LDC outlines plans for new record year of deployment

Despite a more challenging economic environment, the firm could see the amount of capital deployed surpass that of last year, when it invested a record GBP 384m in 16 new platform companies and GBP 38m in 44 add-ons.

"We've got the resources to do it. I'm not naive enough to think that the current environments are not going to make that more difficult, with Q1 particularly more challenging as it's not exactly the right time for some mid-market companies to sell, but there remains plenty who would want someone like LDC to help achieve their ambitions," Garner said. "[But] economic environment is one factor when you when you're assessing a business … it's not the only thing that you need to consider," he said.

The 2023 goal will be supported by the nearly 30 hires made last year, many of whom are located across the UK regions with responsibilities including investment origination, he said. Recently, it hired Simon Peacock as investment director and Mikayil Salahov as investment manager from Alantra for its East England coverage, among others.

"The increased headcount is a big investment for our business, giving us the scale to assess the volume of opportunities and assess early in the process which businesses we want to pursue," he said.

The pace of hiring will likely level off this year, however, with LDC now focusing on developing the new team members, he added.

Investments by LDC last year included Sussex-based IT managed services provider Acora; global pharmaceutical development organisation TMC Pharma Services and Bedfordshire-based Stonbury, a supplier of sustainable water engineering services. The firm also helped bolt-on 44 acquisitions on its existing platform companies via an additional GBP 38m investment, he said.

As a generalist, a majority of the sponsor's investments have tended to be in TMT, healthcare or business services, he said. However, this is simply a reflection of the market pipeline rather than LDC's pivot towards any particular sector, he said.

Tough times – again
Garner points to the tough cycles that the firm has navigated in the past years to put the current situation in perspective. "Everybody talks about the difficult environment we are in, but it's been difficult for a long time – we had the global financial crisis, then COVID, followed by the war in Ukraine, and now inflation, higher interest rates and recession," he said.

While optimistic, the sponsor is scrutinizing potential targets more closely on their financials, looking to understand the normalised cost base of businesses amid the inflationary environment and their ability to pass on those costs, he said. Many businesses coming out of the COVID-19 pandemic lockdowns have also seen a bounce to their trading, and it is looking at whether these performance spikes are based on catchup sales or whether their business trading are part of a sustainable trend in their respective sectors, he said.

One area where he foresees the market changing is the availability of debt alongside the higher cost of capital, he said. To alleviate this problem, LDC could consider use all-equity packages to invest with an eye to potentially refinance later in its investment, he added.

Slow exits
LDC expects to realise at least a similar number of businesses this year, which would be a "natural low point" after a flurry of exits made in 2021-22, Garner said.

The slowdown comes with what Garner recognizes as a more difficult M&A environment: "At the moment, some competitive funds aren't in the position we're in due to their limited capital base, and therefore want to be careful when they deploy. Corporates are also probably pausing a little bit as it's not quite the same environment as before," he said.

Last year, LDC made ten exits, including Leamington Spa-based Solid Solutions, a reseller of 3D design software, sold to Desktop Engineering; Bristol-based TV production company Plimsoll and Kent-based bathroom specialist Aqualisa, which were acquired by ITV and Fortune Brands Home & Security, respectively.

[Editor's note: The first paragraph under the subhead 'Slow exits' has been amended post-publication to clarify the number of businesses LDC expects to realise this year.]

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