as even more competitive than the UK by investors. Besides the UK, Germany and France, the Nordic countries as a region are seen as “must haves” by investors, and with good reason.
Is access to the best UK mid-market funds becoming a problem, and does the UK mid-market now have “brand name” investors?

Access to the best mid-market funds, wherever they are, is going to be a problem. Perhaps it will be worse in the UK because it is seen as a core market and just about every LP investing in Europe wants exposure; perhaps it will be worse in other countries because at least in the UK there is a reasonable number of high quality GPs. Compare that with Italy where there are perhaps just three stand-out players. At the same time, there’s so much more capital looking to be invested in private equity, not least from the US where more and more investors want to look below the level of the major pan-European buy-out houses. The UK certainly has its blue chip brands in the mid-market and the difficulty of gaining access to them only increases their cachet and investors’ desire to gain access.
Do you expect to see many new funds being launched in the UK mid-market?

Some but not many. Spinning out or starting a new fund successfully from scratch takes some special qualities and a lot of courage. I see quite a few people that want to set up new mid-market funds but the biggest problem most of them have is the lack of an attributable track record. It is only the senior partners that pull all the strands together and can claim ownership of the deal, even though the heavy lifting may have been done by others. And if a deal is successful, lots of people claim to have led it, which adds to the confusion. For example, I can name at least five of the three people who led the Yell deal for Apax and Hicks Muse!

Would you expect to see UK mid-market funds become increasingly sector specialised?

So far, I’d say specialisation has been driven much more by the way investment banks are organised and the need for a more structured approach to origination than by GPs’ knowledge of and ability to add value in a particular sector. In addition, most of the houses that have promoted sector specialisation have so many sectors or draw the boundaries so widely, it’s almost impossible to find a deal that doesn’t fit. I think the drive into true sector specialisation will be led by the larger pan-Europeans and global players that are investing in sectors that are global in scale such as pharmaceuticals, paper and packaging, chemicals media etc. Overall, I think that to make money the managers of country funds have to be opportunists, fleet-footed entrepreneurs at heart, and that’s true whether it’s the UK or anywhere else.