We aim to generate superior, long-term returns by discovering, accessing, investing and driving change in under-valued and under-researched companies.
All our investments are in the UK quoted small and micro-cap market.
We actively manage a portfolio of large minority equity holdings in 15–20 technology-rich companies, all with low levels of financial gearing. We focus on cash flow and the compounding of cash over the long term. We’re able to hold minority equity stakes as well as structured, equity-linked debt, and we don’t use portfolio leverage.
Using a repeatable investment process honed over more than 10 years, we work with the boards of our portfolio companies to achieve their growth ambitions and unlock value. We have public and private transaction expertise.
And as an owner-managed business, we personally understand the challenges and rewards of growing and scaling smaller companies. We’re significant investors in the vehicles we manage and our fees are structured to maximise investor alignment on the basis of realised returns.
Investing in the business critical software sector
The attractive financial characteristics of software companies are well understood and include:
- High levels of recurring revenues from B2B or B2B2C customers
- Well invested and IP-rich assets
- High and sustainable gross margins
- Substantial and growing international revenues
- High levels of cashflow conversion
- Negative working capital
However, smaller quoted companies are often volatile, illiquid and under-researched, making them hard to identify and even harder to access. As a result, software companies in this target market are often ignored by mainstream investors, creating significant valuation arbitrage relative to both international comparisons and private market M&A valuations.
There’s little competition for these assets, but accessing them can be difficult due to lack of research and liquidity. Through our broad network, we can successfully navigate the quoted smaller company market to identify and acquire stakes in businesses that match our investment criteria.
How we work with our portfolio companies
We’re challenging, supportive and above all ambitious for our portfolio companies, partnering with management teams to identify key issues and uncover fundamental strengths.
Our established team has a detailed understanding of the key levers for building businesses, with former roles in executive and non-executive leadership.
We take considerable time to understand the business model and prospects of a company and its drivers. By uncovering fundamental strengths and working closely with management teams, often over several years, we unlock significant equity upside for our investors. When required, we actively engage and take board seats in our portfolio companies, assisting with governance and strategic issues to accelerate change and drive value.
We assist with M&A evaluation and financing, providing cornerstone funding or underwriting, and we aim to establish generous incentive arrangements.
We frequently use our wide network of industry contacts to strengthen company boards and governance.
Take a look at our portfolio to read more about our work.
Kestrel are extremely detailed in their approach. They ask the right questions, get to the heart of the issue and come up with good ideas.
There’s no doubt Kestrel took the time to listen to the company story and think about what was needed. We’ve really benefited from their partnership. It’s a major value-add.
Having Kestrel on your shareholder register naturally means that you’re playing at your best. They’re challenging, robust and ambitious for the company – just what we need.
Kestrel have a very wide network and we’ve found this invaluable. They’re very generous with their contacts and that’s definitely helped us to develop our business.
I would genuinely and without hesitation recommend Kestrel. It’s been a very strong experience. They give a real value-add.
I really respect and admire our robust conversations with Kestrel – they challenge, but it’s constructive and comes from years of market experience.
Kestrel takes a long-term view – it likes to challenge and is ambitious for our company – and that sort of activist approach is very welcome.
By focusing on finding the heartbeat of our business, and taking the time to listen to us, Kestrel offered us sound advice.
The team’s wide experience and background gave us another way of looking at things – an invaluable broader perspective.