Bridgepoint, the European mid-market firm, is heading back to market to raise its fourth and largest fund with a target on the cover of its placement memorandum of €4 billion ($5.5 billion).
Although deal flow has slowed in the wake of the summer’s credit crunch, the investor said the firm was confident it would be able to put the larger fund to work.
However he said the firm’s management had looked at its historic capital requirement of roughly €1 billion a year since holding a first close on its predecessor fund in April 2005 and estimated a €4 billion pot would give it four-year’s firepower before fundraising again.
He said: “It’s a disciplined approach to fundraising. They are raising what they need, not what they can. And they are a firm that could raise a lot more. But they are sticking to a strategy, which has delivered in the past, and not drifting up the deal size on the hunt for fees.”
In its PPM Bridgepoint said it has an IRR of 51 percent from its 2001 vintage, second fund BEII and a 3.1 times gross cash multiple from 14 full exits and one partial realisation. There are still 14 remaining investments with substantial value to come.
Since winning its independence from the UK’s National Westminster bank in 2000 it has made 54 investments from 25 exits generating cash multiples of 3.1 times. It has returned €7.6 billion in cash proceeds, including €6.3 billion since 2000.
The investor said: “It is early in the conversations, but if the credit market doesn’t bounce back then managers like Bridgepoint will benefit from a flight to quality. Unusually compared with most firms they are a net distributor. They have handed back more cash than they have raised.” This is partly because Bridgepoint has only increased its fund size modestly compared with some of its rivals, which have jumped in scale to tackle mega deals.
Currently its French competitor PAI Partners has mandated UBS’ fund placement team to manage a leap into the big league with a target said by a banking source to be around €8 billion.
The investor said Bridgepoint’s investment strategy of targeting “primary” value in a company’s sector or growth potential along with “secondary” value in post acquisition investment opportunities would be resilient if the business cycle turns.
He said according to the PPM Bridgepoint’s value creation came less from leverage than earnings growth, which accounted for 60 percent, and multiple arbitrage, which made up a third of returns. “In fact if you had a criticism it might be they could be a little more aggressive with leverage. But that moment may have passed for now.”
The firm is expected to hold a series of rolling closes as significant investors commit with the bulk of capital coming from its existing investor base. Its previous fund had a 97 percent recommitment rate.
The investor said: “The only cloud on Bridgepoint’s horizon is likely to be paring down allocations. They will probably close a little over €4 billion, but that will still leave some disappointed.”
The last fund’s average commitment was around €50 million, but a few US state funds took bigger multi-€100 million slices. The Bridgepoint partners are also expected to be one of the biggest investors in the fund. The partnership put €50 million into the predecessor fund; its commitment is expected to increase in line with the new fund’s growth.
Bridgepoint declined to comment.