02/01/2012
Investing for a bright future
JEREMIE funding brought FW Capital to the North East and since
then the fund management company has been impressed by the
investment opportunities on offer in the region. Andrew Mernin
finds out more about what FW Capital looks for in an
investment.
Established investor
FW Capital first came to the North East some 18 months ago,
bringing with it the keys to a new £20 million funding pot aimed at
established businesses. A subsidiary of the Finance Wales Group, it
manages the North East Growth Plus Fund, which is part of the £125
million Finance for Business North East Fund, and has already
invested in six businesses in the region. However, with a number of
potential deals in negotiation at the time of writing, fund manager
Andrew Coles expects this figure to increase by the end of the
summer.
Coles is enthusiastic about the North East’s potential: “We’re
an established regional SME investor and the North East is a huge
opportunity for us. There’s a well-established advisory network
open to VC funding and also some owner managers who are keen to
think about equity investment in return for a bigger end game.
Going forward, I’m keen to work with these owner-managed businesses
and their advisers.”
Fresh perspective
As one of the North East’s newest fund managers, Coles is well
placed to offer a fresh perspective on SME investment in the
region. When he first arrived, Coles was pleased to find a
well-established and open corporate finance community ready to do
business: “There’s an abundance of established businesses supported
by a strong corporate finance community. The market’s very well
educated and primed for venture capital investment. Unlike many of
the other investment funds on offer in the region, we don’t target
start-ups. We’re looking for investment opportunities in
established businesses.”
Coles looks for businesses with a growth story firmly embedded
in their fabric, and needs to see a strong management team and good
visibility of how revenues and associated cash flows will be
generated.
"We don’t want to invest in a business for it to stand still -
we want to work with the business, add value and then see it
flourish," he emphasises.
Sharing risk
FW Capital has a strong track record
in completing deals where its funding complements, rather than
replaces, existing funding sources and also shares risk, as Coles
explains: "We’re keen to co-invest with other
funders such as banks and we often co-invest to share risk. We
always undertake stringent due diligence when we invest and this
gives other funders the confidence to co-invest with us. So, for a
£2 million funding requirement, we could invest £1 million
alongside £1 million from a bank, for instance.”
Managing a fund that can co-invest means Coles has not only
gained a good grasp of the funding needs of established North East
businesses, but also the capital that’s locally available.
“The beauty of the fund we manage is its
flexibility. We almost start with a blank sheet of
paper in terms of the type and style of the investment and we then
come up with a creative deal structure that really works for the
business.”
Brighter future
Despite the headlines, Coles believes banks still have an
appetite to invest in the region’s SMEs, but accessing such finance
takes more time and effort now than it has done in recent years. He
continues: “The bar has been raised, but there is still money
available for high quality deals. It isn’t all doom and gloom.”
Looking to the future, Coles is upbeat about the level of deal
activity in the North East and looks forward to a brighter future:
“The local market seems to be looking forward very positively. The
lawyers and accountants seem to be busy, which is always a good
barometer for deal activity levels. I’d urge established businesses
to think hard about investing in their future and consider the
funding opportunities on offer. This could really give them the
edge in a recovering economy.”
This article first appeared in BQ Magazine, summer 2011.