AG Capital kicks off inaugural fund with Improove buyout

Improove, which also has offices in Madrid and New York, provides search engine optimisation (SEO) services to more than 130 global customers. AG Capital will target further growth in the company in its existing core markets and international expansion via organic and inorganic growth.

Organically, the company is set to open an office in Munich shortly to better serve German clients. As part of its inorganic growth, AG will help to roll-up small, specialised SEO agencies across DACH, the US and the UK.

AG Capital is an emerging manager and recently closed its first fund, Austrian Growth Capital Fund (AGCF), above target at around EUR 140m.

Members of the team worked together at Austria's state-owned development bank, Austria Wirtschaftsservice Gesellschaft (AWS), seeing the opportunity to spin out and set up an independent fund.

"We're the new kid on the block," said Lankmayr. "Austria has seen a few venture capital and early-stage funds but we're the first buyout fund coming out of the country in a decade or more."

Rising to the challenge
AGCF held a final close recently, around the same size as its announced first close of EUR 140m in November, said Lankmayr. The final close brought the fund to double the size of its EUR 70m target, he said.

The fundraise comes at a particularly difficult time for emerging managers, with capital-restrained LPs sticking to re-ups for well-established firms. "That was the feedback in a nutshell," he added. "It's an open secret that fundraising is not as good as last year."

With the fund based in Austria, most of the LP capital is from domestic investors, Lankmayr said.

Austrian bank Raiffeisen Bank International is the anchor investor, with sizeable capital commitments from the European Investment Fund (EIF) and asset manager C-Quadrat Investment Group.

The fund will invest in SMEs across the German-speaking regions of DACH and Northern Italy. It will look to target primary majority and minority investments in companies with a EUR 10m-EUR 50m enterprise value, revenues above EUR 10m and EBITDA of EUR 1m-plus.

The fund will deploy tickets of EUR 5m-EUR 20m in SMEs, with scope for co-investments on larger deals, with around 10-12 deals expected across its standard lifespan.

The firm is sector agnostic, although the team has a track record in technology, including medtech, software and B2B services, and is also interested in healthcare, given that both sectors are more resilient.

It will also stick to ESG compliant transactions and steer clear of real estate and restructuring deals.

Investment pipeline
Alongside Improove, the fund has two further deals in the pipeline that will be announced in the New Year.

It sees particular opportunities to invest in SMEs in Germany, where the mid-cap funds have outgrown the market segment it is focusing on, Lankmayr said, adding that the firm will also benefit as valuations start to come down across all of its targetted regions.

Austria, despite being much smaller, is a market categorised by a lot of family-owned SMEs that face succession issues in the coming years, alongside "very lively" start-ups that are entering more mature stages.

"There has been a shift in mindset from managers and owners," said Lankmayr. "Managers and owners are more open to being funded by external capital, many see it as critical. Younger managers are much more willing to seek finance for the next growth steps."

The GP is particularly keen on keeping former shareholders invested, with Improove's founders Jürgen Rous, Michael Schwarz and Antíoco Cuesta remaining on the board and committing a significant re-investment.

"We want to form partnerships and entrepreneurs and managers," said Lankmayr. "We don't want to acquire 100% of the company and we're flexible depending on the sellers, whether they want to keep 10% or 49%."

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