Debt funds gain as an asset class and financing instrument
The fundraising success of the LFPI European Debt Fund to date is certainly due to the successful history of the LFPI Group, but also to the current market environment for transactions and the broad investment focus of the fund. In the market for corporate acquisitions, financial investors and strategists are currently paying quite high EBITDA multiples in some transactions, sometimes in the double-digit range. This makes an equity investment no longer attractive for us in all cases, and investors are increasingly looking for alternatives to participate in transactions.
Through our debt fund, for example, investors have the opportunity to participate in the financing of acquisitions, as part of the purchase price is usually financed by debt. Furthermore, we are broadly positioned with the LFPI European Debt Fund, because in addition to acquisition financing or refinancing via unitranche or mezzanine capital, we can also acquire loans on the secondary market, for example from banks. When sourcing transactions, we benefit from our diversified LFPI platform, because as an internationally active multi-asset manager with a variety of asset classes, we sometimes analyze transactions as private equity, fund-of-funds or co-investor, in which we then ultimately become involved with the debt fund, and of course the other way around. This ensures an attractive deal flow for us, and the investors’ money is always invested in the optimal asset class for the situation.
For companies, financing via a debt fund offers an attractive alternative to traditional bank financing, as the loan conditions can often be structured more flexibly. In our view, financing must always be adapted to the real requirements of the company’s development. — In concrete terms, this can mean, for example, that the repayment amount can be adjusted to the remaining free cash flows if an acquisition is made in a fiscal year or increased investment is made in the development of a new product. We are an entrepreneurial, reliable and unbureaucratic partner with a strong team and fast decision-making processes — companies appreciate that.
The German-speaking market is an attractive investment target for the LFPI Group due to its stability and the large number of interesting investment opportunities. We plan to invest around 40 percent of the LFPI European Debt Fund in financing medium-sized companies in German-speaking countries. By the end of 2014, we intend to complete six more transactions from the debt fund and expand our investor base in German-speaking countries. In addition, we will continue to be active in the German-speaking region in the real estate sector, where we have already invested more than EUR 400 million to date, as well as in the private equity asset classes fund-of-funds and co-investments.