21 Concordia hits €100m for debut Polish fund — exclusive

21 Concordia, the Polish branch of 21 Partners, has held a final close for its debut fund on €100 million, Private Equity International has learnt.

The fund, managed by Polish managing partners Dariusz Górka, Andrzej Mierzwa, Marek Modecki and Dawid Sukacz, will look to take majority stakes in mid-market businesses in Poland seeking capital for expansion.

The fund includes a GP commitment of €1 million from the four managing partners.

The vehicle has two cornerstone investors, the European Bank for Reconstruction and Development (EBRD) and the European Investment Fund (EIF). The fund is also backed by Polish state-owned bank Bank Gospodarstwa Krajowego (BGK), which has set up a fund of funds to invest in SMEs through private equity funds.

Other investors in the vehicle include a mixture of family offices, funds of funds and pension funds, Sukacz told PEI.

“We mostly spoke to people who are already either active LPs and active investors in the funds managed by 21 Partners or have been approached by the group previously,” he said.

21 Partners runs two other country-specific programmes: the 21 Centrale funds in France and the 21 Investimenti funds in Italy.

The fundraise has taken longer than expected, Sukacz said. The vehicle, originally targeting between €100 million and €150 million, held a first close in December 2013 on €60 million, and has made two investments so far, backing debt collection business EGB and discount clothing chain TxM last year.

“It was rather a difficult time from the perspective of the macro-economics,” Sukacz said of the fundraise. “Although we’ve been presenting quite a successful story for Poland – Poland was the only economy within the European Union landscape which recorded positive GDP growth for 2011 and also [grew] at a nice pace of 3 percent per annum in the following years – it is not, I would say, so easy to present this opportunity.”

LPs already investing in Poland through the likes of Innova and Bridgepoint needed to be convinced to allocate additional capital to the region. As a mid-market player investing €7 million to €10 million per transaction, 21 Concordia is playing in a different space that is not covered by the international houses, Sukacz said.

“[LPs] needed some time to understand the approach and check that what we view as a key point in our strategy would really work, because the space in which we are operating is not very competitive in our market and there are only two or three players that have a comparable positioning.”

The 21 Concordia team has been working on the investment pipeline since the 21 Partners Warsaw office was set up in early 2012, Sukacz said, and expects to close a further two deals before year-end.

21 Concordia will look to make 10-12 investments over the five-year investment period, and will look to grow businesses both organically and through acquisitions. 21 Concordia is a sector-agnostic fund, but Sukacz considers the most interesting sectors to be specialised production, retail, healthcare services and IT services.

“The Polish economy is very heavily connected to the German economy, more than 60 percent of our export goes to Germany,” Sukacz said. “More and more specialised production companies can access the supply chain for big European conglomerates, and this is one area where we see the value and potential for growth.”

The Polish economy is dominated by SMEs, and many industries and sectors remain highly fragmented, presenting the potential for consolidation. Recent pension reforms in Poland allowing local pension funds to invest in foreign markets mean that the public capital market is not such strong competition, in terms of valuations, for Polish SMEs, Sukacz said.

“The conditions from a capital markets perspective are favourable for us because we do not see such strong competition on the valuation and access to transactions as was the case five or six years ago.”

In Italy, 21 Investimenti recently completed the second investment in its 21 Investimenti III, which is currently in market targeting €300 million. It is understood the fund is likely to close above target in the coming months.

21 Centrale Partners is investing its fourth fund, a 2009-vintage vehicle which closed above target on €380 million, according to PEI’s Research & Analytics division.