The private equity perspective: Insights from industry professional Malcolm Coffin

Private equity has become an increasingly popular investment option over the past few decades. It became a magnet for investors interested in high returns and the ability to take a more hands-on approach to managing companies. However, the private equity market has also faced its fair share of challenges from increased competition, regulatory scrutiny, a shaky ride through Brexit to the ongoing effects of inflation and the cost of living surge.

As we move further into 2023, it’s important to take stock of the current state of the private equity market and consider the insights and perspectives of industry experts.

Malcolm Coffin, Partner at Inflexion and Head of Enterprise Fund provides an inside view of the private equity market, including its current state, emerging trends, and potential challenges.

From your experience, what do you believe are the key factors driving the current growth in the private equity market?

The private equity market has grown steadily for decades. This has been driven by a combination of factors: founders and owner-managers are increasingly realising what a meaningful difference experienced private equity firms can have on their growth whilst investors are increasingly drawn to the strong returns that can be generated by backing ambitious and fast-growing businesses. It’s not just traditional buyouts either; we also provide minority funding to allow entrepreneurs to retain control of the business they have built whilst benefitting from access to flexible capital and expertise to grow faster. 

What are the current investment opportunities that you are most excited about, and why?  

Despite the more challenging market backdrop, we still see lots of opportunities to back brilliant mid-sized businesses led by strong management teams. We made 10 new investments in 2022 together with 38 add-on acquisitions for the portfolio with two further new investments in 2023. 

We are seeing resilient businesses across all sectors in spite of the headwinds. One area we find particularly interesting at the moment is healthcare, which has strong underlying fundamentals as a sector. We recently invested in Upperton Pharmaceuticals, a UK-based specialist contract development and manufacturing organisation which has expertise in particle engineering for the pharmaceutical industry. We have provided finance to support the building of a new facility that will support a 10-fold increase in capacity as well as an expansion in its service offering. 

We like opportunities which lend themselves to digital enhancement and international growth, since we see them as great value enhancers. We work with companies on these areas, with a dedicated digital team and international presence in the fast-growing markets of Asia, South America and India. Examples include nutritional pet supplements business Lintbells, who we helped to grow UK market share and launch new products by enhancing its digital framework, as well as developing and implementing a successful US market entry strategy. We also worked with Virgin Experience Days, a leading provider of experience gifts, on digital enhancements including processing automation, which helped to create a better user experience and improved customer engagement, and helped it launch in the US with its acquisition of Colorado-based Cloud 9.

How do you evaluate potential investments, and what key criteria do you look for in a company?

Growth is really what excites us here at Inflexion; we invest in businesses enjoying strong revenue momentum. Crucially, we look for businesses that have multiple pathways to future growth that we can support and help accelerate through our capital and our contacts, be that internationalisation, helping develop new revenue streams, or follow-on M&A. 

Equally important is the human dynamic and ensuring we’re fully aligned with the management we’re partnering with on the collective vision and ambition for the business. The way we view private equity is we’re professional backers of people and place great store in the relationships we build with the teams we look to back. 

Finally, we look for businesses which have a really strong position in their respective value chains and our shorthand for that is in the margins the business makes. If your customers value what you do and that can’t be competed away, you’ll see that in the margins made.

What is your outlook for the future of the market, and how do you see Inflexion positioning itself to take advantage of new trends and opportunities?

The best businesses will continue to thrive and be attractive, both to their customers and prospective investors. We see this in our own pipeline, where resilient companies remain in high demand. For those business owners who have the confidence to seek private equity investment despite the challenging market conditions, the real focus should be on selecting the right partner to help you expand, grow, and navigate uncertainty, helping the business seize and maximise the opportunities created by the market dislocation. 

For the private equity industry itself, there are also choppy waters to navigate. The institutional funds who invest in PE firms are highly discerning, now more than ever, focusing their time and investment on those firms with a clear strategy, consistent deployment, and track record of superior returns.  

For Inflexion, we are well positioned for the coming years: whilst many types of capital have become scarcer in this backdrop, our £4.5 billion of flexible funding remains available. It is committed, meaning we have certainty of execution and a desire to continue partnering with ambitious business owners looking to drive future growth. 

What advice would you give to entrepreneurs looking to secure private equity investment for their businesses?

If you’re a successful, profitable business looking to grow faster, then a private equity partnership is an excellent avenue to go down. Just as no two businesses are alike, all private equity businesses differ – whether that’s in their experience in different sectors, growth strategies, or geographic strengths. For this reason, it’s important to build relationships and get to know the team as individuals and a firm. It’s about chemistry since you’ll be working together for many years. Are they aligned with your vision? Are they listening to your story, and can they add meaningfully to it? You’ll spend a lot of time with your investor, so ensuring you get along well is key – the good times will always be good, but difficult conversations are easier if you share a common vision and sense of camaraderie. 

Once you know the chemistry is there, it’s about what growth acceleration strategies they can help you deliver on. In addition to the funding, we bring the combined experience of our entire team to bear for each investment. Regardless of size or our level of partnership, you’ll get the full support of our international team, digital team, M&A expertise, etc. – as it suits your growth plans. It’s a crucial differentiator and can have a truly transformational impact on a company’s growth and achievements.