3 questions to smart minds
Photo: D. Wittneben | Ardian

Strengths of a pan-European private equity platform for small cap investments

For this 3 questions to D. Wittneben

Photo: D. Witt­ne­ben | Ardian
16. April 2014

Ardian (form­erly AXA Private Equity) recently announ­ced the closing of its Expan­sion III fund with €500 million in commit­ments. The fund invests between 20 and 50 million in equity capi­tal in high-growth compa­nies with high inter­na­tio­na­liza­tion poten­tial. In doing so, the Expan­sion Fund III team can bene­fit from Ardian’s inte­gra­ted, inter­na­tio­nal plat­form and bring its local presence and networks to bear on the growth stra­te­gies of its port­fo­lio compa­nies. What are the compe­ti­tive advan­ta­ges of such embed­ding in the small cap segment, which is mostly domi­na­ted by local private equity inves­tors, and how have the strengths of the pan-Euro­­pean plat­form impac­ted the current fund­rai­sing success? 

For this 3 ques­ti­ons to Mana­ging Direc­tor at Ardian and respon­si­ble for invest­ments of the expan­sion funds in the German-spea­king region, Frank­furt am Main

1. Expan­sion Fund III is around 40% larger than its prede­ces­sor fund — what factors were decisive for the successful fund­rai­sing in the current market environment?

In the current low inte­rest rate envi­ron­ment, insti­tu­tio­nal inves­tors are incre­asing their invest­ment acti­vity in the private equity asset class. At the same time, we see a trend for inves­tors to focus on selec­ted private equity compa­nies. As a “one-stop-shop” with a wide range of alter­na­tive asset clas­ses, Ardian bene­fits from this development.

In our expe­ri­ence, a strong and long-term track record in parti­cu­lar is one of the most important success crite­ria for successful fund­rai­sing. Ardian has been active in the small cap segment since 2002. Since then, Ardian has inves­ted more than € 445 million in 33 compa­nies and supported them in their inter­na­tio­nal growth stra­te­gies. Two thirds of these compa­nies have alre­ady reali­zed acqui­si­ti­ons with Ardian’s support. This is also reflec­ted in the successful deve­lo­p­ment of our funds and the success of our fund­rai­sing: Around 80 percent of the capi­tal commit­ments for the Expan­sion III Fund came from exis­ting investors.

2. What does a company have to bring to the table to be inte­res­t­ing for an invest­ment of your Expan­sion III Fund?

We are looking for compa­nies where we can bring the strengths of the pan-Euro­pean Ardian plat­form with teams and networks in all rele­vant inter­na­tio­nal markets. We are ther­e­fore on the lookout in parti­cu­lar for compa­nies that alre­ady gene­rate a high propor­tion of their sales abroad or have high inter­na­tio­na­liza­tion poten­tial and want to drive forward their inter­na­tio­na­liza­tion with a strong partner.

A good exam­ple of this is the French company Micropross, the most recent of the four invest­ments alre­ady made from the new Expan­sion III. Micropross tests smart cards and deve­lops Near Field Commu­ni­ca­tion (NFC) tech­no­logy for a variety of tech­no­logy compa­nies, some of them large inter­na­tio­nal compa­nies. The company gene­ra­tes 80% of its sales outside France, and wants to acce­le­rate its inter­na­tio­na­liza­tion toge­ther with us. Toge­ther with the French Ardian Expan­sion Team, we are curr­ently explo­ring the German market for add-on acquisitions.

3. What are your plans for the now closed Expan­sion Fund III? How do you assess the current market envi­ron­ment in the small cap sector?

We defi­ni­tely see attrac­tive oppor­tu­ni­ties for deals and exits in the current market envi­ron­ment. In this respect, our new fund is certainly at the upper end of the small cap segment, which is heavily cour­ted by specia­li­zed local inves­tors, family offices with an appe­tite for direct invest­ments, as well as inter­na­tio­nal inves­tors who are expan­ding their deal sizes down­wards. Our strength here is that with our local teams in the three markets, we have an exten­sive network available to gene­rate deals on a proprie­tary basis. In addi­tion, we have a conser­va­tive finan­cing struc­ture with maxi­mum leverage of 50% and a focus on value crea­tion through opera­tio­nal perfor­mance and acce­le­ra­ting the inter­na­tio­nal growth of our port­fo­lio companies.

Geogra­phi­cally, the invest­ment focus of our Expan­sion III fund is appro­xi­m­ately 50% in France, 30% in German-spea­king count­ries and 20–30% in Italy. Howe­ver, this distri­bu­tion is not set in stone; we will invest where there are attrac­tive oppor­tu­ni­ties. In terms of company size, we aim to acquire majo­rity stakes in compa­nies with an enter­prise value of up to €150 million. In the case of mino­rity share­hol­dings, we parti­ci­pate in compa­nies with an enter­prise value of up to €500 million. We parti­ci­pate with equity of around 20 and 50 million euros per tran­sac­tion. Depen­ding on the tran­sac­tion struc­ture, co-invest­ments by insti­tu­tio­nal inves­tors may also be made.

We do not have a speci­fic indus­try focus, but have a wealth of expe­ri­ence in Health­care and Pharma, Consu­mer Goods, Busi­ness Services, and Indus­tri­als. A good quar­ter of the newly laun­ched fund has alre­ady been inves­ted in four Euro­pean compa­nies, inclu­ding frozen finger food and snack specia­list frost­krone. In the German-spea­king region, we are plan­ning another 4–5 deals from the new fund, inclu­ding at least one deal in 2014.

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