Short-term investment to support equity release from a stakeholder.
Founded in 1992, Selection Services is a leading supplier of IT services to the UK SME market with over 500 clients including David Lloyd Leisure, KPMG, Nuffield Health and Bibby Financial Services.
Connection Capital completed a £3.6m investment in the company to purchase loan notes and 4% equity from a stakeholder who wished to realise their investment, at a discount. Their investment arose following a MBO led by Palatine Private Equity a few years earlier.
We were introduced to the opportunity on account of our ability to provide a flexible solution, which was not quite equity and not quite debt risk, in order to facilitate a liquidity event for the stakeholder.
Selection Services was performing well. The discounted loan, with equity upside participation, was attractive. The loan ranked ahead of Palatine and other management loan notes and therefore was seen as being mezzanine risk in nature.
Progress since investment
Selection Services was sold to AIM listed Castle Street Investments plc in October 2015, shortly after the refinance by Connection Capital clients. This returned 1.3x investment and 180% IRR. The exit occurred more quickly than all parties expected, but this produced a very good return for clients in a short time period.
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