In it for the long haul

Feb 27, 2018
It has been said that money makes the world go around but sometimes, the terms and conditions attached to funding for businesses can lead an organisation to disaster. In this interview, Leo Casey FCA explains the philosophy behind BGF’s funding options in Ireland and how a partnership approach can be a win-win scenario for both investor and investee.

The funding options for ambitious Irish SMEs have grown considerably over the past number of years. From a position 20 or 30 years ago where the only real options were borrowings from the traditional banks or a very limited pool of equity capital from the likes of ICC, Irish companies can now choose from a varied palette including the traditional banks, mezzanine lenders, unitranche finance providers, venture capital, and private equity.

“How do you make sense of all of that?” asks Leo Casey, who heads up the Republic of Ireland division of growth capital investment firm, BGF. “On the positive side, there’s more optionality than ever. On the other hand, there’s a lot of confusion and complexity as well.”

Adding to the confusion is the quite negative perception many people have of private equity. “Back in the 1980s, private equity was seen as some kind of arcane, highly niche sector which at one level was the toast of the City and at another, was quite feared and despised,” Casey explains. “The sector was seen as being made up of people with a slash and burn mentality, who bought businesses for one pound and sold them for millions. It was associated with asset stripping and an awful lot of other unsavoury stuff that went on back then.”

BGF is not only very different to its forerunners from those far-off bad old days, it is also quite unlike the great majority of today’s private equity investment firms. And this is a point Casey is very anxious to make.

He explains that most private equity investments are time-driven, and this is not necessarily in the best interests of either the investor or the investee companies. “Bluntly speaking, for traditional private equity firms, there is usually a legally binding forced exit requirement after a certain period of time, typically five years. What if you are in the teeth of a recession at that stage or if, in five years’ time, we have another 9/11? That clearly wouldn’t be the right circumstance in which to sell a company. Investments shouldn’t be time-based. That traditional method of private equity investment isn’t good for business.”

A different view

BGF takes a very different view. “The best time to sell a business is when the time is right,” Casey adds. “That might be after three years, seven years, 10 years, or maybe it shouldn’t be sold at all. It could float on the stock exchange or remain in family hands for many generations, like the great Mittelstand companies in Germany. This suits BGF because we are a patient balance sheet investor.

“We are very comfortable around situations where the family or the founder might say to us that, when the time is right, they’ll consider a sale of the business but they can’t tell you now when that might be,” he adds. “Also, if a family comes to us and says they have a business that needs growth capital, but that they fully intend to pass it on to the next generation, and asks if we can invest in it, we can say yes. We can come up with a structure that suits both of us.

“We work from a blank canvas and we can do this because we are a balance sheet investor that takes a partnership approach to investment.”

Dispute resolution

That approach is reflected in the relationships BGF builds with investee companies. “Irish SMEs have become much more professional in their approach to their business. They are bringing non-executive directors on board and are having regular management and board meetings,” says Casey. “They look on us as a partner when we get involved. The families and owners retain control of the business and we do things together. We can’t force them into a sale and they can’t force us.”

He continues: “If we disagree, we have to work things out between us. We do insist that there’s an independent chairperson and that’s good for everyone involved.”

The partnership philosophy

The partnership philosophy also extends to the company’s role in Irish business life and the economy. “Our ambition is no less than to become part of the tapestry of the Irish capital market for the long haul.”

Leo Casey is the Head of the Republic of Ireland at BGF.
This article was originally published in Vision, the e-zine for members in business. Download your copy now.