When patience, guidance and commitment pay off

At times the world can seem like a fragmented place, especially as after decades of moving towards the globalisation of everything from fashion to food a reversal now seems to be in play as the pandemic, wars and worries about supply chains, push political rhetoric into protectionist mode.

In the investment landscape, particularly in our world of private equity, it would be limiting to operate in such isolation. It would mean overlooking the mosaic of solutions that continue to spring forth from brilliant, original, minds setting up transformative new businesses.

The rewards of realisation

It’s an exciting area to work in but one that is not without risk. Fledgling businesses require patience, guidance and commitment. These investments are not for the fainthearted or for those unable to conduct thorough research and due diligence before diving in. When the businesses you have backed progress to realisation, however, it’s a rewarding outcome both in terms of your own conviction and the knowledge that you have financially repaid the trust that your clients have placed in you.

So far in 2022, significant realisations have numbered over 20. One of our most recent is San Siro. On 10 November 2022 we sold most of our holding in the Italian funeral services business. We had initiated this investment in January 2019, in a deal led by Augens Capital. On its sale, on 10 November, San Siro had generated a return of 8.8x cost and 87% IRR for the Trust. As at 30 June 2022 our investment in San Siro was valued at £11.4 million. The total value of the transaction in November was £34.4 million, representing an uplift of £23.1 million or 4.8% of the 30 June 2022 Net Asset Value. The uplift provided at realisation is a useful boost to the NAV.

The flow of realisations this year has been good – at around £100m so far. Given this follows what was an exceptional year in 2021, when the total figure was £161m, 2022 has been stronger than might have been predicted. A couple of areas are notable in having done better than we had originally anticipated. These include stocks connected to the health and energy industries.

A better year than might have been expected

Benelux’s STAXS, a leading provider of cleanroom consumables (for contamination control) and services for the pharma and life sciences industries in Europe, is one such name. We sold out of STAXS, which had been a co investment with Silverfleet, earlier this year and made 6.2x our money. The IRR was 87%. With services and products from hoods to overshoes, gloves and visitor coats, disinfectants and cleanroom wipes, it has been an obvious beneficiary of the Covid induced hygiene spike. We had taken a share in the company back in 2019.

Similarly, unforeseen events have meant that energy services companies have benefitted from the high price of oil and other energy sources. The energy companies we hold have been long-term prospects that are also wired into a green agenda. Coretrax, where the lead manager is Buckthorn Partners, is involved in the decommissioning of oil rigs. As countries move towards renewable energy sources more oil production platforms will be decommissioned and in the interim Coretrax is helping to achieve cleaner decommissions.

Ashtead Technology, generally described as a subsea equipment rental and technology solutions provider for the oil and gas sector also, importantly, provides equipment used to monitor the sub-sea infrastructure of offshore windfarms. Again, this presages good growth prospects. As at 25 October 2022, the money multiple from Ashtead was 1.9x and the IRR was 15%.

Another of our holdings, held through August Equity, Zenergi, is an energy and environmental consultancy, advising on energy renewals, energy legislation and carbon reporting, identifying ways to reduce energy use and supporting energy efficiency. As at 25 October 2022, realisation from our investment there was 5.3x and the IRR 50%.

All three of the above energy companies, which have been positive for our portfolio this year, are UK based although they have international reach.

Diverse new opportunities continue to surface

Looking ahead, despite the obvious challenges of rising interest rates, slowing growth, high energy prices and adverse global events, we are optimistic that our stakes in the often niche, private businesses, which we have carefully selected with a view to generating capital growth over the medium to long term, will bear fruit.

Among recent initiations to the portfolio we highlight three, very different, businesses below.

UK company Rephine is an outsourced services provider of audit and regulatory consulting services to the global pharmaceutical supply chain. It helps customers meet regulatory requirements and quality standards by ensuring that the processes adopted by customers’ drug manufacturing suppliers adhere to internationally recognised standards.  As a proliferation of new drugs come to market the audits that it conducts, of manufacturing facilities, can be made available to many interested parties. This translates into efficiencies of delivery for those that require the audit results and less disruption to the pharma producer. The business has grown from a small consultancy. Its area of expertise has substantial barriers to entry – it is no easy feat to get approval for a license to audit in this industry – and so the long-term prospects are attractive. The lead manager on Rephine is Kester Capital.

Leader 96, is a leading assembler of e-bikes. It is based in Rogosh in central Bulgaria. It used to be a conventional bike maker before its move into electric bikes. Around 95% of its revenue comes from white label assembly (the remaining 5% is own brand). It works alongside clients to design and specify bikes, which it then assembles and delivers to clients under their brand. E-bikes have relatively high penetration in Holland and Germany but as yet much lower take up in countries such as France and the UK so the long-term growth thesis is positive. This is a market leading business, supply and demand dynamics are favourable and sourcing is closer to its end markets – Bulgaria rather than China. Plus, it’s backed by Rohatyn Group who are experts in Central and Eastern Europe, so the risk is diluted.

Finally, we’ll highlight 123 Dentist. Founded in 1993 by the current CEO, Dr. Amin Shivji, 123 Dentist is a chain of dental practices across Canada. Chains in this field are not common in Canada. The business is becoming more profitable as it taps into synergies such as bulk buying of dental materials. It differentiates itself by allowing dentists to retain minority stakes when acquired, thus incentivising the selling dentists. 123Dentist joined up with Altima Dental in July of this year and together the group has over 300 practices across Canada and is the number 2 Canadian dental services organisation. The lead manager on 123 Dentist is Peleton Capital.

A good year with more to follow    

To sum up, we’ve had a good year to date, realisations have been healthy and dividend growth has continued. A dividend of 6.31p was paid out at the end of October and the dividend yield is above 5.0%+* at the present time. We have a well-diversified portfolio of small to mid-sized companies, in strong market positions, geographically distributed. Around 43% of the portfolio consists of co-investments, with many partners well known to us and respected for their track record. The global challenges remain many but we are set fair for a strong end to 2022 and a positive 2023.

^{*20 November 2022}