Nordic quickly tops €1.2bn for its debut mid-market fund

Nordic Capital has gathered more than €1.2 billion for its debut mid-market fund, nine months after raising its tenth flagship vehicle.

The Stockholm-based firm began raising capital for the Evolution Fund in April and held a final close after only three months on the fundraising trail, according to a statement. The fund had an initial target of €750 million.

The Evolution Fund was substantially oversubscribed and backed predominantly by Nordic’s existing investors, Kristoffer Melinder, managing partner at the firm, told Private Equity International.

Because of the speed and timing of the fund, some non-European LPs found it more challenging to participate in the fundraise, Melinder added.

Nearly 60 percent of the fund’s investor base is from Europe, 19 percent from North America and 5 percent from the Middle East, according to the statement. Asset managers and advisers make up about 40 percent the LP base; public and private pension funds account for about 30 percent, sovereign wealth funds represent around 20 percent, and endowments and family offices make up the remainder.

Nordic Capital made a 6.8 percent GP commitment to the fund, the statement noted.

Melinder noted that the move into the mid-market was prompted by an abundance of investment opportunities Nordic is seeing in smaller companies in Northern Europe.

“Nordic has been doing one thing since our inception, and our funds are going up in size,” he said. “What we’re seeing is a very interesting opportunity set in the mid-market for our sector strategy.”

The Evolution Fund will follow the flagship funds’ strategy of investing in the healthcare, technology and payments/financial services sectors. It will focus on control buyouts in Northern Europe targeting equity investments of between €35 million and €150 million in companies with an enterprise value of €50 million to €300 million.

Nordic made its first investment from the fund in April, backing Norwegian software company Boost.ai.

Along with the Evolution Fund, Nordic is also deploying its latest flagship vehicle, the €6.1 billion Nordic Capital X, its biggest capital pool to date and one of the largest funds raised in 2020, according to PEI data.

Investment teams and inflation

With regard to investment selection, Melinder said teams from Fund X and the Evolution Fund often have joint sessions and processes. “When we talk about deals we pursue within our focus sectors, members of respective funds sit together and review the same pipeline but do the investment recommendations separately,” he said. “A large chunk of that pipeline will come from our sector teams; those deals that may be too small for Fund X will fit perfectly in the Evolution Fund.”

Melinder did not provide details on fund terms, noting that Nordic Capital funds “don’t strive to challenge the market in any way” and terms have been “pretty standard”.

Target returns are also similar to the firm’s prior funds – outperforming the public markets and top quartile in the industry, he said.

Asked whether inflation was a concern for Nordic’s current portfolio or future investments, Melinder said the firm is primarily concerned that the inflationary environment will lead to increased interest rates and impact valuation multiples.

“We’re factoring in inflation and normally account for a 25-30 percent multiple discount,” he said.

“It’s a big topic,” Melinder continued. “We’ve been focused on this since the run-off elections in Georgia, since it has shifted the political weight a little bit in the US. But we’ve seen nothing of this yet. Although rising input prices have been much written about, we’re not seeing this yet. If anything, we have a good margin development in the portfolio.”