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Following the full year trading update on 27th January, Steven Tredget, a Partner at Oakley Capital, gave a comprehensive introduction to Oakley Capital Investments and left a very good impression of the company and its prospects looking ahead. A recording of the webinar is available here.
Oakley Capital Investments (OCI) is a listed investment vehicle that invests in the funds managed by Oakley Capital, which themselves invest in private companies. Before going into the specifics of Oakley’s investment strategy, Steven explained why investing in private companies was so attractive. In contrast to listed companies, which have been shrinking in number in recent years, there is a large and growing pool of private companies out there. The performance of these private companies is also superior to those in the public markets, as measured by the FTSE all-share on a one-, five- and 10-year basis. OCI itself has delivered superior performance to the FTSE all-share, outperforming by 4% annually over a 10-year period.
Oakley invests predominantly in mid-market (up to €400m enterprise value) Western European businesses across three sectors: technology, consumer and education. One of the key characteristics that is consistent across its portfolio of investee companies is a clear digital focus, demonstrated by the fact that 70% of the 18 companies in the Oakley portfolio deliver their products via a digital platform. This has created substantial value, particularly as the adoption of technology has been accelerated by the impact of Covid-19. Another focus for Oakley is that 70% of the companies it invests in operate some kind of subscription-based or recurring revenue business model, which provides predictability and greater visibility of future earnings.
One of the key differentiators between Oakley Capital and other private equity firms is the strength of the relationships that Oakley enjoys with the entrepreneurs and business founders it invests in. Oakley was itself founded by a tech entrepreneur, Peter Dubens, and in establishing Oakley his vision was to build the private equity firm for entrepreneurs, a firm to provide the financial and operational support that he wishes had been available to him. A private equity fund designed for entrepreneurs means Oakley attracts founders who want to work with it, and who often stay close to the firm and invest in its funds. Today, €200m of Oakley’s assets under management have been raised from founder entrepreneurs that Oakley has previously worked with, which is a great testament to the strength of the ongoing relationships and the unique culture that Oakley brings.
Backing quality management is critical in private equity. Oakley is hence justifiably proud that 95% of the management teams it works with remain the same throughout its ownership period, compared to an average of only 50% across the private equity industry. The focus on entrepreneur founders is also evident in the large number of deals it closes that are not part of a competitive process. In 85% of cases, Oakley provides the first institutional or private equity funding the investee company receives.
The digital theme runs right across Oakley’s portfolio and Steven explained why this makes for attractive investments. The digital revolution has enabled businesses to connect directly with customers, hence making these companies owners of valuable customer data. In turn, this data makes it much easier to measure and predict the returns on marketing spend. In essence, access to customer data gives businesses greater knowledge of their own customers and therefore helps to generate higher returns. Three Oakley portfolio companies that are really leveraging their digital capabilities were highlighted: Gymondo, a leader in the online female fitness market in Germany, Facile, the online price comparison platform in Italy, and Career Partner Group (CPG), the fastest growing online university in Germany.
Going into more detail, Steven explained how CPG was one of the biggest drivers of OCI’s performance in 2020, and in response to one question at the end of the webinar, said the company could be the biggest performance contributor for OCI in 2021. CPG provides online education to university-level students in Germany, but in contrast to traditional universities, the platform is designed to be delivered digitally and is focused on providing customer satisfaction and study success. It does this by using data to understand which courses students want to take, and then delivering them online in a personalised way. In Oakley’s three years of ownership to date, student numbers have increased fourfold and EBITDA has increased by around five times.
Looking at the rest of the portfolio, there has been much activity over the last year. Through the Oakley funds, OCI invested €152m in eight companies in 2020 and realised €341m from four exits and four refinancings. The current investment pipeline consists of some 150 companies under review, 40 of which are immediate prospects. Steven mentioned that companies can be in the pipeline for 3-4 years as Oakley gets to know them well and builds a relationship with the management team. Consistent with an earlier message, he clarified that 70% of companies in the pipeline are in a non-competitive investment situation.
OCI’s NAV stood at £728m at the end of December 2020, and because of strong realisations last year, the cash level of £223m is higher than normal and likely to come down to to long term average of 15% to 20% of NAV, as the pipeline is progressed. Of the balance of OCI’s assets, €355m is invested in Oakley funds and €150m in direct investments. The direct investments are a legacy of the past and as realisations are made new OCI investments will be made only into the Oakley funds.
The digital focus of the Oakley portfolio has meant that the impact of Covid-19 has been limited when compared to some peers, although Oakley has not been completely immune. 10of the portfolio companies performed in-line with or better than expectations in 2020, 4 companies suffered a modest impact and for 3 of the companies the impact was significant. North Sails’ performance has suffered as the sailing and leisure company has had to deal with significant disruption to its business. The same is true for Time Out, perhaps the most familiar brand to UK investors as it is the only listed UK business in the portfolio, which suffered as lockdowns were implemented across Europe.
The presentation concluded with a summary of the key financial metrics and a couple stood out. OCI’s 5-year NAV total return is 17% p.a., and the current share price sits at a 27% discount to NAV. In addition, Oakley Capital has, on average, made disposals at a 44% premium to book value which clearly suggests a conservative approach to valuation and further potential for share price appreciation at OCI.
All in all, this was a very impressive introduction to the company; the next time they report to the market is on 11th March when FY results will be released.
The recording of the webinar is available here.