Cyrus Investment Management Goes For Fund 2
Taken from an article originally featured in Opalesque: Private Equity Strategies Newsletter, written by Bailey McCann.
UK-base Cyrus Investment Management has launched its second fund focused on investing in precision engineering firms in the UK. The firm focuses in on specialist engineering turnarounds and has steadily been building a track record of finding solid companies for its first vehicle.
Fund 2 will employ the same strategy as the debut fund – identifying undercapitalised and undervalued precision engineering businesses in the UK that are suitable candidates for “growth investment.” Cyrus’ growth strategy includes a range of options from injecting new capital, to replacing management, products or markets in an effort to improve the profitability of these companies.
“Traditional private equity doesn’t hit this part of the market, there is a strong opportunity set here to build these companies and expand their footprint globally,” explains Peter Schwabach, Managing Partner of CIM in an interview. He adds that the average holding period for one of these turnaround companies is a minimum of three years. Once they are ready for exit, the firm is looking to trade buyers, rather than secondary sponsors to sell to.
Precision engineering is an industry with high barriers to entry, and a significant consumer base. The aerospace, defence and security industries all rely on precision engineering companies for their parts and a solid majority of those companies are based in the UK.
“Businesses in this industry have high barriers to entry because of the sheer number of certifications you have to have to be able to provide services to defence and aerospace. That gives companies with these certifications a significant advantage,” Schwabach says.
The UK is a world centre of excellence for this type of work and has some 1,500 companies making up the industry. The majority of those companies are small to medium-sized enterprises with values in the range of one to five million pounds. Historically, these companies have underperformed their larger counterparts within the country as a result of undercapitalisation and an on-going inability to access capital.
Individually these companies are attractive as potential investments as they retain significant unencumbered assets: machinery, stock, skilled engineering work forces, proprietary industrial designs and accreditations as well as embedded accredited relationships within the global industrial companies they service. Strategically aggregated under single management and sold as a single business they offer the potential for investors to make a significant return on their investment.
“The businesses we are targeting with this fund are on the high-value end of the engineering market. In some cases, margins can be as high as 40 percent,” Schwabach says.
The goal for selling them will be to merge small companies into more sustainable – and more profitable – larger entities that can compete on the global stage. According to Schwabach, by doing that jobs will be saved, as will an industry core to the British economy.