What does the private equity investment journey look like?

We were delighted to welcome Charles O’Riordan, Investment Manager of private equity investment firm Foresight Group and Jocelyn Morgan, former Director of Finance at Clubhouse Golf, to our recent iFD Community event.

Isosceles CEO Mike O’Connell hosted this virtual ‘on the sofa’ event and asked Charles and Jocelyn to share their perspectives of their recent PE investment journey.

Question: Who is Foresight Group?

Foresight Group is a leading listed infrastructure and private equity investment manager with circa £8.1 billion of assets under management.

Foresight’s private equity team currently manages approximately £800m across a portfolio of more than 120 SMEs, investing up to £10m into promising UK SMEs through its UK impact, growth, venture and buyout funds

In 2017, Foresight invested in Manchester-based owner-managed online golf retailer Clubhouse Golf. At that time, Clubhouse was the largest independent online retailer of golf equipment in the UK and, as it turns out, the best-kept secret in the golf world.

Jocelyn Morgan, who has many years of experience working in family-owned and entrepreneurial businesses across various sectors, joined Clubhouse Golf as Director of Finance just as Foresight made its investment.

Question: What’s the difference between venture capital (VC) and private equity (PE) investment?

Since VC and PE investment are terms that are often used interchangeably, we started with a discussion on the key differences between the two forms of investment. Knowing where the investors’ money comes from and the attitude to risk may help to understand the differing attitudes or strategies to investment.

While both invest in private companies in exchange for equity, future profits, and a financial return, the most significant difference is the stage of their investment. PE funds tend to invest in established profitable companies, while VCs focus on early-stage companies or startups.

PE funds mostly buy established, profitable companies that need help (as well as capital) to achieve their full potential, and can be flexible on equity ownership. Some specialise in taking minority investments, whereas others buy over 50%, taking up to 100% ownership, depending on the circumstances. Investment can help to build out a professional management team, provide strategic support to deliver an organic growth plan or pursue an accelerated growth strategy, for example, through bolt-on acquisitions.

On the other hand, venture capital funds take additional risk, investing in earlier stage businesses, and typically take minority investments, holding less than 50% equity. VCs need the founders to remain entrepreneurial and invested in the proposition throughout the investment journey.

Question: What does an excellent Finance Director look like to a PE investor?

Jocelyn successfully took Clubhouse Golf to the next level. After Foresight made its investment in 2017, it more than doubled revenues to £30m with solid growth in the UK and a successful expansion into the European market. So what does an excellent FD look like?

Someone used to working in a challenging environment – there is a lot of heavy lifting to do early on when expectations are high, and deadlines are short
They will also have a strategic vision and be able to build a plan that they will put their name to and deliver
They must have well-rounded soft skills, build a positive and constructive relationship with the CEO, guide and support the senior leadership team, and communicate with stakeholders who may not be 100% aligned
An excellent FD is a strong leader of the finance function
Last but by no means least, they will have commercial gravitas

Question What should the FD’s priorities be following a PE investment?

We asked Jocelyn what she thought an FD’s early priorities should be following investment:

Be clear about where you think the business can go and what steps you will take to get the company there
Help the CEO to lift their eyes from the granular detail and focus on the future and strategy
Get the basic accounting right from the get-go
Make sure your accounting processes and procedures are efficient, effective, and compliant
Ensure the quality of the financial information is sound and reporting is in place, so the senior leadership team have relevant information and a solid base for decision making
Build trust and engagement within the company from the management team to the most junior staff member
Identify skills gaps quickly and make key appointments early. At Clubhouse Golf, the management team appointed a Marketing Director who took the best-kept secret in golf and transformed it into an industry leader through best-practice marketing
Get your binoculars out. Always think about what is happening in a year’s time and ensure everything you do has that in mind
Stay light on your feet. Things change

Question: What’s it like to go through an exit with a PE backer?

We asked Charles what drove the timing of the exit. Was it inbound interest or the right time?

Whilst the timing was a little earlier than the typical five years, they came to a natural point when an early exit felt right. The team went through a formal sales process, running a competitive process through an experienced corporate finance advisor.

Foresight achieved a successful exit in April 2020 to all4golf – a European e-commerce business focused on golf. This generated a 6x return for Foresight funds.

Jocelyn passed on some wise advice given to her by a chairman she worked with some years previously: “always remember, no matter how you organise your finance function, at some point, there is going to be people crawling all over the company asking for information.”

Jocelyn enjoyed the investment journey with Foresight so much that she’s doing it again!