Bregal eyes local deal origination with new Swiss office

"We are looking to replicate the success of Milan with our Zug office as we feel that being local on the ground enables us to build a better rapport with entrepreneurs," said Neumann, who heads up BU, which focuses on mid-sized companies in the DACH region and Northern Italy.

Its Milan office, which has been open for two years, is now seven-strong and has already completed two North Italy-based deals, he said. The firm acquired Italian food ingredients company Italgelatine last year, and Safety21, a traffic monitoring software developer, in 2021.

BU's recent investments in Switzerland include industrial adhesive tapes manufacturer ATP Adhesive Systems, which was sold to Arsenal Capital Partners early last year.

The new office, unveiled in April, has been building its team, most significantly with the hiring of Simon Lussi as country head. He joins from Swiss peer Capvis where he was a partner, as reported. Bregal declined to comment on the report at the time of publication.

Fund 3 nears full deployment
The Munich-headquartered investor is now "completing the investment period" of its third fund, Bregal Unternehmerkapital III, which raised EUR 1.875bn in 2021. A vehicle for Bregal Unternehmerkapital IV was registered in March, although Bregal declined to comment on its fundraising status.

One of its latest acquisitions is Medavis, a German software provider for radiological information systems, signed last September. The investment fits into its thesis of investing in particular niches within software, industrial tech, healthcare, and business services.

Meanwhile, it is also looking to exit some of its businesses, including laboratory power supplies manufacturer EA Elektro-Automatik. Further down the line, its German media agency company MEDIA Central is being prepped for an IPO in the next three years following an exploration of strategic options, as reported by sister publication Mergermarket.

"We are looking to take advantage of the current market which sees continued high valuations for top performing and resilient businesses, as well as strategic buyers still being active and less influenced by interest rates, if there is strategic value," he said.

With around 80% of its transactions under "privileged situations" outside of broad auction processes and 85% of deals being primary succession transactions, sourcing deals has not been an issue for BU, he said.

"Our pipeline has always been very active given our proprietary sourcing focus," he said. "Entrepreneurs and families are still selling in this current environment as their decisions are often not purely financial, but are often driven by personal circumstances and choices."

In spite of the uncertain environment, BU's bar for new deals continues to be very high. It targets highly cash generative businesses with strong pricing power, which can withstand the current inflationary environment, he said.

Neumann sees a bifurcation in the market, with resilient and quality businesses still attracting high levels of activity and valuations, while a large part of the market has not seen many transactions as its sectors are too cyclical.

On valuations, seller expectations are yet to come down significantly to reflect the reality that the environment has changed, he said.

Asian LPs in sight

The majority of BU's LPs are European and North American. However, it has also built a number of relationships with Asia-based investors, with whom it will looks to partner with in the future, said Neumann, who is also a Chinese Mandarin speaker.

GPs have entered what Neumann says is a "very different macro and fundraising environment" compared with its previous fundraises.

"Generally, Europe is being viewed as a more difficult geography for investors, than for example, before the Ukraine war," he said.

Questions it is frequently fielding include its views on the European general macro-economic outlook and how that is affecting businesses and supply chain issues. The energy crisis had also been an area of focus for its investors, although some LPs continue to query whether the issue has since been resolved, he added.

"Many LPs also see the opportunities - the energy transition Germany is undergoing provides for a local champion like us," he said.

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