The UK's private equity market is continuing to grab attention as FPE Capital, a new firm which will focus on smaller UK businesses, has closed its first institutional fund at £100m.
The firm has spun out from Stonehage Fleming, a business which makes investments on behalf of high-net-worth individuals and families.
FPE will target businesses with an enterprise value of £20m to £50m, which have never received money from institutional investors before, and will help businesses to improve their management teams, processes and IT systems.
“We're focusing on things like software, business services and data and information businesses, where you can really take them international and significantly grow the top-line without a huge amount of capital required for fixed assets or working capital,” said FPE managing partner David Barbour.
When part of Stonehage Fleming, the FPE team worked relatively independently from the main firm and raised a fund largely from external individuals and family offices.
FPE has kept up its relationships those investors and its former parent – 15 per cent of the capital in the new fund came from high-net-worth and entrepreneurial clients.
“They are a really important part of the network which helps us to source deals and help companies with connections to clients and suppliers,” said Barbour.
The fund has already made two investments, in human resources software business Questionmark and media support services business Masstech.
According to Barbour, these businesses – which were bought at “highly attractive valuations” – helped convince investors that lower end of the UK's market was ripe for the taking.
“Investors are all well aware of the strain in valuations, which are going up in the mid market and the top of the lower mid-market because of two key things,” he said.
“One is there's a lot of capital there, and the second is there's much more debt available in the middle market and people are leveraging up deals.
The largest investor in the fund is a US university endowment, though the majority of the money comes from UK-based firms.