Inspirit holds GBP 75m final close for second fund, anticipates strong carve-outs dealflow

Ero Partsakoulaki
07 July 2023

Tweet
Facebook
LinkedIn
Google plus
Send to

UK-based carve-out specialist Inspirit Capital has held the first and final close of Inspirit Fund II on GBP 75m, with its investment focus on revitalising non-core divisions of large corporations, partner Albert Farrant told Unquote.

The GP registered Inspirit II with the UK Companies House Registry in June 2023, as reported, but had started officially marketing the fund in Europe and the US in March 2023, said Farrant.

"It is a small fund and we'd had a number of investors tracking us for a while, so there was strong interest, which helped us reach our target sooner than expected," he said.

Predecessor vehicle, Inspirit Fund I, was registered in November 2019 and held a final close on its GBP 50m hard-cap in December 2019. The fund is 75%-80% deployed, with its eighth and final deal being currently in the works, he said. The firm will be reserving any dry powder left for follow on growth investments into its existing portfolio.

Continuing the strategy of its debut fund, Inspirit will look to deploy the additional capital into corporate carve-out and other special situation investments in the UK market.

Investors
Alongside existing investors and personal commitments from the Inspirit team, a number of new investors made commitments into the second fund, including charitable foundations and endowments, which now account for more than 25% of the fund's LPs base, it said.

The fund is backed by six investors in total, predominantly UK and US funds of funds and charitable trusts, he said.

"There was a number of charitable trusts particularly that we'd hoped to get in the fund but couldn't as they were heavily exposed to private equity and hadn't had the distributions they expected," he said, noting that this did not significantly impact its fundraising which saw demand from other investors.

The fund's clear strategy, which works across the cycle, and good returns from the first fund attracted new and existing investors, he added.

"Our institutional cornerstone investor for the first fund has stopped investing, although the individuals that led that fund have invested personally in the second fund, which gave us the opportunity to broaden our investor base."

Investments
Fund II plans to make eight to 10 investments in total and is getting close to exclusivity with two potential deals, although sign-offs are not imminent, Farrant noted.

The GP primarily targets control investments in non-core divisions of corporations where target revenue is greater than GBP 20m and it deploys equity cheques of GBP 3m-GBP 10m, according to a press release.

It can complete larger transactions utilising co-investment from its investors, a strategy it deployed in Fund I to broaden the range of target opportunities, it said.

It targets businesses that are generally non-core to the parent strategy and are often complex to separate and aims to drive growth to help create standalone businesses under a new ownership structure.

Its approach is sector agnostic but it is currently seeing a lot of activity across industrials and manufacturing, he said.

The firm expects that deal flow will remain strong for smaller to medium-sized corporate carve-outs in the UK, driven primarily by geo-political factors as well as corporates looking to shore up balance sheets in a tougher economic environment, it said.

The GP's current portfolio includes companies in the business services, industrials and energy sectors, such as manufacturing specialist Alpha3, and apprenticeships and adult education provider Inspiro. Most recently, the firm bought the resourcing businesses of Capita, a listed, UK-based provider of business process outsourcing services, in a GBP 21m carve-out.

The firm is approaching at least one exit from Fund I by year-end and possibly another one or two next year, he said. It typically holds portfolio companies for around four years, he added.

"We launched Fund I nearly four years ago, but because of Covid we started investing about three years ago, so the cycle of exits will really start from the second half of this year and then we should steadily be existing businesses for the next few years," said Farrant.

Inspirit Capital was founded in 2019 by Albert Farrant and Will Stamp, who have a combined 30 years' experience in executing carve-out and other complex investments.

People − Albert Farrant, Will Stamp (partners).