GP Profile: Limerston Capital anticipates higher volume but more complex M&A as market steadies

“The market hasn’t picked up yet, but we think opportunities will increase in 2Q23 driven by mixed market conditions, which has its pros and cons,” she said. “Just because you have more volume doesn’t mean that the quality is there.”

The hangover from Brexit and the COVID-19 pandemic has left a lot of financial performance and succession-related issues. “The current macro environment has drawn a lot of random stuff, at the back are the good exits but there are also things going around every six months that are not at the same level.”

Those that it has looked at have needed some kind of professional, operational or value-creation support. For example, Concept Life Sciences, its second platform deal via Fund II, was a carve-out from a listed group. "The company has huge value but hasn’t been able to achieve it yet," she said.

The newly created role at Limerston allows Vitali to be on the ground bringing these new opportunities to the pipeline while the team is heads down on deals. "I’ve seen a lot more people stepping into origination roles at advisors and funds. It wasn’t popular before, normally just partners that had their networks."

Deal drivers
With private equity no longer to able rely as much on multiple arbitrage upon exit, buy-and-build is increasingly vital to value creation.

Limerston, which is still raising its second fund, has seen buy and build, alongside carve-outs, as the largest dealflow drivers in the past few months, predominately in business services and healthcare. The sponsor focuses on the low-mid cap end of the market at platform deals with GBP 5m-GBP 15m EBITDA.

Its deal flow over the coming months will be driven by the market, but it hopes to complete two new platform deals alongside multiple new bolt-ons.

"There are some instances where you can achieve organic growth," she said, pointing to Wales-based private label goods supplier Village Bakery, “but ultimately the market is no longer growing at the same rate.”

Like most in the market, Vitali is finding the current trading environment slow, with protracted processes meaning that the numbers are likely to have fundamentally changed between starting to look at an opportunity in January and taking it to the investment committee in June.

The sponsor is dealing with the complexity by putting in a lot of the prep work ahead of a launch, putting partners in front of management as soon as possible. This means that if and when an auction launches, the owner of the company knows that Limerston has the expertise, Vitali said.

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