The Services sector is a large and wide-ranging segment which is traditionally split into ‘horizontal’ business models such as business process outsourcing, facilities management, or testing and inspection provision. In contrast, HgCapital’s Services Team’s thematic investment thinking focuses much more on specific end-markets or customer segments, which we think lead to attractive business model characteristics. We have then invested time to develop a strong understanding of the industry dynamics through top-down research or existing investments, identifying service companies that sell into those specific end markets.
Within the Services sector, attractive themes have typically featured large fragmented SME customer bases, long-term and stable customer relationships, and businesses which provide business-critical services, preferably on a recurrent basis. The team targets businesses that are leaders in their field within a niche, typically reflected by strong margins, and it aims to grow these businesses, either organically within existing markets or through acquisitions.
Existing investments include companies that serve a range of industries from trust and fiduciary services to commercial laundry equipment distribution, but all have in common a number of characteristics including strong, stable and diverse customer bases and critical, repeated use products.