LPs warm to Southern Europe funds

In January, PAI Partners held a €1.4 billion first close on its Fund VI, while fellow French GP Activa Capital also held a first close on €200 million for its second fund, which is targeting €320 million. 

That followed on nicely from two other fundraising successes for French firms in the back end of 2013: Ardian closed its LBO Fund V on €2.4 billion, while Idinvest Partners held a first close on its Idinvest Digital Fund II at €60 million. 

In Spain and Italy, GPs have also started to brave the stormy fundraising conditions. Madrid-based firm Corpfin Capital came to market this summer targeting €200 million for its fourth fund. Portobello Capital, another Spanish firm, is trying to raise €300 million. Consilium, an Italian buyout firm, was nearing an €80 million first close on its third fund before Christmas. And Ambienta, an Italian firm focused on investing in the environmental sector, held a €200 million second close on its second fund late last year; it’s making good progress towards its €300 million target. 

All of which is encouraging news for other GPs in the region. After all, investors have been wary of all three countries in the last few years. The antipathy to Spain and Italy is natural enough, given their high-profile economic problems – and many LPs felt France had similarly deep-rooted issues.

But some believe sentiment is starting to change. “These are cycles: last year everything was against Southern Europe,” says Andrea Bonomi, principal partner and founder at Investindustrial, which closed its fifth fund on its €1.25 billion hard-cap in April. “Right now, the Nordic market is over-invested. So if you want to put money in Europe, Southern Europe doesn’t look that bad at the moment.” 

In fact, there could be a shift in geographical focus in 2014, argues Mounir Guen, chief executive officer at MVision Private Equity Advisers. “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,” he tells PEI. 

But while raising capital is one thing, doing deals is quite another. Investindustrial didn’t make a single new investment in Spain and Italy during 2013, for instance. 

“In Italy, there’s a mismatch in price expectations between buyers and sellers – and a lot of [that] is due to political uncertainty,” Bonomi explains. “We don’t know the taxation policies in the medium and long term; we don’t know the labour reforms, etc. That impacts the price of assets.” 

In France, deal flow hasn’t been strong either. Of the 10 largest buyouts in Europe in 2013, only one was a French transaction: Allflex, acquired by BC Partners for €985m, according to data from the Centre for Management Buy-out and Private Equity Research (CMBOR), Equistone Partners Europe and EY. 

But while France and Southern Europe clearly haven’t fully recovered yet, many believe the regions offer unique opportunities. 

“There are some companies that are based in Italy and Spain but only 20 percent of their revenues are derived from their home market; these companies are generically affected by market sentiment in the country, but their business is not. These are the companies that need us most right now,” Vittorio Pignatti-Morano, chairman of Trilantic told PEI recently. 

What’s more; these opportunities are here to stay, he argued – “because it will take years for the imbalance between supply and demand to be corrected.”