As Europe Morphs Into a True Union, Industry-Focused Firms Come Into Vogue
by Laura Kreutzer | Private Equity Analyst
When doling out buyout commitments in Europe, limited partners have long debated the merits of pan-continental managers versus country-focused firms. But more recently, they see potential for a new player to emerge: the industry-focused firm.
"We have to be prepared to move away from the theme of country funds versus global funds to [look at] the overriding [investment] theme of the fund," Yvonne Stillhart, managing director of the fun-of-funds arm of Lombard Odier Darier Hentsch & Cie, said at the Private Equity Analyst Limited Partners Summit Europe conference last month in Edinburgh. Earlier this year, Lombard Odier banked €493 million ($600 million) for its latest mid-market European buyout fund of funds.
Stillhart was one of a number of advisers and placement agents at the conference who said that geographic proximity alone is becoming less relevant in the European buyout market, as the region becomes more integrated.
"We are not convinced that because you are in Barcelona, you're going to get the good deals [there]," said Ignacio Sarria, founder of Arcano Capital, a Madrid-based fund-of-funds manager. "If it's a good business, they'll run from an auction and it doesn't make a difference if the decision-maker is based a couple of hundred yeards away or in another country."
This is a switch from the past, as the heterogeneous nature of the European market has long posed formidable challenges for industry specialists, in contrast to the U.S.
"A sector-focused fund in the U.S. [may have] started off in one state but because it was a homogeneous market, it was easy to expand across the country," said Alexander Apponyi, partner in the London office of global placement agent BerchWood Partners LLC. "In the EU, take health care for example.If you're dependent on regulated [government] disbursements for [medical] reimbursement, it can create big barriers to expansion." However, Apponyi said more industry specialists are overcoming these obstacles as the European private equity market matures and that sectors such as retail, consumer products, media and communications could easily lend themselves to a pan-European industry-focused strategy. A small but growing number of industry specialists have already begun to carve out a niche.
Take London-based media and communications specialist GMT Communications Partners. When it launched in 1993, the firm did most of its deals in the U.K. But it has branched into other European countries over time, and has now backed at least 26 deals in 18 European countries. They include recent agreements to acquire Melita Cable PLC, a Malta-based provider of television, broadband and telephony services, as well as the construction information division of German media company Springer Science & Business Media.
Meanwhile, London-based AnaCap Financial Partners is taking advantage of increased integration in European financial markets with a €300 million fund focused on European financial services companies, including ones involved in mortgage products, small and medium enterprise loans, insurance, asset management and consumer credit, according to the firm's Web site. Since it closed its debut fund in 2006, AnaCap has announced at least two deals, for Syscap Group PLC, a U.K.-based finance and leasing provider to the communications industry, and Credoma, an independent mortgage provider based in the Czech Republic.
Another conference panelist, Lauge Sletting from Copenhagen-based adviser North Sea Capital A/S, said he believes that even a highly regulated industry like health care could support a specialist fund. "Some of the best successes in Europe have been health care," Sletting said. "One spinout [you could see] from a generalist fund could be by its healthcare team."
However, these investors believe the process will be gradual. "I think it's something that you'll see more of in five years rather than one or two years," said Jens Besgaard-Frantzen, chief executive of London-based Private Advisors U.K. Ltd.