GP Profile: Emeram eyes portfolio development amidst macro uncertainty

Emeram Capital Partners was founded in 2012 by managing partners Kai Köppen, Christian Näther and Kai Obring. The GP invests in DACH SMEs with revenues of EUR 20m-EUR 150m and enterprise values of EUR 30m-EUR 250m, targeting technology and software, value-added services, and consumers.

The sponsor currently has a portfolio of six companies (two of which it has partially exited) and has made five full realisations from its 2013-vintage, EUR 450m debut fund. The most recent of these was the sale of Germany-based clinical software developer Meona to impact investor Trill Impact in June 2021.

A Luxembourg-domiciled vehicle was registered for Emeram’s second fund in March 2022. “Given the strong performance of our first fund, we are in ongoing discussions with new and existing investors,” Näther said. “We can’t comment further, but we have made a filing for the fund structure as a formality, which will provide a standard structure for a potential international LP base.”

Sven Oleownik, Emeram Capital Partners

Oleownik said that the GP’s engagement with its portfolio companies is crucial for getting comfortable with high valuations across the sectors that it targets. “We see ourselves as a business development partner, and this is part of how we get comfortable with the valuations of companies,” he said. “If we are confident that we can add knowledge via our own networks and develop the company, a high valuation can be seen from a different perspective.”

The first two to three months of the GP’s investment period are key in establishing alignment with management on the strategy, Näther said. “If there are buy-and-build opportunities, the challenge is deciding on the companies we are really going to go for in our processes earlier rather than later.”

Emeram aims to take a long-term view on its investments in the face of current high valuations and macroeconomic uncertainty. “In the current market, it might be that you need to hold some assets longer than planned, but as long as you are growing, you can outgrow the multiple distractions,” Näther said. “Our focus is on how we can ensure that each company is on a growth path, not just for the next five years but for the next 10 years, by finding additional growth routes, which is something that we talk about in our investment committee meetings.”

Technology and software
The GP is anticipating a good amount of dealflow from the technology sector, according to Näther. “There is continuous dealflow in technology and software, but there is also competition and significant demand,” he said. “These businesses are not really hit by the crises we are seeing at the moment. This resilience translates into our portfolio, where we are expecting deals in the sector.”

Its playbook for technology companies will be similar to that of previous investments including Matrix42, which Emeram sold in an SBO to Corten Capital in April 2021 after a holding period of around five-and-a-half years. “This involved going from on-premise to cloud and forming subscription-based models,” Näther told Unquote. “We can provide additional support and financial capability in moving from licensing to subscription: you switch to thinking about future EBITDA, but you still need to spend at the start of the conversion.”

The GP’s other previous technology investments include Switzerland-headquartered Xovis, a developer of 3D sensors and software for counting and managing flows of people and waiting times. Its sensors and software are used in airports, as well as in retail and in public transport. The firm sold the company to Capvis in 2019 after a three-year holding period.

Emeram is aware of the need for caution on valuations in the sector. “The market is quite aggressive on valuations for these assets, so we have to approach this while being aware that multiples are fluctuating,” Näther said. “But we plan to invest our funds over a five-year period so we’re not too biased to one year. You can’t time the market on entry and deployment, but you can when it comes to an exit.”

Navigating consumer
Emeram is also exercising caution when it comes to realising investments in the consumer sector. “The consumer market is challenging at the moment and we would be hesitant to sell right now where we don’t have the visibility,” Näther said. “But we are looking into some new investment opportunities in growth buyouts, because once we get comfortable with the situation, we can put ourselves in a competitive position, whereas other sponsors might not have had the time to look into it as deeply.”

B2C education is of interest to the GP, Näther said. It already owns a stake in online learning platform Sofatutor, which it acquired alongside listed Belgian investor Gimv in March 2021. “With Sofatutor, the main theme is the transformation from offline to digital, and the idea of bringing knowhow and content to the world is a good ESG element,” Näther said.

Emeram has seen increased demand for the services provided by digital consultancy Init (in which Rivean Capital Partners also owns a stake) and e-commerce software developer Diva-e, Näther said. The GP expects to make further add-ons this year, as well as new platform deals, he added.

Online retail is also a sector that Emeram is dedicating time to analysing. “When we look at digital retail businesses, we look at companies that are completely vertically integrated – but not multi-brand sites as they are then, in most cases, in competition with Amazon,” Näther said.

Continuation fund gains
One consumer-focused portfolio company where Emeram is deploying a vertically integrated strategy is sporting goods retailer Boards and More. As reported, the GP raised a EUR 100m continuation fund to support the growth of the business in December 2021.

“Add-on acquisition opportunities were one of several reasons why we put Boards & More into a continuation vehicle,” Näther explained. “They have already entered into new sporting areas organically, but also via add-ons, such as SQLab for biking, and we are looking for further complementary companies. A continuation vehicle transaction like this needs approval of the advisory committee, so they have to be convinced that this is a good exit opportunity and that it’s fair to them.”

“Transactions like Boards & More are another driver for additional liquidity in the market,” Oleownik said. “In public markets, investors can decide to stay on or take liquidity on an individual basis, but that isn’t possible in private equity. With a continuation deal, you are providing investors this opportunity, but the governance of the company remains the same, so there are a lot of advantages in looking at these deals.”

To service its growing portfolio and its existing investments, the GP is looking to make team hires. Emeram has a team of around 20 people, including 12 investment managers. Oleownik joined the firm from listed Belgium-headquartered sponsor Gimv in January 2022, as reported. The firm has hired three further investment management professionals, who will start in Q3. It plans to hire additional analysts for portfolio company HR and recruitment, as well as further roles in finance and IR.

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