First come growth investments, which over time get superseded by management buyout: in a nutshell, this is the typical evolution of a private equity market from “developing” to “developed”. In Spain, this rite of passage is symbolised by a new fund raised by Mercapital, one of the country's longest established GP groups.
Private enterprise arrived late in Spain, held back by decades of dictatorial rule and the political and economic uncertainty that followed Franco's death in 1975. When a wave of entrepreneurial activity was finally nleashed in the late 1980s, providers of growth capital materialised to help fledgling business find their feet. Mercapital was one of the first on the scene, launching in Madrid in 1986.
Having started life with a modest €60 million debut fund, Mercapital reached a level of credibility that enabled it to corral €600 million for its third fund in 2001. Throughout this period, growth capital had remained part of the firm's strategy, though by 2001 the mandate was two-thirds buyout to one-third growth. A few years later, a little less than halfway through the fund's investment period, growth investing was quietly abandoned.
Mercapital's latest fund, which closed in early December, has now officially consigned growth deals to the past with a 100 percent focus on mid-market buyouts. Reflects Mercapitals CEO Javier Loizaga: “In the 1990s there was a new generation of managers and the IPO market was good for SMEs. That has radically changed in the last five or six years. There will always be some opportunities for minority investors but, overall, I think that era has gone. These days, owners want to maximise the value of their assets rather than just keep them alive.”
Loizaga says Mercapital was officially in the market for eight months in total, of which “five or six months” was active fundraising, before setting a hard cap of €550 million, ahead of an original €500 million target. A hard cap was necessary, he says, to avoid crossing from the mid-market into larger deal territory where deal flow is “not sustainable”. That would be a step too far in the continuing evolution of Mercapital and Spanish private equity.
ICG HAS €650M AT FIRST CLOSE
Intermediate Capital Group, a debt solutions provider, has held the first closing of its new fund, ICG European Fund 2006, with initial commitments of €650 million ($855 million). ICG did not disclose the names of investors but said that almost all had backed the firm's previous fund, ICG Mezzanine Fund 2003. Deutsche Bank provided an associated debt facility of €900 million. ICG hopes to hold a final closing in January with a target of €1.25 billion. With leverage, the fund will have a total capacity of approximately €2.25 billion.
VISION CAPITAL COKKS UP BAKERY DEAL
Vision Capital, a private equity firm specialising in portfolio deals, has bought four businesses from Northern Foods for £160 million $306.6 million; €236.7 million). The four companies are: Fletchers Bakeries, a UK supplier of bakery products to retailers and food-service; Chilled Pastry, a flour milling business; Park Cake Bakeries, a Uk desserts producer; and Chilled Pastry, a UK savoury pastry products company. It is the second investment from Vision Capital Partners VI, the firm's latest fund, and its parallel partnerships. In August 2006, Vision Capital acquired a portfolio of four companies from AEA Technology.
NORWEGIAN PENSION GIANT MULLS ALTERNATIVES
Norwegian Petroleum, Europe's largest pension fund, has announced plans to invest in private equity and real estate for the first time, though it said no sector or regional focus has been decided upon. The value of the fund increased by Nkr207 billion (€25 billion;$33 billion) in the third quarter, to Nkr1,712 billion. This represented the largest quarterly increase in the fund's history and was due to the transfer of new capital, a positive return on investments and the weaker krone.
3I CLOSES MID-MARKET EUROPEAN FUND ON €5BN
3i Buyouts, the London-listed private equity group's pan-European buyout business, has closed its lates fund, Eurofund V, on €5 billion ($6.6 billion), well ahead of an initial €3.5 billion target. 3i launched the fundraising in April and held a first close in summer. The firm plans to make around 50 investments over the next four years, primarily in Europe but with some scope to invest outside of Europe.
KROKUS REACHES €52M FOR POLAND FUND
Krokus Private Equity has held the first close of its latest fund, Nova Polonia Natexis II Private Equity Fund, on €52 million ($67 million) against a target of €75 million and a hard cap of €100 million. The fund will target midmarket companies in the manufacturing, services, distribution, transportation and construction materials sectors in Poland. Investments from the latest fund will mark the first deal activity at Krokus since 2004 when the company was still under the ownership of its former parent, allied Irish Bank. Natexis Private Equity, the European Bank for Reconstruction and Development, InvestKredit, and one other unnamed investor have committed to the fund.
ORLANDO CLOSES ‘INVITATION ONLY’ VEHICLE
Orlando Management, a German private equity turnaround specialist, has closed its lates fund on €255 million ($329 million) after a fundraising by “invitation only”. According toa source close to the fundraising, Orlando did not widely market the fund, Special Venture Partners II. Instead it invited existing investors and a select number of new investors to commit to the vehicle. Its first fund raised €163 million exceeding an original target of €125 million. Orlando will continue to focus on the acquisition of “Mittelstand” companies in German or German-speaking territories with sales in the range of €500 million.