Private equity has many firms which cite impressive track records. In November Private Equity International launched the HEC Private Equity Value Creation Hall of Fame to identify categorically the industry’s most successful funds.
More information about how funds are ranked can be found in PEI’s introduction to the Hall of Fame. Here we admit our third hall of famer…
Our third inductee is the 2005-vintage fifth fund from Advent International. The fund – which focused on financial services, consumer goods, healthcare, industrials and technology, media and telecoms in Western Europe and North America – raised $3.3 billion and has distributed a net multiple of 2.4x to investors.
Headline performance data**
Net IRR: 48.2%
PERACS Alpha*: 28.2%
Total Value-to-Paid In: 2.4x
According to PERACS, the performance analysis consultancy founded by Oliver Gottschalg, associate professor of strategy at HEC Paris and co-founder of its private equity observatory research centre, the fund compares extremely favourably with its relevant peers, both in terms of net IRR and total value-to-paid-in capital.
Peer group analysis
PERACS creates a peer group of relevant funds by assessing a fund’s individual deals and categorising them by sector, region, three-year timing window and size, and then finds those funds whose deals overlapped most with these “strategic cells”. The relevant peers are:
The limited partners
Fund V attracted a veritable who’s who of limited partners across a swathe of geographies. The US was well-represented, with California Public Employees’ Retirement System, Maryland State Retirement and Pension System and Massachusetts Pension Reserves Investment Management Board among those drawn to the fund.
The vehicle also proved popular overseas, drawing attention from UK-based investors such as fund of funds manager Pantheon International, Schroders Investment Management and SL Capital Partners. It featured a healthy number of Nordic LPs, with the likes of Finnish Local Government Pensions Institution, Denmark-based Industriens Pension and Swedish national pension AP Fonden 3, committing to the fund.
Other notable LPs included the Michigan Department of Treasury, US insurance company Northwestern Mutual and Singaporean sovereign wealth fund GIC.
Recent track record: raised $13 billion for the 2015-vintage Advent International GPE VIII, according to PEI data. The €8.5 billion 2012-vintage Advent International GPE VII had generated a 16.4 percent net IRR and 1.5x investment multiple as of 31 March 2017, according to CalPERS data.
Advent enjoyed one of its most active years in 2017, completing thirteen acquisitions and seven full exits. The firm IPO-ed Worldpay in 2015, before a final exit in 2017. The investment made a return of more than 6x, PEI reported in March last year.
Investment focus: Business and financial services; healthcare; industrial; technology, media & telecom; retail, consumer and leisure; primarily in Europe and North America.
Notable exits: Fund VI carved out a 51 percent stake in Fifth Third Bancorp, later renamed Vantiv, in 2009 as part of a $2.4 billion joint venture with Fifth Third Bancorp. During Advent’s five years as an investor, Vantiv’s net revenue grew from $451 million in 2008 to $1.17 billion in 2013, while EBITDA doubled from $279 million to $583 million. At the time of Advent’s final exit in March 2014, the stock was trading 85 percent higher than its IPO price in 2012 (source: firm’s website).
Unlike the two previous Hall of Fame entrants – Hellman & Friedman Capital Partners IV and Nordic Capital V – Advent International GPE V performed averagely in terms of “procyclicality“, or its ability to invest when others cannot and accelerate when its peers are slowing down.
PERACS defines procyclicality as a measure of the fund’s investment patterns in comparison to the overall private equity universe. The unit is taken as a proxy measurement for quality of dealflow.
The fund also ranked in the highest quartile for strategic overlap with its competitors, meaning its investment strategy was similar to that of its peers. This assessment takes into account investment activity, as well as industry sector, deal-size, investment timing and geography.
The secret to the fund’s success lies instead in its “intensive approach to operational improvement”, a source with knowledge of Advent’s funds told PEI.
“It also targeted assets that other firms wouldn’t pursue and got some break-out returns,” the source added.
*PERACS Alpha measures value generation in excess of a public market equivalent, with the MSCI ACWI index as reference point.
**Advent International did not comment or contribute to this article.