International LPs dine on Italian mid-market

Wise SGR is the latest fund to reach final close, hitting its €210m hard-cap.

Italian lower mid-market firm Wise SGR’s latest fund, which reached final close last week on its €210 million hard-cap, drew more demand from international investors than its previous vehicles.

Wisequity IV, which is almost €30 million larger than the firm’s 2011-vintage, €181.5 million vehicle, collected capital from international institutions comprised of mainly US and European fund of funds. International investors accounted for 60 percent of commitments, compared to about 30 percent in its previous fund.

“We raised more money from international investors this time than in the past, both in terms of amount and in terms of number of LPs,” Wise SGR founding partner Michele Semenzato told Private Equity International.

Fund IV includes commitments from about 10 fund of funds from the US, UK, Germany and Switzerland, he said.

Italian institutions accounted for 25 percent of commitments, including some pension funds, with the remainder contributed by the firm’s management team and high net worth individuals, according to a statement.

Wise SGR’s previous vehicle was originally backed by mainly domestic Italian institutions, with only the international LP being the European Investment Fund. The EIF was later joined by “two or three” international fund of funds that came in later through secondary deals, Semenzato said.

Italian banks have reduced their investment in the asset class as some no longer have the capital to invest or are prevented by regulations and capital requirements. “Investment in private equity is expensive for them now. In Italy they were the largest investors in the past,” Semenzato said, adding that the issue in Italy is there is not a large pension fund investor base to replace the retreating banks.

Fund IV began marketing in September following some pre-marketing. Rede Partners acted as the placement agent.

Italy remains “a tough sell,” Semenzato said, noting that “the economy has not been the most buoyant and in the past there have been funds that did not perform as expected.”

When asked about the speed of the fundraising, Semenzato said, “we had the benefit of good results for Fund III, exits of 4.5x and the current portfolio is performing well. That is helping. With the strategy we have, contrarian investors see how the mid-market is less competitive than in the past and has a big number of interesting companies.”

The latest vehicle will continue the firm’s strategy of investing in Italian small- to medium-sized enterprises with export potential and a turnover of €20-100 million aquired through a leveraged buyout or development capital. The company writes equity cheques of €5-25 million.

Wisequity III is 84 percent invested across eight companies, including Italian tour operator Alpitour, fertiliser company Biolchim, glass hardware producer Colcom Group, coating company Primat, and pharmaceutical producer and distributor NTC-PH&T. It exited its first two portfolio investments in Q4 2015 generating  more than 4.5x gross multiple on capital contributed, the statement said.

In October, Wise announced that it had exited its 72 percent stake in JK Group held jointly with another Italian lower mid-market firm Alcedo.

The entire company, which manufactures and distributes digital sublimation inks, was sold to US multinational Dover Corporation and generated a return of more than 6x on both firms’ invested capital, according to a statement. The group was created out of the merger of Italy’s Kiian Digital, which Wise and Alcedo acquired in 2012, and J-Tech 3 and Sawgrass Industrial.

In November, Wise SGR exited its investment in digital publishing company EidosMedia to HgCapital, according to an HgCapital statement.

Wise SGR’s second fund, a €170 million, 2005-vintage vehicle is also in divestment mode.

Alcedo is also expected to close its fourth fund this month, as reported by PEI. The fund, which also launched in September, is expected to close on €195 million, above its €175 million target. It has drawn commitments from both Italian and foreign investors, with 60 percent re-ups, as reported.