BGF investment fund's Paul Stevens: IXICO has “market leading position" & “impressive commercial traction”

The comments were made during the following Q&A session with Paul Stevens from BGF’s investment fund, who focuses on identifying opportunities among AIM-listed companies:

1. Can you provide some background on BGF and the sectors/types of companies you invest in?

BGF was set up in 2011 to help support small growing companies in the UK. With the initial support of £2.5bn from its bank shareholders, and via a network of 14 regional offices, BGF is now the most active investor in the UK and Ireland, having provided flexible, long-term capital and support to over 300 companies, both private and public, across virtually all industries.

2. What proportion of your investment portfolio is in the life sciences sector?

BGF is a generalist investor with deep expertise across most sectors. We recognised that within life sciences, many businesses require a greater depth of understanding of their core proposition model and the lifecycle of companies within the sector. We began a process of more actively engaging with the life sciences sector (broadly defined) mid-2018 and since that point have (or will soon have) completed 10 investments across medtech, diagnostics and therapeutic enablement opportunities.

3. How interested are you in expanding into life sciences?

We’ve been very deliberate in our approach to ramping up engagement in life sciences. We believe BGF will be additive to the ecosystem and actively support the broader sector. Our focus, at this stage, is not on major therapeutic project but, true to the BGF model, identifying and investing in companies that we can really help scale up.

4. What is the driver behind expanding into this sector?

As part of a board exercise around defining our approach to supporting earlier stage businesses, we have been guided by our core mission of filling gaps in the market. Based on our analysis, we identified a substantial funding gap in several segments of the life sciences market and began a process of engaging with companies seeking finance.

5. Is IXICO your first investment in life sciences?

Not the first, but certainly one of the earlier investments in what is a growing portfolio of companies in the sector.

6. Was IXICO one of the investments in life science that you prioritised?

BGF’s balance sheet funding structure means that we don’t have to prioritise certain investments over one another. Instead we have the flexibility and resource to support all companies where we believe an exciting growth opportunity exists. We believe IXICO falls into that category.

7. What was it about IXICO that attracted you to invest in the company?

At the time of our investment in May 2019, our diligence indicated that despite its small size, IXICO had achieved a market leading position in its niche and was building impressive commercial traction on a global basis, with impressive blue chip customers. Longer term we had reason to believe the market outlook for the company’s technology-led proposition was strong, with increased spend on the neurological diseases set to continue.

8. How important was your assessment of the management team in your due diligence process for your investment committee?

The management team and the broader company Board is always a consideration of our investment process. Commercially, we recognised the company’s performance since Giulio (CEO) has taken charge, with sales having increased by over 60% since he arrived in 2017, and gross margins also having increased materially over that same period.

9. In what ways has it fulfilled your investment expectations and what trends do you hope to see going forward?

Our IXICO investment has enjoyed an exceptionally strong start in share price terms, reflecting the fact that the company has outperformed market expectations since our investment. With the benefit of a strong balance sheet, good momentum in the core business and supportive shareholders, the company has a number of options available to it in terms of growth potential – so we feel the business is well-placed strategically.

10. You describe yourselves as "patient capital". Can you explain what that means for companies in your portfolio like IXICO?

It means we are not subject to redemptions and can therefore think about a longer term hold, rather than potentially being ‘forced’ to sell our position in the way that an open-ended quoted fund might be. It means we can marry our investment case to the strategic time-horizon of the management team. Although we always have the flexibility to sell our quoted investments, we can do this when we think the time is right. It also means that we can help support the company with further primary capital, should it require it in future.

11. How much growth potential do you see in the IXICO business model?

As highlighted above, we believe IXICO has significant growth potential both in its existing core business but potentially through strategic initiatives its market position could help facilitate.

12. How proactive are you as an investor?

BGF was set up to help companies with more than just capital – and we are always keen to help companies when they need it. BGF has a dedicated Talent Network team, which enables us to introduce relevant industry contacts to help with non-exec Board succession or as diligence contacts, as required. We are keen to be proactive, but would describe ourselves as engaged and supportive rather than activist.

13. Any unique approaches to BGF re how you support your portfolio companies?

We believe our level of engagement is unusual in the quoted markets, especially given the rise in relatively passive investment fund strategies in quoted markets more generally. We believe this supportive approach is adding value to the stakeholders in those investee businesses. Furthermore, our lack of capital inflows and outflows, coupled with our patient approach means we are comfortable being brought inside on a broader number of opportunities at an earlier stage, and considering them in partnership with the management teams. We believe this combination of a collaborative approach, with a flexible balance sheet funding structure, resolutely focused on smaller companies in the UK and Ireland, is unique.

14. How do you go about monitoring a company once you have invested? Do you always take Board seats?

We do not typically take a board seat on our quoted investee companies. We meet investee management teams on a regular basis post investment, and also regularly meet the Non-Exec Directors as well.

15. Are happy with the performance of IXICO within the portfolio?



Previously posted on Proactive:

Date: 21/01/2020