Central European lower mid-market firm ARX Equity Partners is expected reach first close on its fourth fund in May, Private Equity International has learned.
ARX CEE IV is targeting €100 million, reduced from the €125 million target PEI reported last March. The fund size is understood to have been reduced as the firm is no longer investing in Poland as a core market.
ARX co-managing partner Brian Wardrop declined to comment on the fundraising, but told PEI: “We have recently decided to sharpen our geographic focus, so we really consider ourselves Czech-anchored and that is where we have been investing the majority of our capital historically.
“We consider Poland quite interesting in general on a macro-level, although it’s a crowded private equity landscape. We have found that valuations are higher and the ability to source deals more difficult.”
The firm’s Czech base differentiates it from other central European investors, which are largely based in Poland, said Wardrop, who is based in Prague.
The firm’s three existing vehicles are all fully invested. Fund I, a €47 million, 1997-vintage vehicle is fully exited, while Fund II, a €67 million, 2003-vintage vehicle is partially exited.
Fund III, a 2008-vintage vehicle that raised €102 million on a €125 million target, has had a “couple of exits”, Wardrop said.
Typically the firm exits through a trade sale, although the number of secondary sales to other private equity firms and local strategic sales is rising, Wardrop said.
In addition to the Czech Republic, the firm invests in Slovakia, Slovenia and Hungary in that order of priority. Focusing on a smaller number of countries suits the lower midmarket firm, Wardrop said.
ARX writes equity cheques of €5-15 million to invest in solely control deals in sectors including specialised manufacturing, where more than half the capital the firm has deployed in recent years has been invested, including companies that are export orientated and producing research and development-intensive products.
The industrial history of the Czech Republic “lends itself very well” to the higher value-add, engineering-driven, specialised manufacturing opportunities, Wardrop said. “We intend to maintain that bias [toward manufacturing]. Many other GPs tend to focus predominantly on consumer. Valuations for consumer deals tend to be higher. We can find manufacturing businesses at reasonably good values.”
Its portfolio companies include Czech construction materials companies KRPA Dehtochema and KVK, Czech manufacturer of ropes and packaging Lanex and Vues, a manufacturer of specialised electronic motors.
The firm also invests in healthcare, where “there are many drivers that we think are attractive.” The issue for healthcare tends to be valuations because opportunities are scarce, although the firm likes the sector fundamentals, Wardrop said.
He also anticipated future opportunities in business services. “There should be more of that coming.”
Wardrop noted that the way former government-owned businesses were privatised in the 1990s by management groups has created succession opportunities to buy out those owners who are seeking to exit. “These are not classic family-owned businesses that are hard to unlock. We call them entrepreneurial partnerships.”