Capvis bets on LP pivot to ‘traditional’ sectors from venture, growth strategies

With valuations remaining high in venture and growth deals, in contrast to the current economic uncertainties, high inflation and geopolitical tensions, Flaig noted that LPs are now increasingly seeking traditional businesses backed by strong cash flow.

“I was surprised to hear how positive the mood is,” he said on the side-lines of the IPEM private equity conference in Cannes late last month.

“I was expecting LPs to be more hesitant on new commitments for next year, given the amount already deployed over the past 18 months and the stock market volatility, but they are still interested in continuing to invest in private equity,” he said. “They're basically looking for the right story at the moment.”

The comments come as Capvis is looking to raise a sixth fund in 2023 with a target of around EUR 1.2bn (around the same size as Capvis Equity V), according to a source. The Baar-headquartered GP is currently pre-marketing the new strategy and speaking to existing and potentially new LPs across Europe, US and Asia, the source added.

Flaig declined to comment on whether the GP is fundraising, although he noted that the shift in LP preferences should stand to benefit Capvis, which invests in mid-cap industrial technology, healthcare and advanced services and software businesses across the DACH region.

Opportunities in volatility
On investments, the fund is seeing an increasing number of opportunities amid the volatility as peers have become warier of investing in this environment, he said.

“We have been more cautious for the past 18 months because valuations in many sectors were really exaggerated and we couldn’t see the value,” he said. “We were more cautious about the economic outcome while everyone else were still upbeat.”

Capvis is currently deploying equity via its fifth fund, which raised EUR 1.2bn in 2018, according to Unquote data. The fund has the capacity to invest in two to three more companies, he said, adding that it does not have a timeline to complete deployment.

Capvis’ latest platform investment was in ARAG, an Italian manufacturer of parts for crop spraying vehicles, made in 2020. In the recent past, the fund has been focused on bolt-on acquisitions for its platform companies.

Assessing exits
When it comes to exits, Flaig acknowledged that the environment is “slightly difficult”, although the GP has been in discussions with US and Asian strategic buyers for “a number of [its] portfolio companies”.

US and Asian buyers, including Hong Kong, Japanese and Korean players, are looking at some of their businesses especially in light of the recent depreciation in Euros, he said.

Last August, Capvis established a EUR 230m continuation vehicle co-led by Committed Advisors and Eurazeo, comprising three remaining consumer portfolio companies, namely Arena, hessnatur and Kaffee Partner.

Capvis had been preparing the businesses for exit prior to the start of the Covid-19 pandemic, but it is now instead looking to bring the companies back into shape before exit, Flaig said.

This includes professional swimwear brand Arena, which saw sales drop when swimming pools closed under coronavirus lockdowns across much of the world, he said, noting that sales are now at higher sales than levels seen before the pandemic.

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• Topics
• Buyout
• DACH
• Fundraising
• Unquote
• Capvis AG