Smaller businesses targeted by new Beechbrook Capital debt fund

Aimed at supporting businesses turnover over between £5m and £50m, Beechbrook has revealed the fund will target predominantly senior secured loans in non-private equity backed UK companies.

Speaking to Real Business, Beechbrook partner Paul Shea said the decision to raise the new fund came about from the number of parties asking if finance could be provided for companies not supported by private equity.

Shea cited Office for National Statistics data which shows that there are currently 40,000 UK businesses with revenues of between £5m and £50m as evidence of the large community, and revealed that the majority of private debt and direct lending had focused on larger companies in the upper mid-market.

“Banks typically used to do this, and still do to a degree, but the banking market is now quite consolidated,” he went on to say. “Given recent changes to regulation and the pressure on capital, they are focused on keeping existing customers happy – but with plain vanilla finance.”

A first close for the fund wis planned for October 2015, with it providing an “attractive risk adjuster return”, said Shea.

He expects the majority of finance applications to the new fund to be event driven, perhaps an acquisition or necessity for one founder to exit.

To support the operation of the new fund, Beechbrook has appointed Jon Herbert as the managing director of the new fund, as well as to a position on the investment committee. Having worked as a director at LDC and head of Lloyds Acquisition Finance, Shea believes he brings with him a “wealth of contacts and networks”.

Joining Herbert will also be Jon Penfold, a new member of the Beechbrook advisory board. Penfold has experience of managing loans and equity investments in SMEs at RBS and four years in the private equity space with 3i.

Beechbrook’s other operations see it manage two debt funds with combined assets under management of approximately €250m. Its last fundraising was completed in July 2014, when €151m was secured from sources such as the European Investment Fund and the British Business Bank.

“The bigger picture is that the amount of net lending from banks has been static, despite the economy growing,” Shea added. “We think there is significant opportunity to help fund the growth of UK SMEs, and UK plc will benefit from more jobs and tax revenues.”

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