GP Profile: Auctus Capital Partners

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Auctus Capital Partners IV held a final close on €230m in December 2014, and is now more than 70% deployed and reserved across 20 investments. At the time of the final close announcement, Ingo Krocke told Unquote that despite the opportunity to raise a larger fund, Auctus wanted to remain focused on the small-cap sector.

Despite strong fundraising conditions in the DACH lower-mid-market in the past year, with several GPs dramatically increasing their assets under management, Krocke plans on sticking to his guns. Auctus V is not expected to exceed a volume of €300m when it launches next year. "You have to change your strategy if you grow," he says. "You can't really use much of what you have learned because the markets are different in the larger deal brackets, and all of your contacts and networks are useless."

"We started out targeting companies with €10-30m revenues, which is still our sweet spot," Krocke explains. "We do a few more deals now and occasionally we do a slightly bigger deal, but for the majority of our deals, nothing has changed." What Auctus considers a "larger deal" is something like its most recently announced partial acquisition of surface-coating machinery manufacturer Robert Bürkle. The GP put an €18m equity ticket into the buyout of the business, which generated revenues just over €100m. Considering that the firm often invests its own capital next to its fund (giving it a total volume of around €300m) this investment still only represents about 6% of its available capital.

Even so, the GP's track record was built on smaller deals. Auctus I was a €30m fund that completed five deals and returned 6x money to its investors. The second fund closed on €39m in 2007 and was invested throughout the crisis, but still managed to return around 3.5x. Off the back of this success, the GP collected €155m for Auctus III and deployed it across 13 deals. So far it has only exited six but is on track for a 3x return.

Asked to provide an example of a classic Auctus deal, Krocke highlights Tentamus, a buy-and-build strategy that started in 2011 with the acquisition of a food testing laboratory in Berlin that branched out to also serve other sectors. "When we bought Tentamus, it had €10m revenues and EBITDA of around €2m," says Krocke. "We had a clear M&A strategy and, 32 bolt-on acquisitions later, the company has €110m revenues and EBITDA of around €25m."

In the DNA
Krocke founded the firm based on principles he learned at Apax Partners. However, he left before all of the international branches of Apax (except France) merged in 1999 and had a brief foray in venture capital, co-founding Munich-based Wellington Partners, which has gone on to raise several generations of VC fund and increase its AUM to more than €250m.

However, it was not interesting enough to keep Krocke away from buyouts: "In 2000, I decided that venture capital had a dull future in Germany. It has become popular again, but only very recently, and even today it is mostly e-commerce, and I think the big international players will continue to dominate."

A lack of interest in VC did not translate to a lack of interest in fast-growing companies, however. Explaining the founding thesis of Auctus, Krocke says: "Germany does have good entrepreneurialism; some companies are very innovative and very creative, but what they do – or did – lack is an international approach. We wanted to help them to push on to the next level."

Germany does have good entrepreneurialism; some companies are very innovative and very creative, but what they do – or did – lack is an international approach" – Ingo Krocke, Auctus Capital Partners

Not many of Auctus's competitors have been around since 2001. "Waterland used to be a really good competitor to us and I'm sure they're still very good, but we don't see them anymore since they expanded and started doing larger deals," says Krocke, referring to the €2bn buyout fund raised in 2017 and the multiple new office locations opened since.

On the other hand, new entrants have proliferated in recent years "We probably have 50 new competitors since 2007. Not all of them have a full fund but they are able to do deals in the €2-5m EBITDA space," Krocke says. "A lot are family offices and other less sophisticated investors, and the quality of some of the due diligence is very low."

Part of the reason for this is that smaller deals are generally done by smaller teams. Auctus's success means it can afford to support a larger team without having the pressure of raising a larger fund. "We have a team of about 15 deal professionals to support, and quite a small fund, so we have a slightly higher management fee," says Krocke. According to Unquote Data the firm charges a management fee of 2.5% on its latest fund.

Unquote recently explored the economics of tweaking the standard 2-8-20 fee model and Krocke is happy to weigh into this debate: "We also have a ratchet that goes 20,25,30 to reward exceptional performance," he says. "We've never bothered to ask for a lower hurdle rate, I think an equity fund should make at least 8% before it takes any carry."

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