Despite prevailing uncertainty over the future in Europe following Britain’s vote to leave the EU on June 23, global LPs remain hungry for European assets. Indeed, thanks to investor demand, Ardian was able to close its latest mid-market buyout fund on its €4.5 billion hard-cap in just four months, its fastest-ever fundraising; the fund, which is 67 percent bigger than its predecessor, includes a €500 million co-investment vehicle.
Philippe Poletti, head of the Ardian Mid Cap Buyout team, tells Private Equity International why he thinks more than two-thirds of investors in the firm’s fifth fund chose to re-up for the sixth, and why he thinks the market for European mid-market buyouts is “very hot” right now.
Q. LBO Fund VI was your fastest ever closing. Was it also oversubscribed?
A. The fund was effectively oversubscribed. We had to decline or reduce the number of clients. We raised €4.5bn including €500m of co-investment. Combined with our Expansion Fund IV, which closed in June at €1bn, we now have one of the largest platforms in Europe for investing in mid-cap companies. Fund VI also represents a 67 percent increase on Fund V, which raised €2.4 billion (plus €400 million of co-investment rights).
Q. Was your fundraising affected by the Brexit vote?
A. No, Brexit didn’t negatively affect our fundraising at all. Some investors even decided to increase their allocation to continental funds versus UK-centric funds. In some cases, the result was positive, for example the effect of currency movements on net asset values helped our cause.
Q. What changes are you seeing in your investor base?
A. For a while we’ve been seeing institutional investors starting to look for returns beyond their traditional favoured asset classes. We are seeing more of these LPs, such as insurance companies and pension funds, who are now seeing private equity as an investment they can trust and that will generate growth.
Q.More than two thirds of LBO Fund V investors re-upped in your latest fund. In your view, what factors were most important in convincing LPs to reinvest?
A. Firstly, I think LPs want stability, and Europe is a stable place to invest.
Also our strategy: we help mid-sized European companies with fast growth, companies that are already in international markets, and have the potential to become global. We are very active in healthcare, chemicals, food ingredients and many other sectors. We look for niche leaders with strong management teams which are looking to benefit from global consolidation.
We never make any investment without thinking about our exit strategy, and particularly whether we can sell to a strategic buyer. This is a key consideration in our investment strategy. For example, look at our investment in Hypred [acquired in May 2016], which is a professional hygiene solutions company for the food and agriculture sectors and is a subsidiary of Roullier. Hypred attracted a lot of interest from strategic players when we bought it.
Q.What is your outlook for mid-market buyouts in Europe right now?
A. At the moment the market is very hot across all our target geographies, we’re very busy. We’re in a market with negative interest rates and where there’s plenty of debt available and prices for growing assets are very high. At the same time, there’s still huge global investor appetite for Europe and European SMEs. LPs want to invest directly; this is why we gave €500 million of co-investment.
Q. Ardian has said that 85 percent of the fund will be invested in your core markets (France, Italy, Germany, as well as Benelux, Austria, and Switzerland), but the team will also consider investments in the UK and Spain. How attractive is the UK at the moment?
A. Opening an office in the UK and Spain was a natural move to complete our multi local approach, and so far we have already done one investment in the UK, Envision Pharma [a London-based scientific data communications and technology services company focused on the medical affairs business, acquired in July 2016]. You need people on the ground. We have a multi-local approach. Maybe one day Ardian Mid-Cap will cover the Nordics as well.