After the difficult post-Lehman years, European GPs enjoyed a stellar year on the fundraising trail in 2013 with firms including CVC, HgCapital, Triton, Nordic Capital, Apax Partners and Ardian all successfully raising capital.
But that doesn’t mean it will all be plain sailing in 2014, according to MVision’s Mounir Guen. “The tough times have gone, but that doesn’t mean you can let your guard down [or that] things will be more straightforward and simple,” he warns.
“The industry has changed, and it is just as tough because the patterns, the mechanisms, the methodology, the approach, the selection, the diligence is all different.”
“The average investor takes a minimum of four months to process a commitment; [they]produce 10,000 pages of diligence today, if not more – and that is not going away,” he adds. “Pre-crisis, these things were a lot faster. At that time, LPs were looking to build relationships and they were comfortable to have 120 [managers]. Today they are looking at 60 to 70 relationships. So they are really selective.”
Happily, firms are better equipped now, he believes. “2009 to 2012 was an extremely difficult period, in which very good people were not being supported by existing investors as they thought they would be. A number of firms had a good look at themselves, and have come out of the cycle very strong. In 2013, they run excellent businesses; they're focused on what they need to do; and they understand how they have to position themselves and how they can deliver. From that perspective, the industry is stronger, healthier and sharper than it has ever been.”
2014 will also be a year when allocations to the asset class will increase, according to Guen. “2014 and 2015 will be a very good cycle, because the individuals involved have come through a difficult [period] and have learned what it takes to be better.”
Improving deal flow in Europe should help this process, he suggests. “The exits from the 2007 funds are coming through extremely well. Some of the GPs have done remarkable work to improve their portfolios.”
2014 may also see a slight shift in geographical focus, according to Guen. “2013 was the year for Sweden, Germany and the UK; that is going to continue into the first half of 2014. As we go further into 2014, activity in Italy, Spain and France will pick up.” Additionally, funds in the lower mid-market will get more traction, he believes, partly because “[there] won’t be that many large funds in the market”.