First deal for debut Prefequity fund – exclusive

The UK-based private debt investor has backed a precision engineering firm as it starts building a portfolio for a planned £150m fund.

Prefequity, the London-based provider of capital to lower mid-market UK companies, has completed the first deal for its debut fund, which has an eventual target size of £150 million ($194 million; €170 million).

The firm has provided a sterling-based senior secured loan with equity upside to CaviTech Solutions, a Lancashire-based firm that designs and manufactures complex precision injection moulds for the personal care and medical sectors. Prefequity declined to disclose the size of the investment.

Formed in 2009, Prefequity has until now invested on a deal-by-deal basis. This deal represents the first investment by Prefequity Private Capital Fund I, which is eventually expected to comprise a portfolio of around 12 to 15 companies. Individual investments will be in the range of £5 million to £20 million.

Prefequity managing partner Theo Dickens said CaviTech, formed in 1955, was “one of a handful of global companies who know how to design and manufacture to the level of precision their customers demand”. He said the company’s target sectors were stable, offered a lot of repeat business and were characterised by high barriers to entry.

The investment is being used to refinance existing debt and buy out minority shareholders. Dickens said the investment would give CaviTech “room to grow and go after the market opportunities it has identified”.

Dickens claimed Prefequity is able to offer attractive risk-adjusted returns to investors by combining the downside protection offered by secured loans with the upside offered by equity participation. He said the firm is effectively operating in the market space between the banks, on the one hand, and private equity firms on the other.

Dickens added that the firm’s approach demanded “a lot of hard work” and involved working closely with owner managers, undertaking intense due diligence and being represented on investee companies’ boards all the way through to exit.

Before launching Prefequity, Dickens previously worked in private equity at Nikko Principal Investments Limited (NPIL) and also for a number of investment banks. Other team members include Nick Petrusic, who was latterly senior managing director at Black Diamond Capital Management’s European credit business, and Johnny Carew Pole, who used to be at mid-market lender CapitalSource.