Unpicking the Private Equity Network

As well as assisting with buy-and-build-projects, the idea is that they will share sector knowledge, suppliers, local advisors and intermediaries in Europe, North America and emerging markets. Cross-border co-investment is apparently not the main goal, but it is certainly a possibility; in fact, it would be the “icing on the cake”, according to Charles Diehl, a partner at Activa Capital and PEN’s first annual chairman.

So how will this work in practice? Diehl says each firm has effectively become a shadow portfolio director for the other three. For instance, Activa recently heard about a company looking for a merger partner in an investment area in which one of its networking partners operates. “We immediately contacted our friends so they are aware of that in real time before anybody else would be,” he says. “The idea is that these sorts of emails are happening every day.”

The good news for LPs is that there are no extra overheads involved (at least not yet). PEN will have no central office or shared resources, and currently plans to meet just twice a year, at the firms’ expense. “If there were any initiatives that had a cost to them – shared resources in the Far East for example – we would formalise that if and when it arises,” says Markus Gosler, senior partner at Graphite Capital.

But what if two network members find themselves coveting the same target, or operating in the same space? “We are operating in different markets, so sharing knowledge is not a concern,” says Gosler. “If we come across a business that competes directly with another business then we have to be quite careful. But it’s more about parallels in sectors that exists across countries, or businesses that operate in the same space but don’t compete with each other.”

What’s perhaps most interesting about this network is the implicit acknowledgement of how important globalisation is to European firms at the moment, given the stagnation of markets closer to home.

As Diehl puts it: “All of us realised that the firms we are invested in are amongst the best mid-sized firms in Europe. And all of these firms have to be much more internationally focused than in the past.” In the current economic climate, portfolio companies need all the help they can get. “Creating growth in Europe is tougher than it used to be. We are all putting more emphasis on build-ups and growing these companies within their countries and outside”.

Clearly they think that makes it worth their while to seek expert insight from their equivalent firms in other countries – despite the risk that their portfolio companies may end up competing for business internationally.

 “It helps enormously if you can pick up the phone and say to someone who’s operating locally: do you know who the best investment bank in this field is, or the best strategy consultant?” says Diehl. “You can gain a lot of time from that.”