In late February, PEI revealed that UK firm Permira had hit the (revised) hard-cap of €5 billion on its fifth buyout fund – its fundraising efforts were done, and it was just in process of wrapping up the legal paperwork. With an additional GP commitment of somewhere between €200 million and €300 million to come in on top of that, the final total for Permira V was likely to be in excess of €5.2 billion.
Permira declined to comment on fundraising. However, it will no doubt be delighted with this outcome, after what has been a protracted – and at times painful – process.
The firm first came to market way back in September 2011, with a €6.5 billion target. But it failed to gather momentum, and in early 2013, took the decision to cut the fund’s target to between €4 billion and €5 billion.
There’s no doubt that this was a difficult period for Permira. Its travails were popular fodder for the business pages, with even the Economist reporting at one point (in rather un-Economist-like fashion) that “some say… Permira could struggle to raise another fund”. Several industry sources privately voiced a similar view to us.
In this context, to end up with (an oversubscribed) fund of more than €5.2 billion – which puts it in a very similar bracket (in terms of current firepower) to UK peers Cinven and Apax Partners – represents an impressive turnaround. So what changed?
Clearly the macro environment became less of an issue. It was difficult for anyone to convince investors to back a euro fund in 2011 and 2012, when it wasn’t clear whether the euro would continue to exist. As the eurozone crisis has subsided – and, particularly in recent months, as competition from other large-cap funds has diminished – fundraising became a lot easier.
But it’s also true that by the latter stages of the fundraise, Permira had a much better story to tell. In the last few years, under the leadership of Kurt Björklund and Tom Lister, it seems to have been working hard to become a different sort of firm. Leverage levels are down across the board, thanks to a series of refinancings. It’s been focusing on particular operational levers at existing portfolio companies. And it’s been doing smaller, often proprietary deals in very specific sectors.
Back in September 2011, according to one LP, Permira IV was barely back to par after a string of post-crisis write-downs (another reason why its initial timing was lousy). But by the middle of last year, the benefits of these changes were starting to show through. In a presentation to investors last summer seen by PEI, the firm said it had generated €3.5 billion in exit proceeds to its funds in the preceding 12 months. Profits were up 7 percent across P4 as a whole, with the firm telling LPs that it expected the fund’s final return to be at least 1.8x (it currently stands at about 1.5x).
It was painting an even rosier picture of its most recent deals: sales and profits were up by over 30 percent for its post-2009 investments, it said – which according to the LP, means they’re on course to deliver a multiple of 3x or even higher. And with four of these deals sitting in P5, potential LPs had plenty of reason to be positive about the new fund.
As one Permira LP told us recently: “They have turned things around pretty well”. That’s certainly the story that its portfolio performance has been telling for a couple of years now. Finally, with a little help from macro tailwinds, it has convinced investors of that too.