Equity firm looking for Yorkshire companies with export potential

Leeds-based YFM, which has backed retailer GO Outdoors, valve maker President Engineering and payroll software firm Selima – all based in Sheffield – said it is keen to invest in companies which have an established product that can sell well overseas.

“A cracking example is President Engineering which has a good, strong product,” said YFM’s managing director David Hall.

“Some 84 per cent of its turnover comes from the export market, mainly to the US. This is expected to grow further next year,” he said.

YFM invested in President Engineering in 2010.

YFM’s recently appointed chairman Andrew Marchant said key export markets will be the BRIC (Brazil, Russia, India and China) countries.

“We’re looking for companies that have something special about them and can use the capital we provide to expand abroad,” he said.

YFM, which celebrates its thirtieth anniversary this year, makes investments of between £1m and £10m in return for a minority stake in the company. It operates across all sectors.

Mr Hall said strong sectors for export include manufacturing, engineering, business services software, healthcare and medical products.

Aside from the BRIC countries, Mr Marchant said YFM would also look at the US.

“You have to be quite cautious about America,” he said. “You can be quite successful, but it’s a tough market to break and it tends to be software companies that succeed.

“We’ll also look at mainland Europe, which is a fragmented economy. In some parts of Europe prices are fairly cheap.”

YFM is keen to stay true to its Yorkshire roots and invest in the region, which accounts for 25 per cent of its deals.

“There are a series of really successful businesses we’ve backed in Yorkshire,” said Mr Hall.

“GO Outdoors is a really good example. It has grown up with a particular business model.

“They wanted to offer something different that wasn’t on the high street.

“They offer a very broad range of produce from retail sheds covering 25,000 to 30,000 sq ft compared with a high street shop of 5,000 to 6,000 sq ft.

“It’s a value offering across the whole range.”

Asked what makes Yorkshire businesses worth investing in, he said: “They are all doing at least as well or better than planned. They tend to be well thought out, considered, practical and able to apply themselves. There is a pragmatism and they’re willing to look beyond the normal boundaries.

“Yorkshire can perform on a par with Australia for Olympic gold medals. Its business community is also on a par,” he added.

Mr Marchant said there had been a massive change in the way people raise finance.

“Most people we invest in know people who have used equity finance and had a positive experience.

“Equity finance gives them the room to run the business rather than worry: ‘How am I going to pay the bank back tomorrow’?”

He said that one of the areas that differentiated YFM from the “plain vanilla” provision of capital was the company’s experience.

“There’s a very experienced team here in Leeds. Our people really know what they’re talking about. We have to have a partnership with the management team. We marry our experience with our capital. Many firms find it difficult to get that expertise.”

YFM invests in companies for an average of seven years, twice as long as the average three to four years.

“Investing for seven years really delivers that value creation, that’s how long it takes,” said Mr Hall.

“It takes time, particularly with smaller businesses.”

YFM is keen to match businesses up with mentors that can guide them.

“We can find an individual whose experience can help,” said Mr Hall. “They often come in as a non-executive, particularly a chairman. That chemistry is really important.

The company said its future investments have to operate in niche markets and must have a competitive advantage.

It estimates that around half of the companies it invests in are introduced by advisers such as corporate financiers.

Another third comes from people that YFM has invested in previously.

“It’s word of mouth,” said Mr Hall. “We deal with a lot of entrepreneurs who set up new businesses and recommend us to others.”

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