Accession Capital Partners aims for autumn 2023 final close for Fund V

Pre-marketing for Fund V started around mid-2022, with the marketing phase in H2 2022, Stix said. Launched in December 2022, AMC V had secured around EUR 150m worth of committed capital at the time of its first close at the end of January 2023.

The investment period for the previous (EUR 265m) AMC IV fund ended before the end of 2022, so this represented a smooth transition from one fund generation to the other, Stix said. “Technically, we have 12 months for the final close [of AMC V] but most likely it will be held towards the fall of 2023,” he added.

ACP has set a EUR 300m-plus hard-cap for the fund, representing a small increase from its previous vehicle, Stix said. The lower-mid market and mid-market companies it is supporting have grown in size over the past few years, hence the decision to scale up the fund accordingly, he said.

Private equity investments in the CEE region suffered in 2022 as the war next door drove away some investors, while inflationary pressures, rising interest rates and an unstable economic environment delayed transactions.

Indeed, the general fundraising environment for Vienna-headquartered ACP was “not the easiest”, Stix said. However, its existing investor base was very supportive of the process as they were happy with the firm’s track record, the solid performance of its portfolio companies, and the continued potential of the CEE region, he said.

Other developments unrelated to private markets made for a challenging environment as well, Stix said. For example, investors who are subject to regulatory requirements or internal asset allocation rules, such as pension funds and insurance firms, saw negative performance of fixed income and equity markets in parts of their portfolios in H2 2022. In some instances, this produced the denominator effect, making the stable, alternative investment portion of their assets go up relative to their entire portfolio and thus restricting their ability to make new investments into private debt or PE space in 2022, he said. This was less the case for family offices, which can be more flexible with respect to internal asset allocation, Stix said.

Critical mass
By the first close, ACP’s existing investor base represented 75%-80% of AMC V’s backers, including the European Investment Fund (EIF), a key LP that also backed the firm’s previous fund, Stix said. The EIF’s early commitment helped the fundraise to reach critical mass, giving prospective investors reassurance that the fund would be large enough and investable for them as well, he said. It also represented a proof of quality for other LPs with respect to due diligence, governance and the review of legal documentation, he said.

Other investors already on board consist of the firm’s usual mix of funds of funds, pension funds, banks, family offices and insurers.
For insurers in particular, ACP is an attractive opportunity to boost returns on regulatory capital as AMC V’s mixed equity and debt deployment strategy benefits from moderate Solvency Capital Requirements (SCR), Stix said. These are significantly lower compared with a PE strategy, while aiming to generate attractive, double-digit net returns. The firm also provides investors with a special solvency reporting service in that respect, he said.

Around 80% of the fund’s commitments came from Europe, including institutional LPs from Central Europe, with less than 20% from the US, Stix said. “We are also in touch with Asian investors but they tend to come in at a later date once the fund hits a critical size,” he said.

Portfolio development
ACP is already looking at opportunities to start deploying the capital, targeting established, market-leading businesses with a EUR 5m-EUR 20m EBITDA sweetspot, Stix said. However, it is also able to support smaller businesses with a high growth potential, he said. The fund has a four- to five-year deployment period, he added.

The firm is looking to build a portfolio of 14-16 investments, deploying tickets of EUR 10m-EUR 35m, he said.

AMC V’s strategy remains broadly similar to that of its predecessor, Stix said. Historically, ACP has had strong exposure to healthcare and will continue to invest in that sector, he said. “We also like business services and defensive industries such as agriculture,” he added, highlighting its 2021 investment in CEE-focused farming company Spearhead International.

The firm prefers to have a balanced portfolio, both in terms of geography and sectors. Poland is likely to account for 35%-40% of AMC V, followed by Romania and the Baltics, with the balance distributed evenly over other markets, such as Bulgaria and Croatia, Stix said.

Flexible capital
ACP’s investments tend to be less dilutive than those of PE firms as it offers a mix of debt and equity and often ends up with a minority equity stake, Stix said. It specialises in financing businesses that are looking for flexible expansion capital and it can add value at the same time, he said. This includes multi-purpose facilities, such as instances where ACP helps finance the buyout of a majority shareholder by a minority investor or management but also adds growth financing into the mix, he said. Traditionally, around 70% of its transactions were sponsorless deals and that is expected to continue under AMC V, he added.

With five offices across the region, ACP is close to the market and is able to source a high proportion of proprietary transactions, avoiding broader auction processes, Stix said. Just as importantly, having a local presence puts it in a better position to help portfolio companies grow, including through cross-border expansion, he said. It also facilitates close involvement with its portfolio, he added. For example, even during Covid restrictions, ACP was able to hold physical meetings with portfolio companies. It also supports them by having its professionals serve on supervisory boards and by introducing its portfolio companies to industry experts from its network.

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