GP Profile: BGF to deploy GBP 500m-plus per year for minority growth deals with entrepreneurs

As debt becomes less accessible to PE firms and businesses, equity providers with a longer-term view can provide solutions in uncertain times, he said. BGF tends not to raise debt to fund deals and deploys equity via its own balance sheet. It seeks to add value to its portfolio, mostly through ESG initiatives and providing sector expertise, he said.

Although a number of sponsors have launched minority investing funds in recent years, this strategy has underpinned the growth investor's approach since its formation in 2011. It aims to back entrepreneurs seeking flexible, value-adding capital.

The sponsor therefore expects its strategy to gain more traction as an attractive alternative to founders, filling a gap in the capital raising world, he said.

While its average check size has slightly increased, reaching GBP 6.9m last year, it is still "very much within" its original GBP 2m-GBP 10m target range, said Gregory.

The firm has increased its activity over the years, deploying "well over" GBP 1bn in the last 24 months, he said, noting that it expects to "at least maintain and hopefully grow" that level of activity. It invested GBP 443m in 2022 alone, completing 45 new deals in the UK and Ireland via its growth and early-stage strategies, as well as quoted investment teams.

Looking ahead, it expects to be deploying GBP 500m-plus per year on average, investing right through the cycle, he said.

Deploying through cycles
"We've done well because there is a genuine gap for us, even in a buoyant economy and a frothy M&A market, to add value and flexibility in addition to capital," he added. "PE firms often do minority investments with a majority mindset but our competition is a range of situations, from a modest debt raise and entrepreneurs choosing to do nothing, to majority stakes and trade sales."

The firm remains pragmatic in terms of the exit time scale for its portfolio. Although it is expecting overall exit activity in the market to come down in this environment, its exit pipeline remains positive, said Gregory.

The firm continues to receive a good level of inbound interest from strategic trade buyers and PE across sectors. Trade buyers make up the largest buyer pool for the GP, while its buy-and-build theme is seeing a reasonable amount of PE-backed trade interest, he added.

It exited 40 companies in 2022, with total investment returns of more than GBP 675m, a combined money multiple of 2x and an IRR of 22.5%.

The firm has owned minority stakes in UK-based online pharmacist Pharmacy2U and UK-based paint supplier to the automotive industry Paintbox since 2016, while holding a stake in UK-based energy provider STATS Group since 2012.

For the time being, BGF's investment committee is exploring a broad range of targets in sectors experiencing tailwinds, such as technology, tech-related healthcare, healthcare-related life sciences and cleantech. It is also considering strong businesses in "perhaps some of the less obvious sectors," he said. BGF is open to invest in sectors with uncertainty in the short term, as it is largely taking into account a company's capitalisation levels, overall positioning and growth, he added.

Diverse strategies
Alongside its growth investment strategy, BGF plans to invest GBP 300m in early-stage and fast-growth businesses over the next five years.

The strategy is primarily focussed on life sciences and cleantech, with elements of deep tech, said Gregory. Having invested in 500 companies in total over the last 12 years, the firm aims to leverage its sector expertise to support early-stage businesses.

The GP also launched BGF Foundation last year, with a commitment of GBP 1.5m from BGF and the portfolio over the next three years. It will provide funding and practical support to help small and mid-sized charities that are focused on alleviating social disadvantage to scale up their impact across the UK. The firm sees the strategy as complementary to its main growth investing approach but with a broader purpose, said Gregory.

It is looking to deploy that capital across the UK in areas which BGF has a presence via its 16 branches. Its regional network enables it to target businesses directly, so its pipeline is largely formed through its own origination efforts, he said. Its due diligence often benefits from expertise sourced via its talent network.

Continuing to bolster its team and global network, BGF is committed to supporting women-led businesses, whilst increasing gender diversity internally. Women accounted for 69% of its total staff hires last year and 57% of the hires for its investment team, he said.

[Editor's note: Subsequent to publication, the article was amended to clarify that BGF is a UK- and Ireland-based firm.]

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