Sovereign Capital, a UK-based buy-and-build specialist, has expanded its origination team with the hire of Monica Bergvall, formerly a deal focused executive at London-based private equity firm Duke Street.
Bergvall, who joined Sovereign in March, works alongside six members of the firm’s ‘direct origination’ team. She’ll focus specifically on researching market opportunities and potential acquisitions in the healthcare and business sector as well as introducing potential management candidates for Sovereign’s portfolio companies.
“I am investing in preparation for future deployment not only in Fund III, which we are investing at the moment, but in preparation for raising Fund IV which will probably launch next year,” Sovereign’s managing partner Andrew Hayden told Private Equity International.
Nine of its 10 investments in Fund III, a £300 million 2010-vintage, were proprietary transactions, according to Hayden. The firm’s approach is to pinpoint a group of “shadow portfolio companies”, which it would like to acquire and set up contacts with these businesses and builds and maintains relationships until a transaction becomes possible. There are a number of such companies in Sovereign’s sights, according to Hayden. “Monica will start these conversations with companies and that will lead to closing transactions in the next year and the year after,” he said.
It is a labour intensive model, Hayden said, but “as a result of this we get exceptional returns. Our first fund is a 4.3x gross fund. The reason that [these returns] are attractive is that we work hard finding these off market at sensible prices,” he said. “The bolt-on acquisitions that we put onto this are found through our direct origination team as well,” he said. “I [therefore] have to invest in the team that will dig out [those companies] and make those deals happen,” he added.
Sovereign invests up to £50 million in businesses in the healthcare, education and training and business support services sectors. This year, the firm has made three bolt-on acquisitions and according to Hayden the firm is also close to its first investment of the year.
Last April, Sovereign sold LM Funerals, a funeral directors group, to Duke Street for £37.5 million, generating a 3.4x return. In February 2012, it also sold National Fostering Agency to Graphite Capital, netting a 3.5x return.