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PEO talks to veteran French fund of funds investor Dominique Peninon of Access Capital Partners about market opportunities and limitations, and the need to keep a close eye out for the stars of the future.

Dominique Peninon, managing partner, Access Capital Partners

Dominique Peninon is a 24-year veteran of the private equity market who has worked at the likes of Alpha Private Equity, BNP Private Equity and Rothschild. In January 1999, he co-founded Paris-based fund of funds operation Access Capital Partners, where he has remained since. 

Access currently manages or advises €920 million of assets through funds of funds and advisory mandates. In April, it scored a notable success when winning a beauty parade to manage a $250 million investment programme for the New York State Common Retirement Fund

PEO caught up with Peninon to gauge his views on Access’ target market: European mid-market and technology.  

PEO: How do you view current market conditions in the mid-market?

DP: In the mid-market buyout arena you need to be careful about the level of competition and prices, because a lot of deals are intermediated. Many firms claim proprietary deal flow, but it’s rare that they actually possess it. Adding value is key and to make money in today’s environment you have to work harder – and that’s as true for us as it is for the funds in which we invest. Some funds are targeting more complex situations that will be disregarded by what you might term the ‘less courageous’. There are still plenty of investment opportunities, but you can’t just sit and wait for mandates – you have to create them.

PEO: And what is your view of the technology space? 

DP: Technology is a very attractive area because entry prices are better than they have been for the last five or six years. The situation is now very far away from what we saw five years ago. In particular, investors and entrepreneurs in the VC space are more realistic and pragmatic than they used to be. But there is not enough money for the really good European VCs.

PEO: In an increasingly crowded market, how do you identify the best funds? 

DP: You have to identify the funds whose presence is not obvious. Not all funds have placement agents – some have raised their first fund from family and friends, have never done much marketing and have kept a very low profile. They are off the beaten track and hard to find. You need to constantly renew relationships, find potential stars and identify the next generation that have a new angle or special know-how, such as industry specialisation. This is increasingly important, because there will be more of a need to specialise as time goes on.

PEO: Are you concerned about the amount of leverage going into deals?

DP: We’ve looked at this issue very closely and found that the amount of leverage in mid-market deals has increased only slightly. Compared with the situation five years ago, when the equity:debt ratio was approximately 50:50, it’s now more like 45:55. Banks are prepared to lend a little bit more in terms of EBITDA multiples. But it’s very different from the larger end of the market where debt multiples of 6x or more are common. That’s a lot because of the risk of interest rates going up and it all comes down to whether you are optimistic or negative about the economy. It certainly leaves you vulnerable to a downturn.

PEO: Do you think distressed funds represent a good opportunity in Europe? 

DP: There are very few players unfortunately. People talk about turnaround specialists but you must have a very strong track record – you don’t want to back people who have completed only one or two successful deals, but 10 or 12. The opportunity is more in turnarounds than distressed. Many companies are under-optimising their performance – perhaps they’ve made a few mistakes or something bad happened to them that was difficult to foresee. In those situations, there are many things you can do, such as increase margins, take the company into new markets, bring in new people etc. It’s an interesting area.