UK-based private equity house Permira is enjoying a speedy fundraising campaign for its third European buyout fund with news today that the firm has held a E3bn first close only months after its Permira Europe Fund III was officially launched.
Permira Europe III has so far attracted 65 investors, of which 72 per cent, by value, are existing investors. Half of the investors are European, 40 per cent are from North America and the rest from the Far East.
According to Charles Sherwood, a London-based partner, banks contributed just five per cent of the fund's total. The most strongly represented investor type are investment managers including funds of funds, which account for 29 per cent of commitments secured to date, Sherwood said. The largest individual investor in the fund is Schroder Ventures International Investment Trust (SVIIT), which contributed E400m, or 13.5 per cent of the total so far.
Public pension funds provided 26 per cent of the fund's capital, followed by corporate pension funds (20 per cent), insurance companies (6 per cent) and others (14 per cent). The firm itself, its partners and employees have invested E95m, Sherwood added.
Amid the current fundraising malaise, banks have become the single most important provider of capital to European private equity funds generally. According to the European Venture Capital and Private Equity Association, banks accounted for over 26 per cent of the E27.6bn of private equity capital raised in Europe last year.
The fact that Permira has not had to rely heavily on bank funding to reach the E3bn closing can be seen as reflecting the appeal of its fundraising proposition to other types of institutions. Banks are generally considered more volatile in their attitude to private equity investment than other, more long-term investors such as pensions and insurers. Banks' motivation for investing in private equity partnerships can also differ, as they may regard it as conducive to developing close relationships with general partners which may help them win lucrative transaction-related work. This, critics say, compromises a general partner's ability to purchase investment banking services at the best possible rates.
The Permira fund, the successor to the E3.5bn Permira Europe II fund which closed in October 2000, has a final target of E4.5bn plus or minus 10 per cent. A final closing is scheduled for the autumn. The first closing comes four months after the publication of the Fund's Information Memorandum in March this year.
Damon Buffini, managing partner, commented: “We are delighted with the high level of support from so many investors which has allowed us to move rapidly to a first close. We appreciate the confidence expressed by both existing investors and those new to Permira.”
Permira's fundraising success is further evidence that despite the current reluctance of institutional investors to make new commitments to private equity generally, fund managers that are perceived as being of very high quality have little difficulty in rounding often large amounts of capital. “I have never seen anyone raise $5bn that quickly,” said one US-based LP. “They only began speaking to investors about the fund last spring.”
Following the firm’s successful £900m sale of UK DIY chain Homebase in November 2002, a deal which netted the firm a return of six times its original investment and an IRR of close to 200 per cent, Permira is arguably Europe’s most highly-regarded large-cap buyout investor at present. The success of the Homebase deal has undoubtedly helped accelerate the fundraising process.
The investment strategy for the Fund will follow that of its predecessors, Permira Europe I & II. Permira Europe III will make leveraged and unleveraged acquisitions in European businesses or in global businesses with a strong European presence, especially in Permira's preferred sectors: business services, chemicals, consumer, industrial products and services and technology. Typical deal sizes will be in the range of E100m to E3bn.
In March, SVIIT said it would build on the performance of its Permira-led investments, with a substantial commitment to Permira’s latest fund. To that end, the firm launched a new fund, P123, which will comprise a proportion of the firm’s interests in Permira’s first and second funds, as well as a major commitment to Permira's third fund.
In addition to Permira’s success in the UK, the firm has also enjoyed strong performance in Continental Europe, particularly in Germany and Italy, where the firm has completed a string of large buyouts. Most recently, the firm was a participant in what is potentially Europe’s largest leveraged buyout, the E5.65bn acquisition of Italian directories business Seat Pagine Gialle. The firm has also sought to boost its presence across the continent with the recent opening of a Swedish office in Stockholm and the appointment of Philippe Robert as head of Permira’s Paris office.