“Most of the businesses we have invested in in the past five years would not have been sold that year if we hadn’t made that investment,” Phoenix Equity Partners managing partner David Burns told Private Equity International. “A lot of what we’re doing is trying to create deal flow.”
Given the competitive market for UK mid-market acquisitions, the firm’s approach, like its peers such as Graphite Capital and ECI, is to seek out proprietary deals in specific sectors, and pursue follow-on acquisitions for roll outs or a buy and build strategy.
Just Childcare Nursery Group is an example. Phoenix acquired the company based in the north of England in November 2014 and has expanded it from a “handful” of sites to 14, Burns said.
“Nurseries are a big fragmented market where the vast majority are under independent ownership. We are looking to build a substantial group,” he commented.
The firm targets investments of £20 million ($31 million; €28 million) to £50 million of equity in UK businesses with a value of £20 million to £200 million in the business services, leisure and consumer, financial services, healthcare and education, industrials and media sectors.
“We are fundamentally changing the nature of the businesses that we invest in,” Burns said.
When asked about current high asset prices, Burns said: “You have to be incredibly disciplined on how much capital you deploy in a year and make sure you have enough opportunities that you can afford to walk away when the pricing gets high.”
With two thirds of the firm’s focus on roll out and buy and build opportunities, the remainder of its investments are in core business expansion, such as Riviera Travel, a UK tour operator acquired in December 2014.
Its latest fund, Phoenix Equity Partners 2010, a £450 million vehicle, has made 12 investments and more than 21 bolt on acquisitions, it is understood.
The 10-year vehicle has “more to go,” Burns said, declining to comment on future fund raising.
The fund’s portfolio companies include The Gym Group, which press reports said the firm was talking to advisers about divesting in a £300 million initial public offering. Burns declined to comment on reports.
UK mid-market firm Phoenix acquired The Gym Group in June 2013, according to its website. Under the firm’s ownership the company has expanded its number of sites from 30 to 75. The expansion is typical of Phoenix’ roll out and buy and build strategy, it is understood.
When asked about exits, Burns noted that “at any one time we are looking to invest and to sell.”
In March, the firm sold its stake in media and exhibitions company CloserStill, held by its 2010 fund, to Inflexion in a transaction generating a 3.5x return for Phoenix, as reported by PEI.