In Profile: NorthEdge

"When we started NorthEdge, we were in the depths of the recession," says NorthEdge managing partner Grant Berry. "My family thought I was completely crazy – they were completely supportive but I was completely crazy," he says, alluding to his bold move to leave LDC in 2008 to set up shop on his own the following year.

"Dan [Wright] had a banking and operational background while Andy [Ball] had been at LDC with me and we worked hard for 18 months trying to source distressed assets from the banks with more of a turnaround model," says Berry. "In truth, we struggled to both source these deals and to raise money for them, and in the meantime we kept on getting introduced to normal, high-quality private equity deals, so at one point we thought, let's go back to what we have been doing and doing well for the last 10 years and look at raising a lower-mid-market northern fund."

Berry thinks 25% of the UK market is "in the north" – a region he roughly defines as two hours north and south of Leeds or Manchester – compared to 50% in London. And this compares favourably to some European geographies in the €10-100m EV range, he argues: "Deal value and deal volume across the north for the lower-mid-market is substantial – when compared to European geographies it stacks up as being about half of the Nordic market, twice the size of Spain and two thirds that of France and Germany. The northern market is rarely talked about in these terms."

The GP has two funds under its belt. NorthEdge's Fund I reached a first close on £125m in July 2012 and a final close on £225m in 2013. This fund is fully invested and committed through 15 investments. NorthEdge Fund II closed on £300m in March 2016 above its £275m target and there have been three investments so far – Belfield, ITC and Abbey Logistics Group.

Face time
Fundraising for the first time was tough going, Berry admits, referring to the 150-odd face-to-face meetings the team had with potential investors. Fund I closed with 15 LPs taking commitments, all of which signed up to the second fund a few years later, together with four new investors making 19 LPs in total for Fund II. The LP base for Fund I hails roughly 42% from North America, 48% from continental Europe and 10% from Australia.

Berry is not fazed by the seemingly endless number of GPs raising money to invest in the mid-market space: "Investors see the northern region as the niche so it can sit nicely with other GP investments the LPs might have, with a more London focus. We provide access to a different type of deal in many respects and therefore we see ourselves as complementary to existing relationships rather than a stark alternative."

The market has changed since NorthEdge first set up shop in 2009, says Berry: "I would say that it is actually less competitive [for us] compared to say 10 years ago. We have the largest team by some margin across the north. The likes of Bridgepoint, Inflexion and Livingbridge have grown their assets under management considerably and by default increased their investment size. Despite their move into smaller funds, we are no longer competing quite as directly with them, and we're therefore not seeing them as much anymore, so there is more elbow room. And remember: this market is substantial."

NorthEdge still looks to do £10-25m equity cheques. At a stretch, it might consider up to £35m but not enough to warrant a major strategy drift, says Berry. "For us there is arguably more risk to attempt to reinvent ourselves away from our core proposition. We want to be doing broadly the same thing in 20 years' time - with nothing much changing strategy wise."

"We don't believe that this lacks ambition. We believe the region across the broader definition of the north and our proposed move into the Midlands provides enough opportunity to warrant remaining focused on this area. It's all about understanding how regional markets work and committing to them," Berry says.

From sofas to SaaS
As a private equity house, NorthEdge is relatively sector agnostic. The north is the niche and the GP has acquired in all areas, from sofas (Belfield) and SaaS (Utiligroup) to luxury travel platforms (ITC) and digital media (Sumo). The 18 companies the GP has acquired (plus several bolt-ons) through the years are an eclectic mix.

"We don't shy away from many sectors, and I guess this is demonstrated by our recent strong exit from a toilet paper and tissue manufacturer, Accrol. It's a great business with a great future but perhaps others might have declined it on sector grounds. We are very management-focused," Berry says.

Indeed, investment company Accrol was a career highlight for Berry since it was the first exit for NorthEdge and in many ways signified completing a circle. The private equity house acquired the firm in 2014 and grew the EBITDA to £16m from £8m in just two years. Accrol floated on AIM this summer with a market cap of £93m. A few months later NorthEdge made its second exit when it sold UK video games developer Sumo Digital to private investment firm Perwyn in September.

"People think all businesses in the north are either heavy or light manufacturing but this is a great example that other very exciting sectors do provide great management to back and therefore great investment opportunities across the region," says Berry, adding that some of the success of Sumo stems from the programmers joining as graduates from neighbouring universities.

Sumo's turnover grew to £23m from £13-14m when NorthEdge acquired it in October 2014 with profits more than doubling. The sale represented 4.4x money and 127% IRR for the GP.

"We had delivered year four of the business plan within two years [for Sumo] and so, for a recently established fund, it felt right to explore an exit when it came about. A new strategic partner emerged to develop the business even further, and we and the management were happy to run with this."

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