Unigestion announces closes for Secondary V and Direct II

Unigestion Secondary V was launched in January 2020. The vehicle is targeting €700m and will hold another close in July 2020, followed by another close in 2020, with the aim of reaching a final close in Q2 2021.

Unigestion Direct II was launched in March 2019. The vehicle is targeting €600m and held a first close in August 2019 on €300m. The fund’s predecessor held a final close in July 2017 on €255m

Arendt & Medernach is providing legal advice for both funds and the GP is not working with a placement agent.

Asked about the fundraising process, Christophe de Dardel, managing director and head of private equity at Unigestion, told Unquote: “It’s interesting to see that most investors associate the word crisis with secondary opportunities – but it’s no less true of the rest of the PE market. It is certainly true in secondaries, however, investors should not expect an instant avalanche of opportunities.”

Unigestion’s fourth secondaries fund targeted returns of 1.6x cost and a 20% IRR. The fund was reporting a 27% IRR in January 2020. “The overall unlevered performance of our secondaries investments since 2000 is 22% IRR,” de Dardel told Unquote.

De Dardel added that the fundraising process for Direct II has been similar to that of Secondary V: “I would not distinguish between the fundraise for the direct fund and the secondaries fund – the buzzword is around secondaries, but the direct and co-investments also have a lot of momentum.”

Investors
Asked about the LP base for Secondary V, de Dardel said. "So far, around 75% of the investors were already in  our previous vehicles. We expect that the next closing will be in July with three more pre-existing investors on board."

Asked about the composition of the LP base for Secondary V, de Dardel said: “The LPs are mainly institutions in Switzerland, Germany, France, the UK and the US. They are a mixture of insurance groups, pension funds and financial institutions. Financial institutions include in particular one large German institutional investor. We have three cornerstone investors on board for the first closing, and another will follow for the next close – each has committed €30-50m.”

“The Direct fund has roughly the same investor base, since most of our investors invest in both,” de Dardel explaied. “But the direct fund has a particularly large portfolio of French investors – the portion is higher in Direct than Secondaries currently as it has been fundraising for longer.”

Investments
Secondary V plans to make 30-35 deals in total. “We are focusing on the smaller end of the market, targeting small non-auctioned transactions, usually below €50m in size and often as part of complex liquidity solutions, such as sidecar vehicles established to finance the more successful companies in an existing portfolio, or secondary directs,” de Dardel told Unquote. “If the opportunity comes to buy LP stakes from other LPs at attractive prices, we will of course take it – this has been happening mostly in off-the-beaten-track funds in the last few years, but it might happen more in the current market.”

“The valuations as at 31 March have already come but the secondaries market should really pick up when the 30 June valuations come, during the course of the summer,” said de Dardel. “Most buyers and sellers were waiting for Q1 valuations, but many will wait for Q2 to assess the full impact of the crisis, which makes plenty of sense. A number of transactions due to close in Q1 were disrupted by negative market movements and market uncertainty – much of what was negotiated pre-crisis was put on hold and is now being resumed.”

"Experienced investors are waiting to see beyond the valuations – they want to see the impact of the crisis at company level, to see how the operating profits will stabilise or recover," he added.

Asked about the firm’s current secondaries dealflow, de Dardel said: “We expect to make the first deal in the coming weeks – we have many deals in preparation. For the rest of the year, we hope to see activity picking up but it would be a mistake to rush.”

Direct II will make 25-30 deals. In March 2020, the GP backed Spain-based vitamin supplement producer HealthTech BioActives. De Dardel told Unquote: “The pipeline is full for this year – we have made two deals so far and are lookjng to make another three to four after that.”

The firm also expects to announce its second deal in the coming weeks. “We like to invest in companies whose growth depends on something other than GDP, who are part of a theme or trend – for example, education, responsible consumption, digitalisation or healthy living,” said de Dardel.

Asked about Direct II’s strategy, de Dardel said: “We make co-investments alongside small GPs where more often than not we are the only co-investor, or one of two. We don’t participate in the widely syndicated co-investments. In these deals, the GP negotiates the terms of the deal – this will represent around 35% of the fund.”

The fund will also take part in investments made by GPs operating on a deal-by-deal basis, de Dardel said. “Another 30% will be deals where we have the opportunity to participate as the only investor, or two to three, in deals made by fundless sponsors, who work on a deal-by-deal basis, as a way to establish their name before raising a blind-pool fund.”

“Around a quarter will be direct deals where we are majority owners, acting as the lead investor,” he added.

For co-investments alongside smaller funds, the fund will deploy tickets of €10-15m on average. For co-lead and lead deals, the ticket size can go up to €25m.

Both funds have a three-year investment period.

People
Unigestion – Christophe de Dardel (managing director, head of private equity).

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