How Castik will deploy its second long-term fund

Castik Capital, a Luxembourg-based manager set up by senior executives from Apax Partners and Montagu Private Equity, last week said it had closed its second long-term vehicle on its hard-cap.

The firm gathered €1.25 billion for EPIC II after less than one year in market, raising €250 million more than its 2014-vintage predecessor. EPIC II had strong demand from existing and new investors, including large institutional investors from Europe, Australia and North America, according to a statement.

Capital raised for the vehicle will follow the same strategy as its predecessor, backing Europe-based mid-market companies in healthcare, technology and business services with a ticket size of between €100 million and €300 million of equity per deal.

Private Equity International caught up with Michael Phillips, an investment partner at Castik, to find out how their long hold vehicle and the growth of the strategy will play out during a crisis.

Has your process of due diligence changed as a result of the pandemic?

We’ve made the decision not to acquire companies virtually. The companies we’ve been looking at are ones that have been on our radar and in our pipeline before the crisis. The investment team typically interacts with a company for a period of six to 12 months before closing a transaction, with the last two to three months being the most intense in the due diligence process.

Over the last few months, luckily, we have been able to travel again and interact properly, and we expect to maintain the same level of interaction going forward. We know that closing deals right now will be longer in nature and we are not going to sacrifice in-person discussions, dialogue and relationship building.

How are you thinking about portfolio risk right now with the resulting disruption to operating environments?

If you’d ask as us before the coronavirus crisis what our largest focus on every deal was, it was recession resilience. Our goal is to find growing companies in fragmented markets, where over a much longer period than a traditional PE fund we can execute on a grow, buy and build strategy. However, if we are going to hold assets potentially much longer, the likelihood we hit a recession is much higher.

We are extremely focused on looking for assets that fare well during a downturn. It’s one of the standard criteria we have irrespective of covid-19.

How do you see long-term fund strategies in three to five years?

We think there are large numbers of potential companies in our target size range and we expect a normal investing environment for our funds in the coming years.

Private equity has always been about investing lots of time and effort to research and meet new companies. This will remain the case for the future as well.

Generally speaking, I am happy for every new long-term fund, as it helps develop the industry. The more firms that are selling long-term capital as a premise is generally a good thing that shines on all of us.

Michael Phillips is an investment partner at Castik Capital. He was previously a senior equity partner at Apax Partners for more than 20 years.