FPE holds GBP 185m final close for third fund

Rede Partners acted as placement agent for the fundraise, while Macfarlanes provided legal advice.

Asked about the timeline of the fundraise, FPE Capital managing partner David Barbour told Unquote: "We launched the fund around May or June 2021 after we had made a couple of exits. We held a first close in August with existing investors, followed by closes in October and December. The December close was just below our initial hard cap of GBP 175m. We held the final close with a small number of investors who were already identified pre-Christmas."

The GP's differentiated strategy made a difference in a competitive fundraising environment, according to Barbour. "2021 was the year of the re-up and there was a lot of high-velocity fundraising," he said. "We needed a specialist focus, a proven track record and a specific value proposition to get the attention of LPs."

The UK-domiciled vehicle is 80% larger than its predecessor, which held a final close in October 2017 on GBP 101m.

The GP was conscious of the need to explain its increased target size to existing and prospective LPs while raising the fund, Barbour told Unquote. "The increased target was a focus for our LPs and we were very clear from the beginning that we would be deploying in the same strategy and the same size of companies with a bigger fund," he said. "We actually needed a bigger fund – we were a little constrained in some cases with the size of Fund II, and we wanted to take advantage of more opportunities to deploy more capital by buying out more exiting founders, as well as doing more primary capital deals and more bolt-ons. Our LPs were keen that we did not move into the larger, more competitive mid-market."

Predecessor vehicle FPE Fund II has made four exits to date at an average MoC of 3.8x, with a DPI of 1.1x, the GP said in a statement.

Investors
According to the statement, FPE Fund III saw a 100% re-up rate from its institutional investors. The fund's LP base includes pension funds, insurance companies, endowments, foundations, financial investors and family offices, according to the same statement. It is backed by investors from the UK, Ireland, the US, the DACH region and France.

According to Unquote Data, LPs in FPE Fund II included British Business Investments and BMO, as well as funds-of-funds managers Adams Street Partners and Access Capital Partners.

The GP faced less speculation and uncertainty about how Brexit might affect the UK market during the fundraise for FPE Fund III versus its predecessor vehicle, Barbour told Unquote, which allowed it to attract international investors more easily. "Brexit risk reduced our continental LP cut-through when we raised our previous fund in 2016/17, but this time Brexit was much less of an issue," he said. "LPs are more comfortable with the UK now, and they were comfortable with our strategy on a sector basis, since the technology sector has very few risks around tariffs and physical trade barriers."

Investments
FPE Fund III will continue to focus on B2B software and services deals. The vehicle is expected to make 11-13 platform deals, deploying GBP 5m-GBP 25m per company. In spite of its increased size, the fund will continue to target businesses with enterprise values of GBP 10m-GBP 50m, generally taking majority stakes.

The fund made its first platform deal in April 2022, acquiring a majority stake in cloud data migration software developer Egress. FPE expects to make a further three to four deals in 2022, Barbour said.

"The UK technology market is very vibrant," Barbour said of the firm's current deal pipeline. "A lot of companies in this space are noticing that their competitors have PE funding and they want to keep up with this enhanced expansion pace, so they are looking for partners. There are a lot of generalists in this part of the market, but this is where our track record on implementing SaaS and cloud migration really kicks in as a differentiating factor."

FPE generally makes deals via small advisor-led processes or via bilateral discussions, Barbour said.

The firm has typically made exits to larger software-focused sponsors, or platforms owned by these sponsors. The firm made four exits over the course of 2021, according to Unquote Data, including the sale of testing and assessment software platform Questionmark to Ireland-based market peer Learnosity, a portfolio company of Battery Ventures. The exit was announced in June 2021 and generated returns of 3.5x money for FPE, the GP said in a statement issued at the time.

People
FPE Capital – David Barbour (managing partner).

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