Over mid-morning coffee at The Wolseley, Jonathan Porteous and Matthew Padian recently interviewed Marion Bernard and Ted Wong of The Firmament Group.
Marion has spent time previously working for Barclays Bank plc, 3i plc, NorthStar Ventures and more recently as the founding London and South East Regional Director for the Business Growth Fund. Ted started his career in private equity at Wasserstein & Co. before joining The Firmament Group in the USA. He is now based in London and together Ted and Marion are launching The Firmament Group across the UK and Northern Europe.
So what does The Firmament Group do?
In describing what The Firmament Group does, Marion urged us to consider their name - in antiquity the term “firmament” represented the great arch of expanse protecting the earth from above. These guys are thinking big.
They look upon themselves as champions of small and medium sized businesses, partnering with management teams to provide bespoke capital solutions – both debt and equity – to facilitate mergers, acquisitions, recapitalisations and organic growth. They pride themselves on their flexible approach and providing thoughtful solutions on a deal by deal basis to empower small businesses.
They started out life as McLarty Capital Partners, and from early beginnings as a family office funded platform, the group has grown on the back off two discretionary investment funds with others in the pipeline. They now boast a head office in New York, with other offices located in California, Texas, Arkansas, Washington D.C. as well as in London. Firmament, focused on turning small business into big business, has now gone global.
What distinguishes The Firmament Group from its competitors?
Flexibility is a key selling point. They offer something different to those SMEs which struggle to get funding from the traditional clearing banks. And they offer true partnership for those business owners who are keen to avoid the pain associated with diluting significant equity in return for investment.
The product offering usually starts with a unitranche financing. But from there they can consider senior or mezzanine finance. Pricing is usually presented on a blended basis, with a debt coupon representative of the risk adjusted return on each investment following a detailed analysis by the investment team.
What does a typical Firmament Group client look like?
There’s no typical Firmament client or sector. Prospective clients from across the piste are all welcome partners, including those from the creative to the heavy industries, from healthcare to technology. Of less interest are distressed investment opportunities, and at least for the time being those heavily focused in the real estate, oil & gas and commodity sectors.
Prospective clients need to demonstrate a minimum EBITDA of £1m. Debt will often be provided with a five-year maturity profile and blended with a minority equity stake. They will look at leverage multiples of up to three or four times. Their investment range is $5m to $30m, with a sweet spot in the UK for deals in the £2m and £10m bracket.
What sets The Firmament Group apart?
They pride themselves on providing genuine partnership to their clients. They invest for the long-term and seek to create value by providing investment solutions tailored to the relevant client. The combined equity and debt solution is still quite novel; many say they offer it but these guys really do it. Ted also explained how they will support clients to grow their businesses, for example by seeking out investment opportunities or undertaking due diligence on potential targets.
Examples of recent client highlights include the investments they have made to waste water treatment provider, Denali, medical equipment company, AdaptHealth, and transportation management provider, Logistyx Technologies.
For the moment, Marion and Ted are focusing their energies across UK and Northern Europe, with trips planned over the next month to Liverpool, Sheffield, Manchester, Dublin and Amsterdam.
Are there any mistakes which you see businesses making when attracting new investment?
For Marion and Ted there are not so many common mistakes but rather there were certain distinguishing factors which set some rising business stars apart from other competitors. These include a growing market, differentiation and a healthy business model. For Marion, excessive customer concentration can be a red flag and an unhealthy reliance upon a limited number of clients can be a cause for concern. And for Ted the real key is a good management team.
We talked about the challenges facing businesses generally right now. There was a common acknowledgement that for larger deals competition is as fierce as ever, but for smaller transactions there are limited options for companies. We talked about how for the canny investor exciting opportunities are there to pursue right now, and in any economic climate, there will often be business owners who choose to retire which will continue to provide a fertile source of potential transactions linked to MBOs. MBIs or acquisition targets for buy and build strategies.
Ted gave some examples of warning signs they have encountered previously when looking at prospective clients. These include under-investment in financial controls, the dangers associated with becoming complacent and falling into static growth, an over-sensitivity around costs and fees, and a pre-occupation with absolute numbers. We were left with the lasting impression of a business owner nervous about losing 5% of his equity but where 95% of a bigger cake is a much better return than 100% of a cupcake, which is why a debt led solution with the flexibility to provide equity could be an attractive offering to SME owners wishing to grow their business.
If you would like to hear more from Marion or Ted or explore the possibility of discussing an investment opportunity with them, please contact them using the following details: firstname.lastname@example.org and email@example.com