Fund: Seneca Partners, EIS Portfolio Service
Details of the fund
Seneca Partners invested £1.25 million from its EIS Portfolio Service in Gear4Music in June 2015 as a cornerstone for the company’s IPO on the FTSE AIM.
At the time, it was the largest EIS investment Seneca Partners had made and represented c.5% of assets under management.
What does the company do?
At the time of investment, Gear4music was one of the largest UK based online retailers of musical instruments and music equipment. Founded in 1995 by Chief Executive Andrew Wass, Gear4Music Limited, the group’s main trading company, had been profitable since its launch as Gear4Music in 2003 and has accelerated its revenue growth during the two previous years, from £12.3 million in 2013 to £24.2 million in 2015.
Operating from an office, showroom and distribution centre in York, the group sells own-brand musical instruments and music equipment alongside premium third party brands including Fender, Yamaha, and Gibson. Its customers range from beginners to musical enthusiasts and professionals, in the UK and, more recently, in Europe.
Having developed its own e-commerce platform, with multilingual, multi-currency and fully responsive design websites covering 19 countries, the group has rapidly expanded its database (which currently has details of more than 750,000 people) and continues to build its overseas presence.
What did the company invest the money in?
Funds were used to support the following:
- International expansion, in both existing and new geographical markets:
– increasing ‘localisation’ of international websites
– launching new websites in further territories
- Accelerated development of the group’s bespoke ecommerce platform:
– driving higher website traffic and conversion rates
– increasing fulfilment efficiency
- Intelligent marketing to new and existing customers:
– extending the reach of marketing activities and increasing return on marketing investment
– content personalisation to drive efficiency
- Product range extension:
– extending the range of SKUs, particularly those available for next day delivery
– extending own-brand ranges into additional product categories
- Opening a flagship London showroom:
– improve penetration in the London area
– further establishing Gear4Music’s position as a key retailer for suppliers
- Opening new distribution centres to drive sales growth and efficiencies across mainland Europe
How much was raised?
On IPO the company raised c.£10 million in total.
How was the exit achieved?
Through continued relationship development with corporate broker Panmure Gordon, we were able to work closely to identify a buyer and maximise investor returns.
How much was returned to investors?
In total, we returned c.£6.5 million to investors and generated a 5.2x money multiple return, excluding any tax benefits through the EIS.
If an investor had invested £1,000, they would have received £5,200 from the sale of the shares and £300 income tax relief from the original investment, i.e. £5,500 overall.
We target a return for investors of between 1.5x and 1.8x, so this exit was well in excess of our target.
What other benefits has the company provided?
Following our investment, the company achieved the majority of the points listed above, but also:
- Grew revenue from c.£24 million to c.£80 million
- Grew EBITDA from c.£1 million to c.£4 million
- Expanded across Europe with the opening of two distribution centers in Sweden and Germany
- Grew headcount from c.80 to 200+