The father and son team of Literacy Capital, the private equity investment fund due to list on the stock exchange on 25 June, is targeting familiar grounds: family-owned businesses.
Paul and Richard Pindar co-founded Literacy Capital in 2017. Paul Pindar previously set up Capita and served as chief executive of the professional services company until his retirement in 2014.
His son, Richard Pindar, who serves as chief exec of Literacy Capital, previously worked at KPMG and Lonsdale Capital Partners, before being hired by a private equity-owned company as a consultant.
The closed-ended fund has so far only raised money from the investment team and individuals Richard and Paul Pindar know. But by the end of the month, it will become a listed investment company. The pair said they will only be doing a secondary share issuance.
As any traditional private equity firm, Literacy Capital takes stakes in private businesses and has so far invested in 15 companies. These include pet food business Butternut Box, consultancy Grayce and online retailer TheVeganKind. However, it has one key difference from many investment firms, in that a big part of its business involves giving money to charity.
There is no carried interest charged to investors and the overall fee is 1.8%, with 0.9% of that going to literacy charities, the prime beneficiary of which is Bookmark Reading.
Bookmark Reading was set up by Paul Pindar’s wife, Sharon Pindar, providing a tech platform that matches volunteers with schools to help children who are struggling to gain reading skills. So far, Literacy Capital has donated around £2m to the project.
‘Because it’s closed ended, as the investment gains grow, the funds within the trust compound. In the event we grow it to £1bn then we can donate £9m a year. For that sum of money, that can make a huge impact,’ said Paul.
Focus on founders
While it will be no small feat to reach £1bn in net asset value, Paul and Richard Pindar are confident in their strategy.
In April 2018, Literacy Capital did a final share issue and at that time had £54m in capital. At the end of the first quarter this year, the NAV had grown to just over £96m.
The fund takes large minority or majority stakes in businesses with between £1.5m to £5m earnings before interest, tax, depreciation and amortisation, with a typical enterprise value of £8m to £20m. The common thread that ties all its portfolio companies together is not a specific sector, but rather the owners of the businesses.
The pair said they look for founder-led businesses, often led by families, where life events have unlocked an opportunity to invest. Two of the last four transactions they completed were for businesses run by father and son teams.
‘The common theme is the businesses are relatively simple to understand, you know why the customer buys the service or the product. We want to be wanted and tangibly help the business. The range therefore can be pretty broad, from manufacturing and recruitment to consulting businesses,’ Richard Pindar said.
There are some businesses Literacy Capital stays away from, like bailiff companies or those that are in gambling or alcohol sales, ‘because if you look at those activities they are at odds with providing better outcomes for families and deprived neighbourhoods’, according to Richard Pindar.
He added: ‘First and foremost our doing good is being as successful as we can and the 0.9% will be larger to go across to the charities. We do obviously consider the fact that we are allied to various charities we wouldn’t want to do things that are not good for our reputation. If your business driver is to become profitable at the expense of those individuals the charities will want to help, that doesn’t sit right with us.’
Going into a transaction, the pair said they don’t think of the expiry date of an investment. Instead, they approach it as if they’re going to own the business forever. And with a bit of patience, they believe it will be possible to make a return of 20 or 30 times.
‘We are generally pretty comfortable and pragmatic. The starting point is we pay a higher degree of attention to the competence of the teams we back and we give them a lot of choice in how they run the business. We have teams that range from “I want to do this forever” or those who know [the business] may get to size where we need to sell to a larger fund, all the way through to some people who say they would like to list the business,’ Paul said.
Of the 15 businesses on Literacy Capital’s portfolio, there are two or three that are actively looking into the prospect of listing in the next 12 to 18 months, he added.
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