Presentation of the Manager Inflexion
Summary
Louis Flamand: Inflexion is the UK's leading mid-market buyout brand, which has also done very well in the Benelux countries and, more recently, in Scandinavia. Inflexion also invests in the rest of Europe, but only in sub-sectors where its expertise is strongest, notably in certain segments of the Services sector, which represents a significant part of the British economy.
It targets exclusively high-growth companies with high margins, low capital requirements, leaders in their sector with strong internationalization potential and a conservative capital structure.
Above all, it is an impressive organization in the European mid-market, with a dedicated origination team specialized by sector. It's a veritable proprietary deal origination machine. When Inflexion meets the founder of a target company, there are two possible outcomes: (i) the founder wants to sell the majority of the company's capital, in which case it's a deal forInflexion's buyout fund; (ii) the founder only wants to sell a minority stake, in which case it's a deal for our Partnership Capital fund.
Inflexion Partnership Capital Fund III is expected to reach a fund size of £1.75 billion, investing between £80 and £200 million in 10 to 12 companies.
This Partnership Capital fund benefits from limited competition for minority deals in the European mid-market, as virtually all LBO funds LBO controlling stakes. This lack of competition puts Inflexion Capital in a strong position to negotiate robust minority shareholder rights. This allows them, for example, to replace management under certain conditions and, in most cases, to secure downside protection through preferential liquidity provisions. Thus, even though Inflexion a minority shareholder, in the event of a sale, the entire proceeds are very often allocated to Inflexion the fund has recouped its investment. This explains the near-zero historical loss rate onInflexion pastInflexion investments. Inflexion also often Inflexion favorable governance terms to trigger majority exits after a certain period.
I'm often asked how Inflexion can create value when it's only a minority shareholder? I see 3 main reasons: (i) Inflexion is not an ultra-minority shareholder; this fund invests on its own, without any other financial sponsors, alongside management, and typically holds a significant share, between 30 and 50% of the capital of the companies in which it invests; (ii) as I just explained, it negotiates shareholder rights equivalent to quasi-control; (iii) even whenInflexion is a minority shareholder, its teams of operational experts are involved in portfolio companies because management wants them to be - they want to benefit from all the operational expertiseInflexion can provide.
In terms of performance,Inflexion mature fundsInflexion generated an average net return (after all fees) of 2.3x in terms of multiple and 25% in IRR none of these historical funds has generated a net return of less than 2x. These high returns were achieved with minimal use of financial leverage, which is very reassuring in the current environment where the cost of debt has risen significantly. Finally, this exceptional and consistent performance over time was achieved with a minimal loss rate.
A fund with an asymmetrical risk/return profile: high returns for low risk.
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