First Sentinel is a mini-investment bank for small- and medium-sized businesses. As a full-service firm, it provides advisory, corporate finance and legal expertise as well as access to capital.
It has a growth fund that benefits from the tax breaks afforded by the highly successful Enterprise Investment Scheme.
And in First Sentinel Plc (LON:FSEN), which is quoted on the Aquis Exchange, it has established itself in areas such as trade finance and invoice purchasing, as well as owning stakes in biotech start-up iosBio, and Vulcan Industries, a precision engineer.
First Sentinel PLC’s Australian operation, Perennial Enterprise, reveals how the business is targeting profitable, low-risk niches as it looks to deploy capital.
Crash repair opportunity
It buys invoices from crash repair companies waiting to be paid out by large insurers that represent a low risk of default.
“These insurers are double-A rated business, so we tend to get paid in around 17 days,” explains First Sentinel founder and chief executive, Brian Stockbridge.
“Going forward, we will continue to focus on that crash repair business because it's very low risk and quite profitable.
“In the UK, we are looking to do something a little different but with similar characteristics.”
So, First Sentinel PLC has made a foray into supply chain finance, while it is also assessing the potential of providing short-term funding to property management companies, and/or law firms requiring short-term working capital.
'It's about finding the right niche'
“It’s about finding the right niche,” says Stockbridge. “For us, it is the availability of capital at the right cost, on the one hand, and then it's really how we employ that capital without getting defaults. So far, we've had no defaults, which is unusually good.”
To become “properly interesting” First Sentinel PLC would benefit from being five times its current size, admits Stockbridge. However, the impediment is less the access to capital, he says and lies more with the ability to uncover to the right opportunities that fit its low-risk template.
“We've had proof of funds for £66mln,” reveals Stockbridge. “They [potential investors] have a low-risk threshold, so we're trying to develop business that fits this attitude.”
In the first half, First Sentinel PLC raised and deployed just over £1.7mln. In this period to June 30 it proved resilient to the economic shocks caused by the coronavirus lockdown as it posted an operating profit of £521,000 on revenues of just under £1.2mln.
Turning to the wider First Sentinel group of companies, you’ll see it is very much a one-stop-shop for smaller, but ambitious businesses – those that can’t just hit up the investment banks that serve established, publicly-listed groups.
Using its network and expertise, FS has access to debt and equity funding, as well as providing transactions expertise, and offering ancillary services such as compliance and legal.
The First Sentinel growth fund helps “entrepreneurs and smaller companies raise finance and do deals”. Stockbridge adds: “It’s about providing funds and advice to get businesses to the next stage of their development.”
The group can also draw on a diverse wealth of experience from a management team led by Stockbridge, who has more than two decades’ experience in the City with Zeus Capital, Allenby Capital, and Noble & Company as well as with the Takeover Panel.
Fellow director-founders Aimee Freeding, Colin Maltby and Shane Perry provide further strategic, legal and commercial vision.
“We look at a business overall and ask, ‘what does it need?’. “If it needs money, we look to see if we can do it through First Sentinel PLC, debt, corporate finance or the fund.
“We don’t just stop there. It’s about finding the best solution across the board.”