Overview
In June 2000, we backed the £60 million management buyout of Davenham Group plc ("Davenham") from Bermudan-based Bank of NT Butterfield & Son. Post-MBO, we took an active role in supporting and advising the business, including raising two rounds of finance, facilitating an acquisition and working through multiple exit scenarios. In November 2005, we realised a significant proportion of its investment when Davenham floated on the Alternative Investment Market ("AIM"). We realised the last of its shareholding in February 2007.

Deal Features
This investment involved a large, complicated funding package from a club (as opposed to a syndicate) of five banks totalling £50 million which significantly increased the transaction risk. We completed this complex MBO in a short space of time underlining an investment process which is structured to provide fast responses to investment opportunities. We recognised from an early stage that Davenham provided the opportunity to back an exceptional regional business with good prospects to expand throughout the UK.

Once the deal was completed, one of the first key strategic inputs we made was the selection of James Kerr-Muir as chairman. His long track record in plcs and private equity experience enabled him to lead the board and implement significant senior management changes causing minimal disruption to the business.

This was critical in effecting the strategic decisions which guided the success of the business. Furthermore, it prevented the company breaking covenants when hit by a large bad debt created by a fraud in a major customer in 2003. We played a key role in ensuring that the matter was dealt with in a transparent and independent manner. This ensured that the club of banks remained confident in the company.

In the final six months of the investment holding period, crucial decisions were made which ultimately led to a 30% increase in exit valuation and 40% increase in equity value for all shareholders. Despite the near certainty of a trade sale, we felt the best exit option was though an IPO and worked closely with the management to execute a flotation on AIM.

When we backed the MBO, Davenham employed 35 staff in one office. At the float, there were 130 employees in five offices, profits had quadrupled and the company's client base had increased from 250 to 2500. Our support helped to create the UK's leading independent SME funder.

The IPO exit underlines our emphasis on working closely with portfolio companies to help them achieve their goals for growth. Following the successful flotation on AIM, the business now has increased fire power for its planned acquisition strategy.

Business Description
Davenham is a leading, independent asset based lender to the UK SME sector. The business was founded in 1991 in Manchester from where its core operations are run. The company has expanded in recent years and also operates from offices in Leeds, Birmingham, Liverpool and Newcastle.

Davenham provides lending solutions designed to meet the financing needs of UK SMEs, typically involving loans of between £10,000 and £4 million. The company has a diverse loan portfolio with its lending activities organised into three divisions: property finance, asset finance and trade finance.

Davenham's perspective
"Dunedin had the foresight to invest in Davenham which, although a highly profitable and growing business, did not represent a conventional private equity opportunity due to the existing high level of gearing which is natural for any lender. Since its initial investment in Davenham, Dunedin has played a key role, working closely with the management team, providing further financing to support both organic and acquisitive growth, and helping to drive the flotation process.

Davenham's continuing success exemplifies Dunedin's ability to create long term value and sustainable growth by working in close partnership with management to develop its investee companies." David Coates Chief Executive, Davenham