Triton Smaller Mid-Cap Fund II closes on €815m

Simpson Thacher & Bartlett provided legal advice on the fundraise.

TSM II was registered in February 2020 as a Luxembourg-domiciled vehicle. Asked about the timeline for the fundraise, Andi Klein, managing partner and head of Triton TSM, told Unquote: "We went out to the market in mid-March 2020, just prior to the lockdowns in Europe and the US. After that, there was really radio silence until the summer, because LPs were busy with understanding the impacts on their existing portfolios, and this put a break on things, which was understandable. At the same time, PE firms, including ourselves, were working heavily on the portfolio to mitigate any impacts."

Klein added that LPs were keen to see how the portfolio of Triton's first TSM fund fared under the pressure of the pandemic. "It was imperative for us to show how we dealt with the crisis situation with our management teams, as well as how our portfolio construction held up. Our sector diversification and resilience played a role. We were also able to show that we continued to do add-ons, we brought up the LTM trading quite well when it came towards the September valuations. That accelerated the fundraise in that regard, since we were ticking all the boxes that the LPs wanted to see."

"We held an interim close toward the end of last year for the LPs that were ready to close," said Klein. "Given the pause that we had in the summer, it was actually quite a fast process – it was more of a six-month fundraise with a pause."

The fund's predecessor vehicle was the debut fund in Triton's TSM strategy. The fund held a final close in July 2018 on €448m and made 12 platform investments, according to Unquote Data.

The TSM strategy is the smaller of Triton's private equity strategies in terms of transaction sizes, although its geographical and sector focuses remain the same. The Triton Fund V held a final close in January 2019 on €5bn and focuses on larger buyouts.

Investors
The fund's LP base is composed of new and existing institutional investors, Triton said in a statement. "It is a mix of new and existing LPs – there are several investors that are new to the Triton franchise, and some who are exclusively invested in the smaller mid-cap strategy," Klein told Unquote. "It's a mix of funds-of-funds, and there are also several direct investments from pension funds and endowments."

"The primary source of money is in Europe," added Klein. "Triton is also one of the largest investors in the fund – it is substantially higher than what you would see from other GPs."

Investments
"The first fund made investments of €20-65m and the average ticket was in the €35m range," said Klein, noting that the ticket size for TSM II is in the €40-100m range. "We have moved the ticket size slightly, but the investment strategy is not going to change – it is just a reflection on the substantially larger fund size. We will make 12-14 investments, with the average ticket moving up somewhat."

TSM I made its last investment in December 2020, acquiring office furniture producer Inwerk, as reported. TSM II announced its first investment later in the same month, acquiring Berlin-based Klinik Schöneberg.

"We will make around three to four investments per year," said Klein. "We invested Fund I in three and a half years in terms of platform investments and we have a similar pace planned for Fund II."

"There is no specific amount reserved for follow on or add-ons, but we do a lot of strategies where we start with a small platform and do a quick buy-and-build, similar to Meine Radiologie," Klein told Unquote. "Our goal is to deploy in a very sector-diversified way. The regional focus will remain similar, but we have now added Benelux to the Triton core regions: these are now DACH, Benelux and the Nordic countries. But the focus will be on sectors." Triton's four core sectors across its private equity funds are industrials, business services, consumer, and healthcare.

Asked about whether the coronavirus pandemic has affected the opportunities that the TSM strategy is reviewing, Klein told Unquote: "The pandemic has had very diverse effects on companies and dealflow. We have seen some pick up in deal activity, which was already there towards the end of last year, and we are seeing good dealflow right now including from corporate carve-outs. But in the end, for sectors that have been affected, people will want to wait for this lockdown to be over to see the recovery. The businesses we are seeing right now are mostly relatively unaffected. We won't do deep distressed investments, although that is of course an active area."

Klein said that Triton is seeing good deaflow for the fund. "We have already signed an add-on for Klinik Schöneberg and we are about to sign two others," he said. "In parallel, we are looking at investments in the consumer healthcare and business services space."

People
Triton – Andi Klein (managing partner, head of TSM); Peder Prahl (director of the general partner for the Triton funds).

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