EUROPEAN MID-MARKET FUNDRAISING REVIEW 2016

Transcription

1 EUROPEAN MID-MARKET FUNDRAISING REVIEW 1

2 MID-MARKET FUNDS IN EUROPE FAIR WEATHER FOR NOW TOTAL RAISED IN MID-MARKET ( bn) 8 BREAKDOWN BY COUNTRY FOR MID-MARKET ( bn) Emerging Europe MID-MARKET VS LARGE CAP FUNDRAISING ( bn) UK France Italy Germany Scandinavia Benelux Switzerland Spain & Portugal Final close Interim close UK Emerging Europe France Scandinavia Germany Italy Spain Switzerland Benelux NOTE ABOUT METHODOLOGY Fundraising data shows amounts raised at interim and final closes by midmarket buyout, growth, special situations and turnaround funds, recorded at the date of the latest close. It excludes captive and open-ended vehicles (e.g. evergreen funds). The mid-market is defined as funds between 100m and 1bn. Fund sizes of marginally larger than 1bn or marginally smaller than 100m are included to ensure that marginal funds are not incorrectly excluded. Funds currently raising that have achieved an interim close of under 100m and have targets of over 100m have also been included. Funds raised by pan- European funds are allocated to the country where the head office is located. witnessed the strongest capital raising conditions in the European mid-market since bn was raised across 67 mid-market funds, contrasted with 14.9bn of investor capital committed across 56 vehicles in 2014 a fundraising market expansion of 21%. This encouraging performance built on the ground gained in 2014, when the market grew for the first time since bn was raised in 2014, an increase of 43% from the 10.4bn raised in Investor appetite for the European mid-market is, for now, robust. Empirically, this position of strength has been driven by record-high distributions across Europe as the top of the cycle approaches; a macroeconomic climate favouring the private equity asset class i.e. a weak euro, falling oil prices and continued low interest rates; and other regions, including the Middle East and Latin America, currently perceived as less attractive for private equity investment. Nevertheless, investor sentiment towards individual countries and regions within Europe has shifted markedly over the past 12 months. Benelux experienced its strongest fundraising year since 2011, with 2.1bn raised compared to 0.8bn in France, once a staple of European mid-market fund portfolios but out of favour in recent years, saw a long-awaited fundraising renaissance with bn raised across 11 mid-market funds in contrasting sharply with the 0.8bn and 0.9bn raised in 2013 and 2014 respectively. The DACH region too experienced a successful capital raising year, with 3.2bn raised across 13 German and Swiss mid-market vehicles. Whilst the bulk of this capital was driven by strong German fundraisings, Swiss offerings performed well and attracted 1.3bn of investor capital. It is anticipated that compelling new German managers in the lower mid-market will attract continued high levels of investor attention in. At the other end of the fundraising spectrum, Emerging Europe raised just bn across 3 new funds. Given the ongoing cautious outlook taken to the region by investors, it may be another year before capital raising rebounds in this quiet part of the European private equity market. : The year of the spin-out As forecast in last year s Mid-Market Review, one of the groups in the European mid-market that met with the greatest fundraising success in was emerging managers. The subset of this group that performed best was spin-out managers. The United Kingdom in particular proved itself to be fertile ground for the propagation of new spin-out GPs, largely due to its status as one of Europe s most developed private equity markets. The fundraising success of spin-out managers has been predicated by clear, long-term indicators. One such notable indicator is the combination of ageing founders alongside a younger generation of partners, who believe they are not afforded the reward they deserve as the alpha drivers of their respective firms. These younger professionals departed in increasing numbers to establish their own GPs, a phenomena that has been a significant contributor to the recent proliferation of spin-outs across Europe. In contrast, whilst emerging managers formed of investment professionals from different firms do successfully raise capital, the demands during investor due diligence are higher for such teams. From the investor perspective, the risk inherent in committing to a first-time manager requires demanding an exacting burden of proof. It is natural, therefore, that the confidence many LPs exhibit when it comes to backing first-time GPs is often heavily caveated: foremost amongst their stipulations is that a team provide evidence of a successful combined working history, rendering spin-outs the ideal candidates for investment. Another clear factor contributing to the fundraising success of spin-out managers has been the strong investor appetite for managers executing highly defined investment strategies at the smaller, less intermediated end of the mid-market. These LPs increasingly identify the proven, more junior executive layer of investment professionals at established GPs as the right candidates to execute these focused and intensive strategies. Relatedly, as established teams experience success in the mid-market and their fund sizes grow correspondingly, there can be a tendancy to move away from the very strategy that brought them success to begin with leaving a clear space for new, yet experienced, managers to fill. Finally, LPs note that the success of the private equity market has seen the development of an increasingly formulaic approach to investment. While this highly institutionalised approach can render success repeatable, it can also erode the very motivation and corresponding creativity required by GPs to generate outsized returns: these characteristics tend to be much more evident in emerging managers. Bereft of the protection, branding and reputation of established managers, new teams exhibit an investment discipline and creativity that long-term institutionalisation does not replicate regularly. FUNDRAISING DATA AMOUNT RAISED ( bn) NUMBER OF FUNDS RAISED > 1bn < 1bn RANK COUNTRY n UK r Scandinavia r France r Benelux q Germany r Italy r Switzerland q Spain & Portugal q Emerging Europe

3 REGION BY REGION saw the fundraising pendulum swing in favour of Benelux, France and DACH, after muted capital raising performance from all three regions in recent years. Regional concerns are less decisive than previously for LPs committing private equity capital, with individual performance of managers driving allocation decisions. SCANDINAVIA bn 5 FUNDS UK The UK fundraising market demonstrated continued strength in, when 5.8bn was raised across mid-market funds. Whilst overall fundraising levels were similar to 2014, an interesting development occurred regarding average fund size: in the average size of vehicles that held final closes was 324m, in contrast to 430m in This is partly explained by the increase of new managers raising firsttime vehicles which, with notable exceptions, trend towards the lower mid-market in terms of fund size. It is also further explained by the fact that many of the more established, upper mid-market managers went to market in Correspondingly, and given the overall high levels of fundraising over the past 24 months, is expected to be a quieter year for capital raising in the UK bn FUNDS funds closed in, including 12 final closes and 6 interim closes, raising a total of 5.8bn a slight increase on the 5.6bn raised in The Nordics exhibited a marked uptick in fundraising fortunes in and the core stability of the Scandinavian capital raising market continues to be the region s overriding theme. There are, however, variances at a country level. Following the ongoing collapse of the oil price, Norway has undergone macro-economic difficulties that have filtered through to private equity-owned businesses leaving Norwegian GPs who target turnaround or special situation strategies particularly well placed to capitalise on this development. Fundraising across Denmark and Sweden remains relatively steady, although investors remain concerned regarding continued high pricing levels. 1.0 DACH 5 funds closed in 3 final closes and 2 interim closes, raising bn, compared with the 1.3bn raised in bn 13 FUNDS BENELUX Benelux exhibited its strongest mid-market fundraising performance in recent years, with a total of 2.1bn raised across 7 funds an increase of over 150% on the 0.8bn raised in This result is somewhat skewed by the return of one upper mid-market manager to the market but is still a marked improvement over fundraising levels in Encouragingly, 2 of the fund closes in were achieved by spinout managers, demonstrating that the Benelux private equity market is undergoing an encouraging renewal. Regarding the fundraising outlook for the region, is expected to be a busy year bn 7 FUNDS 7 funds closed in 4 final closes and 2 interim closes, raising 2.1bn, compared with 0.8bn raised in Swiss fundraising enjoyed its strongest year since 2007, with 1.3bn raised in. Relative to the small community of managers operating in the Swiss mid-market to date, a large number of new, high quality managers have been established in recent years, accounting for the country s excellent fundraising performance. German managers met with even greater fundraising success in, with 1.9bn of investor capital raised. is likely to see continued strong performance in German fundraising with the entry of highly differentiated first-time teams to the market. EMERGING EUROPE funds closed in 10 final closes and 3 interim closes, raising 3.2bn, compared with the 2.2bn raised in bn 3 FUNDS FRANCE bn 11 FUNDS saw renewed investor sentiment towards the French midmarket. The appetite of French LPs for domestic private equity in France remains fairly constant but the challenging political and regulatory environment, amongst other factors, has dampened the appetite of international investors. However, foreign LPs returned to France in, with a particular focus on sector-focused funds. These international investors will have a still-wider array of GP offerings to choose from in : a large number of mid-market teams are expected to return to fundraising, with many having postponed capital raising efforts until market sentiment shifted for the better which it appears to have now done. SPAIN & PORTUGAL bn 4 FUNDS Spanish fundraising experienced a muted in contrast to 2014, when many of the country s established managers completed strong fundraisings. The mid-market in Spain has traditionally been somewhat shallow relative to other large European economies, with a small number of proven, high quality domestic managers dominating the space. Given this relatively narrow GP landscape, the Spanish fundraising market is particularly cyclical and so, when combined with the strength of capital raising in 2014, new fundraising efforts are expected to be fairly sparse over the next 12 to 24 months. The trend of emerging managers fundraising successfully here has been slower to evidence itself than in other parts of Europe, although there are a small number of differentiated funds that are expected to hold strong closes in. ITALY 1.7bn 6 FUNDS Fundraising in in Italy continued 2014 s upward trajectory. 1.7bn was raised in, up on the 0.7bn raised in The regulatory barriers that had previously caused the country s private equity market to stagnate were largely overcome over the past 12 months. As capital has returned to the country and investor confidence has renewed, valuations have risen but still remain substantially below the aggregate levels seen both globally and across Europe. Many Italian businesses, particularly in the north where the majority of deals have historically been done, continue to be managed inefficiently, creating a clear and attractive opportunity set for mid-market firms. Fundraising in Emerging Europe was effectively held up from a complete collapse by the close of 3 funds in for a total of bn. This was the weakest fundraising year since 2011, although the region has not recovered post-crisis in the same way as other regional fundraising markets in Europe. Nevertheless, with a huge capital demand for, the strongest of the numerous managers required to return to market should prove equal to the fundraising challenge ahead of them. It will also be interesting to watch whether new teams are able to persuade investors of the opportunity in the region. 3 funds closed in 2 final closes and 1 interim close, raising bn, compared with 0.9bn raised in funds closed in 4 final closes and 7 interim closes, raising bn, compared with the 0.9bn raised in funds closed in 1 final close and 3 interims close, raising bn, compared with the 1.5bn raised in funds closed in 3 final closes and 3 interim closes, raising 1.7bn, compared with the 0.7bn raised in

4 OUTLOOK FOR While saw strong momentum for the European Mid-Market, expectations for fundraising in are mixed. Investor appetite will diminish should disruptive, exogenous events such as a potential Brexit materialise discussed below which could be the catalyst for a market correction that is already being signalled by increasing pricing. On a more positive note, a year ago we noted that creating value within portfolio companies would remain challenging in a low-growth environment. Encouragingly, moderate growth is now returning to the Euro Area, with the International Monetary Fund forecasting growth of 1.5% in, followed by 1.7% in in comparison with a contraction of 0.9% in The United Kingdom appears particularly stable, with the IMF forecasting growth of 2.2% in, and This steady outlook should help quiet ongoing concerns about a global return to macroeconomic uncertainty. BREXIT? While the outcome of the UK s European referendum in June remains stubbornly problematic to forecast, the wider UK private equity community is likely to rally behind the In campaign. The disturbingly unclear implications of an Out vote on both (i) the UK s trade links with Europe, with potentially troubling consequences for deal flow and portfolio company performance, and (ii) the nature of a fundraising passport for UK-domiciled funds to market to states in the EU, has resulted in disquieting uncertainty across the UK and European private equity communities. While some parties may welcome a possible reduction in regulatory burdens, the UK will still need to comply with legislation such as AIFMD and will lose its previously influential seat at the drafting table when future European legislation affecting the finance industry is determined. In the short term, UK GPs are likely to find themselves starved of European investor capital, with some European investors already postponing decisions to invest in UK vehicles until the referendum outcome is known. DACH IN FOCUS Continued strong performance is anticipated for German capital raising in. Mittelstand business valuations have not accelerated to the levels of similar industries in other European markets and there is an abundance of attractive, family-run businesses in need of private equity ownership to drive transformational strategic and governance change. More interesting, however, may be the emergence of new managers across the lower mid-market offering highly defined strategies from growth to special situations platforms. Investors are expected to once again allocate capital to a core European private equity market. To the southern end of the DACH region, Swiss managers are expected to have a quiet fundraising year compared to their excellent performance in. As with Spain, the shallow nature of the Swiss private equity market renders it highly cyclical and with most managers having raised over the past 24 months, few fundraising developments are expected in Switzerland in. Polaris Private Equity IV 427,000,000 (Interim close) Corpfin Capital Fund IV 255,000,000 April Polaris Private Equity III 365,000,000 May 2010 THE MID-MARKET SPECIALIST Leader in European mid-market Advisory driven Focused marketing Owner led and independent Mid Market Fund V 200,000,000 (Final close) Oquendo Mezzanine II 157,000,000 July 2014 Egeria Private Equity Fund III 500,000,000 July 2008 Alcedo IV 195,300,000 April Egeria Private Equity Fund IV 600,000,000 December 2012 Livingbridge 4 238,500,000 November 2007 Cairngorm Capital I 52,400,000 September France Special Situations 151,464,390 December 2010 Sovereign Capital Limited Partnership II 275,000,000 May

5 Acanthus is a specialist independent fund placement boutique with a primary and advisory-led focus on the European midmarket. Acanthus has built a highly committed team of private equity specialists with significant expertise in placement and advisory services. Established in 1998, the Acanthus team is experienced and diverse, with complementary skill sets ranging from corporate finance, principal investing, management consulting and accounting. For more information, visit Acanthus Capital Limited Blandford Street London W1U 4AZ United Kingdom Telephone: +44 (0) Fax: +44 (0) info@acanthus.eu.com Acanthus Capital Limited is authorised and regulated by the Finanical Conduct Authority and a member of Invest Europe. 8