Mandarin Capital closes second fund short of target

MCP II had an initial target of €500m but closed on €200m due to the impact of the financial crisis on its Italian investors.

Mandarin Capital Partners has held a final close on its second fund MCP II below its €500 million target at under €200 million, according to a statement.

MCP II had an initial target of €1 billion when it was launched in 2013, but the firm lowered it to €500 million after revising its investment strategy in May 2013. It held its first close two months later on €110 million.

“That fundraising turned out to be difficult – the threshold has come down from Fund I to Fund II. Over time, it turns out that big companies are expensive. It wasn’t easy to raise money in Italy because Italian investors were heavily affected by the Euro crisis in 2011 and it was also difficult to get into international markets for Fund II,” managing partner Alberto Forchielli told Private Equity International.

Mandarin invests in European and Chinese mid-market companies with potential to expand in China, according to its website. It is currently expanding to cover more of Asia and to have a more internationally diversified investor base.

Fundraising for MCP II has seen the re-commitment of a significant number of Italian investors who participated in MCP I including Banca Intesa Sanpaolo, Fondazione Cassa di Risparmio di Trento e Rovereto and Fondazione Cassa di Risparmio di Bologna.

The fund also received new commitments from international investors including HarbourVest, Neuberger Berman, LGT Capital Partners, LFPE, Idinvest, HQ-Auda and the family office of Roland Berger, according to a statement. Guosen Securities, a strategic partner of the Intesa group and the second largest brokerage firm in China has also invested in MCP II.

“China is no longer sufficient to appeal to our investors. A few years ago everybody would jump to us. Now they still do, but we need to offer more,” Forchielli said.

The firm has revised its strategy and will now focus strictly on small and medium-sized deals with equity tickets of €15 million to €20 million, Forchielli said.

“Over the course of the year, we have reduced our equity tickets and focused more on Europe to China [investments], than China to Europe investments. In our experience, medium sized European firms are the most profitable,” Forchielli told PEI.

MCP II has already deployed nearly €40 million in two completed deals with hydraulic fittings company Tieffe and adhesives and fabric company Industrie Chimiche Forestali. It is in the process of completing a third deal via a strategic partnership with construction and environmental machinery company Zoomlion Heavy Industry to purchase majority control of Bolzano-based plant waste company Ladurner Ambiente. It expects to close a fourth deal by end March.

The firm raised about €330 million for its first fund in 2007. It has made ten investments, of which seven have been fully exited with the balance expected to be sold by early 2018. That fund generated a 2.5x investment multiple for its investors, according to Forchielli.

The firm’s managing director just moved from Hong Kong to Bangkok and is in the process of establishing an office in Singapore. “Things are happening right now as we speak,” he said.

It has existing offices in Shanghai, Milan and Frankfurt.

The firm plans to go back to fundraising in 2017. “Fund III is likely to be easier but we have to go out first to more international investors,” Forchielli said.