Ardian starts direct mid-market strategy in North America

Ardian has launched a North American direct mid-market investment business in partnership with Seven Mile Capital Partners.

The firm has long been investing directly in Europe, most recently closing its Ardian Expansion IV on €1 billion in June and its €4.5 billion mid-market buyout fund in September, but this is its first foray into direct investing in North America.

“It’s a logical move,” said Benoît Verbrugghe, head of Ardian USA. “But we wanted to take our time and do it cautiously. It’s a new chapter for Ardian.”

As part of the partnership, the team, which is led by managing partner Vincent Fandozzi and partner Kevin Kruse, will be raising a new fund, called Ardian North American II, targeting between $500 million and $600 million, according to a person familiar with the matter. Ardian declined to comment on fundraising.

“We were looking to raise new capital,” said Fandozzi, adding that Seven Mile was hoping Ardian would be an anchor investor in the fund. “When we sat down with Ardian, they also gave us an option to come on board and join them under the umbrella of Ardian and that made a lot of sense.”

Ardian will also provide the team with the necessary infrastructure to raise a fund, including the investor relations, legal and compliance aspects.

The team will continue to focus on control investments in companies in the industrial sector and related business services with between $10 million and $50 million in EBITDA. This strategy will be a continuity of Seven Mile’s investment thesis started aruond five years ago.

In 2011, Ardian assisted and funded the spin-off of the Seven Mile team from Citigroup by purchasing the bank’s private equity portfolio for an undisclosed sum. Ardian then managed the limited partnership fund stakes from the acquisition while Seven Mile managed the portfolio of mid-market direct investments on behalf of Ardian.

The relationship grew, with Ardian helping Seven Mile fund two additional investments, providing capital on a deal-by-deal basis. Seven Mile invested in Microporus, a developer and manufacturer of high-performance materials and hybrid battery separators for flooded lead-acid batteries, and in Huron, a manufacturer of precision machined products for the automotive industry.

Seven Mile tends to invest in healthy companies caught in complex situations or undergoing some sort of transition, which may lead to less competition for the deal.

“The two companies we invested in are very good examples of the investment strategy we’re pursuing under the Ardian umbrella,” said Kruse. Referring to Microporus, he said that the company “was a great business that was being sold pursuant to a [Federal Trade Commission] mandatory divestiture order so it was a very complicated carve out. For instance, we needed to bring a management team to the company. It was also a very long process with the government to get the transaction approved. Given the complexity, we thought there would be a limited number of bidders for the company, despite the attractiveness of the company.”

All seven employees of Seven Mile, including Fandozzi and Kruse, will join Ardian, which manages funds of funds, including secondaries, private debt, direct investments, co-investments, infrastructure and real estate. The firm, which has $55 billion of managed or advised assets, also manages customised mandates for investors.