A fireside discussion with Hg’s Matthew Brockman at the BVCA Summit
Please see the full video below (live until the 20th November 2020):
During the interview Matthew discussed:
‘Private Equity 4.0’
Hg has been implementing an industrial strategy over the best part of a decade. Today Hg looks less like a traditional private equity firm and more like an industrial software and services organisation. Hg’s leadership and employees consider the firm as one of the largest software companies in Europe, with over 30 divisions, rather than a portfolio of businesses. Hg believes that this strategy can bring the best of private equity (incentives, governance, capital) whilst marrying this with the advantages of industrial scale and expertise.
Building the strategy
To implement ‘Private Equity 4.0’, a firm must first focus on specialisation. Hg looked at its best performing sector historically – mission-critical B2B software and services – and doubled down, with a significant investment to develop this focus whilst deepening the firm’s knowledge across this sector.
Next comes the industrial approach – looking to do 8-10 deals a year in a sector requires repeat expertise. This means investing in talented specialists in the investment teams, whilst also bringing in specialist operators who can help the businesses in the portfolio grow across areas they want to develop, such as data analytics or technology systems.
Third comes scale. Hg has sought to increase its scale to be major player in this space. The firm’s most recent fundraise has positioned Hg as one of the larger GPs in Europe with over $30bn funds under management. For far longer, Hg has been the largest software and tech focused investor in Europe by a long way.
Finally – support. All the above requires supportive and long-term LPs. Hg could have never have done this without backing of its clients. Taking them on this journey, creating a mutual understanding, is what Hg has looked to achieve. As such clients have played a crucial part in forming and implementing this strategy.
Benefits to the portfolio
The specialisation also has benefits to the businesses within the Hg family.
We have several examples of business that we have built from c.£100-200m enterprise value, into the many billions – by compounding growth every year. These companies have created jobs and products, as well as seeing high growth.
What Hg can bring is real ‘end-market’ expertise – be it in accounting and tax technology, healthcare technology or legal tech for instance – Hg has really invested to understand these industries and where technology is going within these verticals.
After this, cross learning is key. At any one time Hg has a portfolio of similar, but non-competing businesses (given they offer similar services, but to different verticals). They can materially learn from each other to solve challenges and improve. This is why we put so much emphasis on portfolio collaboration (currently mostly virtual), whilst our Portfolio Team can roll out tried and tested operational expertise to de-risk the portfolio company’s efforts. For the businesses this means working with experts who have done the same project 10 times, rather than attempting a project from scratch and meeting inevitable bumps in the road.