Private Equity Pitch: Funds exposed to UK consumer services providers

Hit the hardest among its European peers during the worst months of lockdown, the UK saw the bad performance of its economy exacerbated by a large dependence on the services industry.

The impacts were felt in particular by companies providing "highly consumer-facing non-essential services", to use the Bank of England classification for these businesses. According to a survey by the UK central bank, CFOs of companies in non-food retail, accommodation, and food and recreational services expected to see sales fall by at least 60% between April and June, more than any other segment within the services industry.

To assess the level of exposure of private equity firms to these areas, Mergermarket analysed how individual funds are invested in UK-based providers of consumer-facing services. Using information from Unquote Data, this examination identified six private equity funds that have been active investors in the leisure space and that currently hold at least two portfolio company from these sectors, making up a list of 13 assets in total (see the table below for details on funds and portfolio companies - you can also click on each fund to see the whole portfolio, including realised assets).

Bridgepoint Development Capital II seems to top the list of those most exposed to consumer-facing services, looking at a ratio between the number of companies operating in this space and the total number of portfolio companies currently held. The 2012-vintage fund, which closed on €353m, counts three businesses in the consumer-facing space in a portfolio of nine companies. The fund has already realised six investments.

Inflexion Buyout Fund IV and Exponent Private Equity Partners III also show exposure, with two businesses in the consumer-facing space in portfolios that count eight and 10 companies, respectively. The funds are both 2014 vintages; Inflexion's vehicle is nearing full deployment (98% as of March 2019) while Exponent III is fully deployed.

Livingbridge 6 and Vitruvian Investment Partnership III appear to have their exposure to consumer-facing services more diluted in larger portfolios with companies spanning other sectors. The Livingbridge 2016-vintage fund has two of such assets in a portfolio of 15 holdings and 33% dry powder left to deploy. Vitruvian's fund counts two consumer-facing businesses in a portfolio of 16 – deployment figures for the 2017 fund are not disclosed.

Mayfair Equity Partners I has a rate of two consumer-facing businesses in a portfolio of seven business. The 2015-vintage fund had 70% of its €400m deployed in January 2018, the latest available info.

In terms of sectors, concentration was especially high in travel companies, an area heralded by investors in the last decade as a beneficiary of mega-trends of growing tourism and business trips. Restaurants and bars were another point of concentration.

With the UK lockdown being eased, private equity managers hope that the worst is behind them – but new challenges loom. Working capital requirements for portfolio companies are likely to go up as businesses start to resume activities, while some government support initiatives such as the furlough scheme began being phased out this month.

On the positive side, there are signs that a recovery could be on the way, with services output, which was down 19.9% in 2Q20, growing by 7.7% in June.

The government-sponsored Eat Out to Help Out scheme, which ends at the end of this month, could contribute to restaurants regaining footfall. The addition of holiday destinations like France and Croatia to the UK quarantine list is expected to give a boost to travel firms focused on the domestic market, such as staycation specialist Sykes Cottages, featured in the table below.

A bigger help from the government could yet come with its reported intention to try to include sponsor-backed companies in its programmes of state-backed loans, with a view to rescue jobs at risk in high-street businesses.

Bridgepoint Development Capital II

• Manager: Bridgepoint
• Vintage: 2012
• Fund size: €353m
• Deployment: n/d
• Current holdings: 9, including 3 in consumer-facing services sectors
• Exits and fund performance: 6 assets realised, no performance figures available

Exponent Private Equity Partners III

• Manager: Exponent Private Equity
• Vintage: 2014
• Fund size: £1bn
• Deployment: 100%
• Current holdings: 10, including 2 in consumer-facing services sectors
• Exits and fund performance: 2 assets realised, 1.21x TVPI as of March 2019

Inflexion Buyout Fund IV

• Manager: Inflexion Private Equity Partners
• Vintage: 2014
• Fund size: £650m
• Deployment: 98% as of March 2019
• Current holdings: 8, including 2 in consumer-facing services sectors
• Exits and fund performance: no assets realised, 1.31x TVPI as of December 2019

Livingbridge 6

• Manager: Livingbridge
• Vintage: 2016
• Fund size: £660m
• Deployment: 77% as of June 2020
• Current holdings: 15, including 2 in consumer-facing services sectors
• Exits and fund performance: no assets realised, 1.1x TVPI as of June 2020

Mayfair Equity Partners I

• Manager: Mayfair Equity Partners
• Vintage: 2015
• Fund size: £400m
• Deployment: 70% as of January 2018
• Current holdings: 7, including 2 in consumer-facing services sectors
• Exits and fund performance: 1 asset realised, no performance data available

Vitruvian Investment Partnership III

• Manager: Vitruvian Partners
• Vintage: 2017
• Fund size: €2.4bn
• Deployment: n/d
• Current holdings: 16, including 2 in consumer-facing services sectors
• Exits and fund performance: no assets realised, 1x TVPI as of December 2018

 
Revenue and EBITDA figures reported in the financial year prior to the announcement date of the transaction

Source: Mergermarket, Unquote, Debtwire

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• Topics
• Investments
• UK / Ireland
• Consumer
• coronavirus
• Exclusive
• Bridgepoint
• Vitruvian Partners
• Exponent Private Equity
• Inflexion Private Equity
• Mayfair Equity Partners
• Livingbridge