GP Profile: Bowmark Capital

With its most recent fundraise, Bowmark Capital closed its sixth-generation fund on £600m in January 2019 after 10 weeks, winning the firm the Unquote British Private Equity Award for fundraising of the year. Managing partner Charles Ind says the fund was heavily oversubscribed, with 94% of contributions coming from existing investors.

LPs in Bowmark Capital Partners VI include Kuntien Elakevakuutus, JP Morgan Asset Management, Elo Mutual Pension Insurance Company, Pathway Capital Management and Schroder Adveq, all of which had made commitments to Bowmark V, according to Unquote Data.

The firm decided to cap the latest fundraise at £600m because it plans to remain selective in the way it deploys capital; the fund has made two investments to date. Says Ind: "We want to stay disciplined. We're not a deal factory." Since its inception, Bowmark has generated an aggregate gross IRR of approximately 40% on all its investments, says Ind.

While most transactions in which Bowmark engages are competitive, the firm typically has contact with management teams for at least a year and up to 10 years before it invests. "Proprietary transactions in our deal bracket are a myth these days, but if you have a great angle based on knowledge of the business, you should be able to justify paying more than the next bidder," Ind says.

Bowmark VI will make around 10 investments, writing average equity cheques of £50-70m. With a history of co-investment at the firm, Bowmark can also do larger deals than its typical equity cheque. Four of the nine investments in Bowmark V included some co-investment.

Ind says the firm considers LPs for co-investment based on factors such as their speed, the deliverability of the capital and Bowmark's experience with them: "We have a strict set of procedures we follow with co-investments; we recognise how important it is to LPs." To ensure a smooth transaction, the firm creates a special-purpose co-investment vehicle for the deal under its discretionary management.

Ind says that while co-investment is beneficial to both the firm and its investors, it is not a main feature of Bowmark's strategy. "LPs don't invest in us primarily for the co-investment," he says. "This would be the tail wagging the dog. You have to believe in the philosophy of the firm first."

The firm's sixth fund represents a significant increase from its £375m predecessor vehicle. The fifth-generation fund closed in January 2014 and has been deployed across nine acquisitions, with some follow-on capital in reserve. Bowmark Capital Partners V has realised three assets, returning the total capital deployed by the fund to date, says Ind.

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In September 2019, the firm reinvested in a realised portfolio company for the first time. Portfolio company Aston Lark was sold to Goldman Sachs Merchant Banking Division in a deal that reportedly valued the insurance broker at £320-350m. Says Ind: "There's such a big runway for growth, it's a proven value creation model and we'd helped recruit the management team." Aston Lark made 13 bolt-ons over Bowmark's holding period.

"It was the right time to sell because the company needed access to more capital to continue the journey. We wouldn't invest alongside just anyone, but it's Goldman Sachs," he says.

The firm has previously made very few minority investments. Bowmark Capital Partners IV made one significant minority investment and Bowmarks' third-generation fund made two minority investments. "We will make them, but the bar is much higher for us to engage," he says. "You have to be able to have a similar impact on the business as a buyout and, when it comes to exit, you want to be aligned with the management."

Another first for the firm, Bowmark completed the £114m take-private of automation technology and compliance services provider Tax Systems in March 2019. The deal value represented an entry multiple of 12.8x EBITDA. Ind says: "It's a strange situation that public markets can sometimes offer better valuations than the private ones."

Capital is not the scarce commodity anymore; it is talent and deals" – Charles Ind, Bowmark Capital

The proliferation of take-privates and minority investments reflect a wider trend. With record high valuations and increasing competition from trade buyers and both international and domestic institutional investors, GPs are searching for creative ways to deploy capital. Says Ind: "Capital is not the scarce commodity anymore; it is talent and deals. There's more money chasing fewer deals, leading to record valuations, with more dry powder resulting in lower average returns."

Ind says he is more concerned about these broader trends than even Brexit. "Research shows that even in the worst scenario, Brexit will be a short, sharp shock to the economy, followed by a gradual recovery." Says Ind: "Afterwards, investors might reflect on all the great opportunities they missed while the uncertainty prevailed."

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