Evoco expects portfolio acquisitions, assesses potential exits in 2H23

The Zurich-based firm, which is investing from its EUR 162m Evoco TSE III fund at present, focuses on acquiring portfolios of at least three companies in every transaction, Galeazzi said.

Evoco is routinely in discussions with both financial sponsors, corporates and other vendors to acquire packages of assets, and could close another transaction in the coming months as it is working with a “very healthy” pipeline of four potential portfolio deals, he said.

The firm specialises in the lower midmarket and typically acquires companies with around EUR 5m EBITDA, although larger targets could post up to EUR 10m EBITDA or more, he said. It typically takes majority stakes in targets, although it also acquires minority stakes in individual firms as part of portfolio transactions, he said.

Evoco invests in a variety of industries and sectors across Western Europe, with the German-speaking DACH market serving as its most important region, Galeazzi said. At present, its portfolio includes companies in sectors ranging from sustainable consumer and software to healthcare and industrials, he said, adding that it focuses more on the value it can potentially bring to targets than on industry sector.

It sometimes looks to acquire a “mixed bag” of assets, encompassing strong companies it can push forward as well as firms requiring additional help to get back on track, he said, adding that this outcome often provides an optimal solution to the vendor as well.

Evoco sources the bulk of its dealflow in-house and through bilateral discussions, but also receives inbound approaches from vendors and their advisors, he said. It occasionally participates in auctions as well, although this is less common given its focus on acquiring portfolios rather than individual assets, he said.

On the sellside, both sponsors and corporates have shown interest in this approach, as it enables a vendor to sell off multiple assets or non-core activities at once, in a single process, Galeazzi said.

Evoco also looks at add-on acquisition across its holdings and could see further bolt-on activity as the year proceeds, provided it makes industrial sense for its portfolio companies, he said. The firm finances add-on deals with cash from its fund or the portfolio company’s balance sheet, and with leverage only in select cases, he said.

Evoco held a final close for its third flagship fund in December 2021, Galeazzi said. So far, it has completed two portfolio transactions with its current fund, and retains a “significant” amount of dry powder for further investments, he said. It does not expect to be raising a successor fund until 2024 at the earliest, he said.

2H23 exits on horizon
Evoco could also see one or two exits from its portfolio in 2H23, as it has a number of “strong” businesses that are performing well and are relatively unaffected by the current macro environment and volatile valuations, Galeazzi said. Still, it is under no pressure to divest assets at the moment and will focus on finding a “good home” for its companies in any exit process, he added.

It typically engages with advisors in the majority of exits, Galeazzi said.

Previous exits have been a mix of trade sales and secondaries with other financial sponsors, and Evoco aims to prepare its portfolio companies to be attractive to other private equity funds in a process, he said. There are also one or two companies in its portfolio for which an IPO could be of interest down the line, although it has not exited via listings in the past, he said.

The firm’s typical holding period is between three to five years, although it considers itself “opportunistic” when it comes to exit decisions, he added.

Recent exits include its sale of Plumettaz, a Swiss manufacturer of cable-laying machines, to sponsor Invision in 2021, and its sale of Kyotec, a Luxembourg-based construction company, to an undisclosed French trade buyer in 2020, according to Mergermarket data. In 2018, Evoco and its co-shareholders also sold ASIC Robotics, a Swiss provider of custom-made automation solutions, to Paragon Partners, as reported.

Portfolio approach to PE
Under Evoco TSE III, the sponsor has so far acquired a portfolio of six companies, including the machinery- and tool-manufacturing firms Frank Gruppe, Precision Werks Group and CFK, from German industrial holding GESCO [ETR:GSC1] in December 2020, Galeazzi said.

In 2022, Evoco also acquired a portfolio of three companies, from Austrian sponsor aws Mittelstandsfonds and co-investors that included Austrian medtech manufacturer Agency for Medical Innovations (AMI); and stakes in software companies Document.One and Communi5, he added.

Galeazzi and co-founder Felix Ackermann set up Evoco in 2012 with the aim of offering its limited partners the best risk-return profile while investing in the lower midmarket across Western Europe, Galeazzi said.

It looks to achieve this risk-return profile by acquiring at least three or more companies in every transaction it completes, as this inherently increases diversification among the portfolio, he said. It also rarely employs leverage in transactions, which further reduces risk by giving its portfolio a relatively low leverage ratio, he added.

Evoco also occasionally sells off individual companies it acquires from these portfolios relatively quickly, following the “best owner” approach, as this can de-risk transactions and enables the firm to quickly distribute returns to investors, he said, adding that the fastest turnaround for an exit was under three weeks.

It considers its focus on governance to be another part of its USP, as this focus enables portfolio companies to focus on execution and growth by putting the right procedures and incentives in place, he said.

To date, Evoco has invested in about 27 companies, and its portfolio currently contains 15 companies, he said.

Its strong performers include Berlin-based rebuy, a re-commerce platform for pre-owned goods which has seen turnover increase to EUR 220m from around EUR 80m in 2017, Galeazzi said. Other interesting companies in the current portfolio include Scanbot, a Bonn-based data extraction software business, and Frank Gruppe, which has seen a “significant” increase in EBITDA since being acquired, he said.

Evoco has a team of 15 employees working out of its Zurich headquarters, he said, adding that total consolidated turnover across its portfolio is around EUR 1.3bn.

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