True betting on retail

The prolonged economic downturn has taken a visible toll on the British high street: in recent weeks, camera shop Jessops and music store HMV have joined the list of high-profile casualties. With consumer confidence low and take-home pay feeling the squeeze, it doesn’t exactly feel like the perfect setting for a retail-focused private equity fund. 

But Matt Truman, a former equity analyst at Lehman Brothers and JP Morgan who has just started raising his debut fund, begs to differ.  

Formally launched in January, True Capital I is targeting £100 million, with a first close targeted for the end of the first quarter. “We have only been authorised since 2 January and at the moment it is going very well,” says Truman, the firm’s co-founder and chief executive. LPs in the fund will include a number of retail chief executives and entrepreneurs, he suggests.

Truman – who set up the firm together with ex-Deloitte accountant Paul Cocker – intends to invest this capital in retail and consumer businesses with an enterprise value of up to £50 million that have access to structural growth, plus a disruptive strategy, a good management team and a focus on capital efficiency, he says. The firm will write equity tickets of up to £15 million. 

Truman and Cocker have already worked together on one investment: Alexandalexa, a luxury children’s clothing business. In June 2011, they sold their stake, realising more than 4.5x the invested capital. 

They’ve also managed to persuade six other people to join them at True Capital Partners, most of whom come from a retail background. This will create an efficient deal flow, according to Truman. “Because of their experience and expertise, [they] can immediately tell me if I am paying too much or not,” he says. 

The firm will make both minority and majority investments, depending on the company. But operational influence is vital, says Truman. “We will tailor the shareholders agreement to make sure we would have that influence. The days of a 100 percent buyout as a priority strategy are over a little bit.” The firm plans to work alongside company founders. “We don’t want to change or reinvent their businesses. I don’t think that is applicable anymore.”  

Truman admits that the downturn isn’t helpful for retail and consumer focused businesses. But he remains optimistic about the sector. “It’s a good point on a headline basis, but you have to drill down a little bit. In tough times, new niches arrive and have huge potential for growth above and beyond the overall number.” Additionally, there are huge refinancing opportunities, he believes. 

So could True emerge as a potential saviour for a business like HMV? “There are businesses that can be restructured because of balance sheet issues. But something like HMV – a business that hasn’t reacted quick enough to the changing industry – isn’t something that’s that attractive,” he says. 

Although his team is set up to cover e-commerce, his firm will not just invest in online retail, according to Truman.”I am more interested in the quality of that business and the future that it has in the industry rather than saying ‘It is high street or e-commerce’. As long as they [meet the investment criteria] I don’t want to rule anything out.”