Video – How to identify the right attributes for quality PE investment

London based Rockpool is an independent investment firm dedicated to creating private company investment opportunities for individuals. Partner at Rockpool, Anthony Francis talks to the Thinking Business team.

1. In a very competitive SME funding market, what differentiates Rockpool’s investment approach to others?

It is a competitive SME funding market at the moment, but Rockwell is quite different to other sources of funding. That’s mainly because of the investor base that we have – we have a network of investors who choose whether to invest in a deal on a deal by deal basis – as opposed to many other houses who have raised a fund based on specific criteria and that is the fund which they will then deploy over a number of years. So we can portray ourselves, and we are, a more flexible outfit for those looking to raise finance.

2. How important is it to a growing business to have a supportive investor?

From a management team’s perspective, having a supportive investor makes a great deal of difference. I’ve experienced this first-hand actually when I had my own business and I took on different rounds of venture capital and private equity money. That, in many ways, is one of the differences that I see that I can give to a management team – I’ve actually experienced the benefits and some disadvantages of taking on private equity capital. So a supportive investor will allow the team to hopefully achieve their goals but in doing so not in a restrictive fashion but more of an observational fashion and try to bring in both non-executive and executive individuals who can help them along their journey.

3. Which market sectors have you seen as particularly active and/or attractive for investment?

We have over 50 businesses across a multitude of different sectors but I think one of the sectors that we’ve seen as having the most opportunity is probably sectors where the companies are acting in a niche fashion, i.e. a niche manufacturing business or a niche engineering business or a support services company which is delivering very specific product to the market because when we are looking at the lower bid market and small and medium sized enterprises we like to back companies that have a differentiated product themselves.

4. How do you identify investment quality assets and what key attributes define your appraisal of quality?

I think the bigger challenge that we face as a business is ensuring that we can maintain the high quality deal flow that we’ve enjoyed over the last two or three years. We know that there is a good wealth of funding available to different management teams so we need to continue to be innovative and flexible in our approach to the way that we structure our deals.

5. Where do you see the SME investment market going in the next 3 years and what risks, challenges and opportunities does that present for Rockpool?

The most important part of any assessment of a quality business has to start with the management team. We are a big believer in supporting management teams and finding a management team which can deliver upon their business plan. Second to that is the financials – the reliability of the revenue stream, the profitability of that revenue stream and how that revenue stream can fit in the market that the company services. As a business, we are hoping to invest about a £100 million pounds this year and probably will be similar in the year after. As any private equity business experiences, you have a growing portfolio as you are investing into more businesses than you may be exiting so we are constantly on the lookout for good individuals to join us in our investment team and in the wider Oracle business.