Proactive

Real Deals sits down with Mobeus: Devolution to Evolution

Following its recent Partner succession and buyout, the Mobeus Partner group discuss what the future holds for the firm and why Mobeus will remain in the small cap space.

Since its establishment over twenty years ago, Mobeus has undergone a series of milestone evolutions that has shaped the firm into what it is today. Initially part of the Matrix Group, the firm underwent its first buyout in 2012 to become an independent business, which invested via VCTs. Following rule changes to VCTs in 2015, the firm could no longer use the capital to do buyout acquisitions and so the business was split into a VCT, venture business and a new institutional fund was raised to do buyout deals.

Most recently, in September 2021, the UK private investment firm announced the sale of its VCT business to Gresham House. The deal marked the next stage in Mobeus’ evolution and accelerated its Partner group succession and streamlined its focus on its institutional buyout fund.

The Partner group that has completed its second buyout of the business now comprises Ashley Broomberg, Managing Partner; and Partners Chris Price, Justin Maltz and Richard Babington; all of whom have been with the firm for some years and worked their way up through a series of transitions. While the firm has undergone several changes, the business remains in the hands of a management team that is dedicated to building on Mobeus’ strengths and commitment to partnering with lower mid-market businesses in the UK.

Consistency is Key

Consistency is key to success and this is certainly something that the new Partner group is particularly conscious of. Discussing the firm’s recent transition, Maltz explains that while the previous founders have only recently retired, the current group had been effectively leading and managing Mobeus’ buyout arm for the last three to four years. “So, in terms of the day to day, for us and the buyout business, it [the buyout and succession] has felt no different,” he notes.

It’s certainly clear that the new Partner group are well versed in their specific areas and are truly prepared for this next step; especially as they had been planning for the succession for many years. As a result of this, the process has been “utterly seamless,” Broomberg says.

Considering the separation of the two business divisions, Babington says: “The institutional side of the business was working completely separately from the VCT side, even prior to the deal, because it was the right thing to do for the business to align the capital with the strategy and the team.” As soon as the dotted line had been signed, the new management group were prepared to clearly outline their plans to the rest of the business and illustrate how they would operate going forwards. “For the buyout business, it was simply topco ownership change and nothing much else,” Broomberg adds.

While the firm’s management has changed, the group is keen to continue with Mobeus’ strategy of investing in the UK small-cap market to accelerate businesses into the next stage of growth. The investment focus remains the same and will look to hone in on certain themes that have run through Mobeus’ previous funds, such as business services, financial services and human capital. The institutional fund will continue to source businesses with an EV up to c.£30 million and will write checks of up to £20 million.

Commenting on the benefit of the buyout, Price adds: “We are less distracted from running a wider business with exposure to the plc fund world and the regulation that comes with that, and are now able to focus on delivering the performance that has made Mobeus successful over the last 25 years.”

Mobeus’ faithfulness to this space is certainly something that has paid off when it comes to retaining its investors. The firm is now raising Mobeus V (first close £115 million); its first Fund as a pure buyout house.

This streamlining of Mobeus’ offering is likely something that LPs prefer, Broomberg suggests. He says: “Institutional investors prefer a clean, pure play house where the investment strategy and the alignment of the team are very clear. So, there is a definite preference from LPs for a pure buyout house, rather than the hybrid venture and buyout house that it was before.”

In addition to this, the firm had been open with its investors early on - prior to the succession - to outline its plans for the future of the business. Broomberg notes that a number of Mobeus’ LPs were looking to make commitments over a number of vintages rather than a single fund and so plans were shared early on to ensure that investors were clear with Mobeus’ ambition for the future of the firm. “Right at the outset, back in 2016, succession was discussed with LPs. They wanted to look us in the eye and make sure that we were committed for a series of funds, notwithstanding the existing partner composition.”

True Partnerships

A key feature of Mobeus’ history to date, and its continued focus, is its partnerships. As part of its investment philosophy, the firm works closely with its portfolio companies to deliver considerable value.

The firm prides itself in being a trusted business partner to companies in the small-cap market. As noted by Broomberg: “Whether it’s a corporate finance advisor, a vendor or a management team, they trust us and see us as good deal partners and business partners. That has been a key part of our culture and a pillar of our success.”

In line with its UK small-cap sweet spot, Mobeus is often the first financial investor in private companies that have a compelling proposition and strong market position. Thus, Mobeus’ strengths lie in partnering with the owners/ management teams of these businesses to help the business become professionalised and scalable. “This means that by the time we come to the end of our hold period, those businesses are much more attractive to trade buyers, and financial buyers, because they see that they’ve got a more sophisticated, scalable and sustainable infrastructure,” Maltz says.

Looking at Mobeus’ value creation strategy specifically, the Partner group notes that with each of its investments, it works towards growing the portfolio companies’ profits, the quality of the business to enhance exit multiple, and assisting the business to generate cash. And, Mobeus is keen to support both organic growth and acquisition programmes to assist with driving growth in these areas. For example, Mobeus supported wealth management firm Ludlow in making four acquisitions, and its recently exited invoice finance business, Advantage, made a key geographic acquisition to extend its reach and drive further growth.

A unique advantage in Mobeus’ strategy and thus its value creation capabilities, is the fact that the firm does not use leverage in its deals. Broomberg notes that this can be a considerable advantage, particularly in the early stages of a deal; where the team are “not spending the first couple of years dealing with covenants and managing bank relationships. Instead, we are focusing on how we can build these businesses.” As a result of this, Mobeus’ returns are “driven primarily by growth and professionalisation, and not by financial engineering,” Broomberg adds. Indeed, Mobeus’ limited use of debt financing allows the firm to confirm deals more quickly and focus on building relationships and scaling its companies.

Mobeus stands as an example of the importance of building strong, lasting partnerships. With its most recent Fund, (Fund V) for example, the firm received investment from a number of successful entrepreneurs that it has previously backed. Babington says: “We’ve worked with these people, we’ve created value for them. And they see us as a continued good home for their capital.”

Doing More

Mobeus is acutely aware of the challenges that continue to be faced by the industry including ESG and the lack of diversity. Therefore, the business is committed to behaving and investing in a way that makes a positive impact.

The GP is focused on making ESG improvements both within its firm and within its portfolio companies. At portfolio level, Mobeus ensures that each of its companies have clear objectives around ESG, which is monitored and tracked regularly by the investor.

Maltz explains: “Most of our companies want to have something in their mission which is about ESG, about having a purpose, rather than just a financial purpose. To do that, for every board that we sit on, we help to develop a set of objectives around how we think the company can move the needle on the E, S or G.” This is tailored to each company and reported on quarterly.

Focusing on the firm’s activities specifically, Price says: “In the same way that we have asked our portfolio companies to identify key ESG elements that impact their business, and to monitor and hold themselves accountable for that, we didn’t feel it was fair or appropriate not to do this ourselves. So, we developed our own ESG tracker, which we run within the Partnership.”

Moreover, a standout and commendable feature of Mobeus’ business model is also its long- running charity mentoring programme. Through this, Mobeus has proven its commitment to working to improve diversity in the industry and is doing so by targeting individuals at entry level. Mobeus’ Scholarship Scheme backs young people who might otherwise be put off going to university because of the cost or a lack of role models.

Price explains: “We are constantly trying to work out how to deal with the challenges of diversity within our own business... So, we took the view that the most direct impact we can have is on the pool of people that are entering the workforce and their aspirations and their view of where they can get in future.”

Successful candidates for the scheme receive up to £10,000 per year, for up to three years, to contribute towards the cost of university tuition fees at a UK University; a Mobeus mentor, one month’s paid work experience at the firm per year for three years and tuition, provided by MyTutor and paid for by Mobeus in their final year of study. Those on the scheme are also able to attend alumni events, where they can connect with leaders across a variety of sectors.

The firm is wholly committed to tackling these challenges within the industry and the team’s actions prove that ESG and diversity, alike, are not just tick box exercises. Price concludes: “If our Partnership table looks the same as us in 15 years’ time, we’ll have failed. So, we need to bring people with real potential through our business who can take over from us one day.”

Interview by Talya Misiri, Real Deals

12 November 2021

12 November 2021