CARDIFF-based private equity firm WestBridge has raised £30m for its maiden fund, which will back expansion-focused SMEs.
Although it had initially set its sights on raising £50m, achieving £30m has to be seen as a great success story against the current backdrop of an extremely challenging fundraising environment – especially for a first time fund.
The backers of the fund include South Yorkshire Pension Fund, which has committed £9m, while 25% is coming from the European Union through its Competitiveness and Innovation Framework Programme, which is managed by the European Investment Fund (EIF).
Some 50 high net worth individuals have also invested in the fund, with stakes ranging from £100,000 to several million pounds.
Around half a dozen of those individuals are Welsh-born industrialists, although not all are based in Wales.
While the fund stands at £30m, it is anticipated that the high net worth investors will also take the opportunity to co-invest alongside the fund into SMEs. Across the life of the fund it is anticipated that co-investments of around £10m could be made alongside the £30m in the pot.
The fund has already made investments into three businesses, including supporting the management buy-out of Swansea-based medical devices company, Energist, in which biotech investor and serial entrepreneur Sir Chris Evans had a majority stake through his Merlin Biosciences Fund.
The combined investment level to date is £5m. However, a further £2.3m has been co-invested by individual backers of the fund.
When the fund has reached 75% of funds invested, WestBridge will be able to pre-market a second fund, which will have a target of £100m.
Based on the success of the first fund, it is envisaged that it will be able to close fund raising over a 12 month period.
It is expected that the second larger fund will be in play over the next two to three years.
Guy Davies, managing partner at WestBridge – who has invested around £400,000 personally into the fund said: “We are one of only a very small number of first time teams to complete a meaningful fundraising in the current climate. Naturally, we are very pleased to have closed the fund.
“Our approach is unique and our aim of backing SMEs gives us a real edge in today’s market.
“Our fund and investor network includes an ever growing number of successful industrialist investors who have grown their own businesses, been there and worn the t-shirt. They have a lot of experience and knowledge to impart.
“They also know from first-hand experience that backing rapidly-growing businesses, many family-owned, is a very exciting area of the market.
“We work closely with our network to support the SMEs we invest in – whether it’s providing constructive and practical advice or making business and corporate introductions – anything that ultimately helps enhance returns for our investors.”
WestBridge will look to exit from its investments over a three to five year timeframe. It will invest up to £5m per deal – targeting businesses with turnovers of between £6m to £7m, with the growth capital used to drive turnovers to around £15m before exiting.
Mr Davies confirmed that WestBridge had entered into exclusive negotiations with three companies looking to drawdown investment from the fund.
He said:“None are in Wales , but we are always looking for good quality businesses to support in Wales.”
On the second proposed fund, he said it would be a much quicker turnaround.
He added: “As a first time fund it was a long fundraising process and we don’t expect that to be repeated. We have institutional bluechip investors and a solid investment base. As long as we perform, which we fully expect, we should be able to raise money much more quickly.”
James Wakefield, chairman of WestBridge, added: “We are delighted to have received support from two prestigious private equity fund investors, the EIF and South Yorkshire Pension Fund.
“Both knew our principals and had been tracking us over a number of years.
“The WestBridge partners believe passionately in backing SME businesses and collectively we have one of the best investment track records in the industry, having all formerly worked in blue chip private equity businesses. We have all made a significant personal investment into the fund.
“Many high net worth investors have supported the fund as it gives them a route to the SME market which they would usually only be able to access through funds of funds, where they would in essence have had to pay double fees.”
Sandy Smart, chief investment officer at WestBridge, said: “There are many companies in the target market for our SME fund and limited funds available. Experienced investors like us can identify those companies with potential to provide strong investor returns.
“Whether they need development capital, acquisition funding or support for management buy outs, we can help.”
Valerie Kendall, partner at WestBridge, added: “Management teams that partner with us should do extremely well because of the track record and experience of our team, which is significantly deeper and wider than many investors out there.
“Although we have a strong pipeline of potential transactions, we are always looking for high quality management teams to support.”
Chief executive of the EIF, Richard Pelly, said: “Westbridge targets small mid-caps, a segment of the market which is in urgent need of additional financing tools and is currently suffering from limited investors’ interest.
“By backing this team of seasoned managers, we are convinced that innovative businesses in the UK will get the opportunity to grow into tomorrow’s champions.
“This illustrates EIF’s commitment to support the development of entrepreneurship in Europe.”
Mr Davies said that WestBridge could look to co-lead with other funders on a transaction, but would not take a syndicated position under a lead funder.
Partner of Cardiff headquartered Gambit Corporate Finance, Geraint Rowe welcomed the new fund.
Mr Rowe said: “This can only be welcomed and will provide additional opportunities for companies in Wales requiring capital, alongside existing providers in Finance Wales and the Business Growth Fund.”
