Mid Europa Partners, a Central and Eastern European-focused firm, has closed its fourth fund on its revised €800 million target.
The fund, which held a €665 million first close in January, has an additional pre-allocated co-investment program of €650 million, according to a statement.
The co-investment program consists of LPs that committed to Mid Europa’s Fund IV in the first closing. The program will invest alongside its fund, depending on the equity size of each deal, Thierry Baudon, Mid Europa’s managing partner, told Private Equity International.
“It’s difficult to say how many deals we will do from this co-investment program [as] it only takes two or three big deals in a fund to absorb it. But the rule we have used ever since we started doing business is not to offer co-investment on a deal if the equity ticket is less than 10 percent of the fund size so we are not penalising the LPs that are not co-investing,” Baudon said.
The share of the co-investment opportunities is pro rata the amount LPs committed to the fund. No fees will be charged nor will Mid Europa be able to earn carried interest on the co-investment program.
“It’s a co-investment program in which each LP knows what proportion of the co-investment they will get. Legally it’s not a sidecar, because it doesn’t have a name, but it has pretty much all of the characteristics of a sidecar,” Baudon added.
Mid Europa originally targeted €1 billion for the fund, which came to market in February 2013, but agreed with LPs to raise no more than €850 million amid concerns that the fund would be too large to do deals in the region, which have dropped in size over recent years. Another reason for the cap was that Mid Europa wanted to continue to offer 50 percent of each fund in co-investments.
LPs believed there was a good chance Mid Europa would be able to put to work between €1 billion and €1.5 billion, because the firm also achieved this during the economic downturn, Baudon said. “But at the same time, they were not very keen to let us size the fund too high.”
Mid Europa also put in a GP commitment of four percent, which was “deliberately high because we wanted to have a good alignment of interest with the LPs… we are not a huge organisation, so it’s a real commitment and it means that the whole partners group is very committed alongside the LPs to make this a success,” Baudon said.
Nearly 70 percent of all commitment came from existing investors, according to a statement. Mid Europa reduced its investor base from approximately 60 in the prior fund to 25. Baudon declined to name investors in the fund, but AlpInvest Partners, HarbourVest Partners, the European Bank for Reconstruction and Development (EBRD) and Singapore sovereign wealth fund GIC are among the LPs in Fund IV, PEI reported in May.
Approximately 25 percent of the fund commitments came from Asia, while around 55 percent came from Europe, with the remaining money coming from the US, Baudon added.
Fund IV will aim to deploy equity investments of between €75 million to 250 million in control buyouts of companies with enterprise values of up to €500 million. Mid Europa hasn’t put any of the capital in Fund IV to work, but the firm “is reasonably advanced on two deals” in the region, a source told PEI in May.