Knowing when to buy and sell a manufacturing business can be tricky. Long-term planning and adherence to high standards remove pain further down the line, says Phil Frame of private equity firm NorthEdge Capital
With manufacturing back in vogue among politicians, it is worth remembering that for some the sector was never unfashionable in the first place. Many investors, and here I include private equity, have always recognised the inherent value and the UK’s world-class pedigree in manufacturing.
Private equity has consistently invested in the sector. Since January 2010 in the North West and Yorkshire alone – two regions of particular interest to us as a North of England-focused firm – private equity has invested some £1.1billion in manufacturing. One of those deals was our own investment in FPE Global, a bespoke materials-handling solutions provider based in Stockport.
What drew us to the opportunity was, first, FPE benefits from a strong, highly experienced and well-established leadership team. As investors we back a management team to run the business and deliver the plan. This means not just having an impressive CEO who sets the strategic vision of the company, but also a first-class FD and other members of the senior team.
Second, we were struck by FPE’s track record of innovating and developing industry-leading solutions for clients. The business has moved away from supplying discrete products and now designs, engineers, manufactures and installs materials-handling solutions with a focus on adding value for clients through process improvement. FPE looks to become an engineering partner to the companies it works with, understanding their needs and developing bespoke systems.
Third, FPE is well established in key export markets. The majority of the company’s revenue is now generated overseas, including a strong presence in Africa and South America. FPE has a proven track record in a number of verticals including sugar, cement, cereal products and chemicals and is aligned with large-scale infrastructure projects as emerging economies strive to become self sufficient for staple products. Export growth, along with continued strong performance in the UK, was a major factor in our investment decision.
Naturally, it took time for FPE to be in a position to attract private equity interest. Having a strong management team in place is key and cannot be emphasised enough as well as having sustainable revenue streams. FPE had consciously increased its focus on high-growth economies and positioned itself in a defensible market position. Indeed, robust financials are needed to secure private equity investment. Our advice to management teams is to always ensure that management information meets the highest standards to enable potential investors to fully understand the deliverability of the business plan.
No investment decisions by private equity firms are taken lightly. They are based on extensive due diligence, the strength of management teams and also that intangible – rapport. We place real value on strong relationships and even after completing all the analysis of a business and its market, ultimately we are backing management.
Phil Frame is senior investment executive at NorthEdge Capital, the private equity firm based in Manchester and Leeds. NorthEdge’s investment into FPE Global in February was its first following the closing of its maiden £225million fund in March 2013.
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