How private equity is finding pockets of growth in this sold off sector

It's not always observable when you look at a sector at a macro level. Food and beverage is a great example - it might grow at GDP, perhaps, at a macro level. But within food and beverage (as with other sectors), if you look at the sub-sector level, the product level, there are pockets of growth. And a lot of this growth is not necessarily subject to prevailing macroeconomic conditions. It's more the product of long-term structural shifts; gradual changes in consumer behaviour and preferences; gradual structural shifts in the makeup of an industry. Identifying those long-term trends, and then finding businesses that are well placed to benefit from those trends, allows you to find growth in an environment that, at surface level, doesn't always appear to have growth.

For example, we have a business in ultra-premium spirits, which is within the food and beverage or consumer sector. Spirits as a category is growing faster than wine consumption and faster than beer consumption. People are drinking less but drinking better. And the more expensive the category, the faster it’s growing. And so you have ultra-premium spirits compounding at 10-15% over the last 10 or 15 years. And we have an investment in a healthcare provider of specialist healthcare. And in our view, there's a real global trend, certainly among OECD countries, towards specialised medicine. We're becoming more informed consumers of medical care and specialised services have a really good objective track record of delivering better medical outcomes.

And so within broader categories, there are absolutely pockets where there's really exciting growth and they can be identified and benefited from. Particularly for smaller businesses, because the smaller and medium businesses tend to operate in just one niche. And so they have quite pure and clean exposure to that one particular niche, and that’s a real opportunity. 

There are a lot of characteristics of the environment of having a private investor in a private company that are helpful and healthy for a business to perform. First and foremost, it is one group of investors who are committed to the business and the business plan for four or five years. It removes the noise of the public markets and allows that group of people who come together with a particular plan to focus on that plan. And the time horizon of four or five years allows the business to focus on things that will matter over the medium term.

There are usually, for any particular business, two or three things that make it really special and valuable. Maximising value doesn't necessarily mean making the business as big as it can be. It usually involves making the business different and valuable. And in an environment where there's permission for the business to focus on what matters over the long term, there are fewer distractions from that objective, creating a really good environment.

But more than that, a good investor looks to help the company through, and that can take different forms. Sometimes it's simply broadening the networks or the skillsets that are around the table. Many great small and medium businesses are still founder-led, you know, some exceptionally talented founders, but they don't necessarily have a bench of senior experienced executives across all different facets of the business. So filling in and complimenting the skill sets can be really helpful, opening some doors for them and, ultimately, helping them prepare the business for sale. 

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To learn more about the advantages of private equity compared with the listed market, you can also read Michael’s earlier wire here.