Paragon closes fourth fund on €780m

The fund started pre-marketing in December 2018 and significantly exceeded its initial target volume, according to Paragon's managing partner Edin Hadzic.

Hadzic spoke to Unquote on the fundraising process: "Private equity is an attractive asset class and we can see LPs moving away from securities. In terms of strategy, businesses in German-speaking Europe are very appealing and our performance is very good."

The fund's predecessor, Paragon II closed on €412m in 2014 and is now fully deployed. The fund made its last investment, in Duo Plast, in July 2019. Paragon III is the fourth fund raised by the firm with institutional money. Hadzic expects the firm will consider raising its next fund in four or five years.

The fund's management fees, hurdle and carry rates are in accordance with market standards.

The firm now has €1.2bn in assets under management.

Investors
The fund was oversubscribed, and both new and existing investors participated, amounting to a total of around 24 LPs. Harbourvest and LGT were both named as LPs in the fund. Some of Paragon II's largest LPs included AlpInvest Partners with a commitment of €45m and Liberty Mutual Insurance with a commitment of €40m.

Funds-of-funds, public and corporate pension funds, insurance companies, endowments and family offices from Europe and North America took part in the fundraise. Investors from the DACH region were also well represented.

The fund's minimum capital commitment size was €20m, with its largest commitment sitting at €100m.

Investments
As this fund has raised significantly more than its predecessor, Hadzic explained that the capital will be used to buy slightly larger companies and up to three more companies than its predecessor. Hadzic also said: "In contrast to several years ago, asset prices are significantly higher and thus GPs must deploy more equity per deal." In addition to its focus on traditional LBOs, the fund will also focus on more complex buyouts that are generally all-equity deals.

The new fund expects to write equity cheques of €30-150m. It will target companies with enterprise values of €30-250m and EBITDA of €10-30m.

The vehicle, like its predecessors, will focus on buyouts in the DACH region in the mid-market and Germany's Mittelstand. It will also make selective investments in neighbouring countries. An example of this would be the firm's investment in Netherlands-based Novagraaf.

It will invest in sectors such as industrials, chemicals, consumer, healthcare, financials, business services, technology, media and telecommunications.

Germany-based optical retail chain Pro Optik is the new fund's first investment and was closed in July 2019. The firm is also expecting to close one or two more deals in 2019. Hadzic expects to make 12-15 portfolio investments and has a target holding period of four to five years.

People
Paragon Partners – Marco Attolini, Edin Hadzic, Krischan von Moeller (managing partners).

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