GPs hunt for ‘winners’ in Europe

Despite Europe’s stagnant growth environment and constrained banking system, private equity firms focused on the region can find unique ways to create value for European businesses, according to a panel of Europe-focused general partners.

One of the advantages for general partners investing in Europe is the opportunity to grow companies through inexpensive add-on acquisitions, according to Raymond Svider, co-chairman and managing partner of BC Partners.

“You can make the argument that in countries which have been very, very affected by the economic crisis – in Spain and Italy – you would be able to find [deal] volume,” he said.

Svider was speaking on a panel at The Deal’s Economy 2013 conference in New York last week.

BC has continued to find companies in Italy to buy as add-on acquisitions for Italian retailer Grouppo Coin.

Once you have a platform [investment] in a very difficult environment, sometimes it is actually a good time to invest Raymond Svider

“The retail sector has been incredibly challenged in Italy because of the economic situation reducing consumption. That has created opportunities to expand at very, very low costs,” Svider said.

“Once you have a platform [investment] in a very difficult environment, sometimes it is actually a good time to invest….You have to be careful but you can make a lot of money if you pick the winners.”

Raymond Svider

BC has also continued to look for European platform investments by hunting for scarce opportunities in countries least affected by the economic crisis.   

“The opportunities that you find are rare, and the best opportunities are naturally in the countries which are in better shape, like in Germany, Scandinavia, the Netherlands and [places] like that,” Svider said.

“Germany is doing well because they [have] exporting companies for the most part.”

One firm that has found multiple opportunities in German businesses with international operations is KPS Capital Partners. In May, the firm acquired the North American division of German iron castings company ThyssenKrupp Budd, which services the automotive, agriculture, construction, hydraulics and commercial vehicle markets. The investment marked the firm’s third transaction with a German-based company since the beginning of 2012. In April, KPS invested in a division of bus and motor coach company Daimler, and in January, the firm acquired German automotive company The Bosch Group’s brakes business.

Dealing with distress

Kohlberg Kravis Roberts’ special situations investment group is also targeting internationally-focused businesses in Europe.

“In some of these Southern European countries like Spain or Portugal, we’re looking for companies who are based in Spain, but generate the majority of their revenues and earnings outside of Spain,” said Jamie Weinstein, director and co-head of special situations at KKR.

While the “torrent of assets” expected by some distressed debt investors in Europe has not materialised, according to Weinstein, Europe represents “the majority of the global opportunity set,” he says. “The unwillingness of banks to extend credit to companies is really where the heart of the action is. It might even be a healthy business that has an expansion project that they’re looking to fund.”

The problem is that the agenda and the goals of the politicians are not the same as the agenda and the goals of the business people Jean-Claude Gruffat

For non-distressed investors, however, low-growth throughout Europe continues to dissuade GPs from backing businesses in the region.

Jean-Claude Gruffat, European chairman of the global subsidiaries group at Citi's corporate and investment banking division, highlighted the misaligned interests of various governments in Europe as the main obstacle to economic growth.

“The problem is that the agenda and the goals of the politicians are not the same as the agenda and the goals of the business people,” he said. “The politicians are talking about their own domestic agenda, not the European agenda.”

Still, KKR’s Weinstein said that policy changes in Europe are unlikely to have a positive impact on economic growth in the near term.

“The European labour markets [and] the European capital markets are not that efficient on a global basis, they’re not going to adjust overnight and no amount of policy discussion is going to make that happen quickly,” he said.

“It’s going to be hopefully a slow and steady move, at best, in that direction.”