Aurelius raises first fund for institutional investors

Campbell Lutyens acted as exclusive global placement agent. Aurelus was also advised by Linklaters and KPMG.

The GP expects the fund to complement its other investment strategies, namely Aurelius Equity Opportunities, which focuses on lower-mid-market deals; Aurelius Growth Investments, which focuses on small-cap buyouts; Aurelius Finance Company, the firm's credit division; and Aurelius Real Estate Opportunities.

The rationale behind the decision and timing of raising the fund was based in part on demand from prospective LPs, managing director Tristan Nagler told Unquote: "Raising the fund was a process that we wanted to do, but it was not done by necessity, since we had never had capital constraints and we have a permanent capital model. We have had our listed vehicle for more than 15 years and have developed a strong track record, especially in corporate carve-outs – advisers and corporates have seen it as a good way to differentiate ourselves and be memorable. We would get institutional investors saying what we were doing was interesting, and they wanted to participate, but it had to be through the listed vehicle, not a fund structure.

"The fund will have a standard model and will co-invest with the listed entity. The listed entity has a very long heritage and will carry on. This is about having additional firepower.

"Even before the pandemic, we had a sense that the carve-out focus was interesting and that the activist shareholder trend was driving disposals," said Nagler. "The advantage of having a fund is that we will have committed capital, firepower, and a framework for deployment. We also have the flexibility with the listed entity and we can do small to very large carve-outs."

Aurelius's track record and market focus means that the GP is well-placed to take advantage of opportunities, Nagler added. "The market has got more and more exciting, we have found our niche and pursued it, we are single-minded in our focus and have strong dealflow. We feel that the market has strong opportunities – when corporates sell their divisions to us, they can then see the business has been well owned and well developed. They want a good buyer who will be a good custodian."

Aurelius raised the fund in a process that was conducted entirely virtually. Asked about the process, Nagler said: "In the fundraising environment, it was disappointing that we could not physically roadshow or meet face to face, but we made ourselves accessible and had all the meetings and stages you would expect, while the LPs went through their own processes. We were able to keep up energy levels in the process. It was a bit like raising a first-time fund in some sense, but we have a strong track record, just not with these specific LPs."

While the shift to a fund structure will necessitate a different way of reporting returns, Nagler expects the vehicle to generate strong returns for Aurelius and its LPs. "We have not reported IRR before, and, as a listed entity, the way we look at returns has been different. But we have a special situations heritage, which are higher risk and should therefore get higher returns, so we would aspire to get above 2x."

Although many GPs increase their fund sizes over time and successive vehicles, moving beyond their original market niche, this is not Aurelius's plan, Nagler explained: "We have been reluctant to move up or leave the part of the market that we understand. The appetite from institutional investors was very impressive but we had to rein this back, which was disappointing, but we want to make sure we do sensible deals that protect capital and have great returns. If you are under pressure to deploy, it is likely that you will overpay and potentially dilute the returns. If we are back in the market in a few years' time, we won't be likely to raise quadruple the amount, for example."

Asked about the terms and conditions of the fund, Nagler said: "The fund follows standard market terms and conditions. There is not a lot of institutional money in the special situations market – many LPs were excited about finding a team that could do this and with this track record, and we wanted to be respectful of convention – but we worked hard at the things that were important to us and to give us flexibility."

Investors
The fund is backed by institutional investors and is Aurelius's first private equity vehicle to be open to these organisations. Nagler told Unquote: "We did have institutional shareholders in the listed entity, but this is the next stage, and their sophistication and knowledge is fascinating and very different, since they know our competitors and they know the landscape.

"We have built a good mix across pension funds, insurance, funds-of-funds, and family offices, to get diversity, as well as geographical diversity," said Nagler. "We had a lot of enthusiasm from people who had followed us for years and it was great to let them participate. We are a new team for the North American market, but we have had interest from there."

Investments
"The fund is very much focused on the mid-market, as opposed to the lower-mid-market, which is the focus of the listed vehicle," Nagler told Unquote. "Many of our recent deals straddle the fundraising timeline, we would expect some of them to go into the fund structure on completion."

March 2021 was a busy month for the GP. Aurelius announced four deals, two of which were in the DACH region: the GP acquired shower enclosure and bathroom accessories producer Hüppe, as well as gardening, landscaping and roofing business Ringbeck. Aurelius also acquired Belgium-based Panasonic Consumer Energy and Sweden-based temperature-controlled logistics business Bring Frigo.

The investment strategy will continue to focus on carve-outs in the UK and Ireland, DACH, Benelux, Scandinavia and southern Europe. "We would look to deploy €15-50m per deal, with an average of €25m," said Nagler. "But our capacity to deploy significantly more means that we don't feel limited, although we want to stay in our marketplace. However, there is a lot of capital around – if we see businesses that need €100m and beyond, we will look at whether they are in our sweet spot of deals and if we could do the transformational measures we want. The question would also be whether the upper-mid-market at over €100m would generate the same returns."

Asked about the number of platform investments expected for the fund, Nagler said: "In the listed entity we have been doing four to six deals per year. We would aim for four platforms per year in the fund, which could mean 10-20 platform investments."

In addition to the operational improvements that Aurelius traditionally implements to create value in its portfolio, the fund will also focus on buy-and-build strategies, Nagler told Unquote. "A platform build-up theme is also a strong one for us, such as Solidus and Gentronics or, more recently, Rivus. We would be happy to create a good number of platform deals with this fund."

"We are assuming that the fund will invest over five years, but we have momentum, and we are used to deploying in a patient and opportunistic timeframe," said Nagler. "Most of our businesses go through quite explosive transformations and growth, and they are normally in our portfolio for three to five years, so it could take less than five years to deploy the fund."

People
Aurelius – Tristan Nagler (managing director); Dirk Markus (chair); Donatus Albrecht (chief investment officer).

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• Topics
• Funds
• Buyout
• Turnaround/Special Situations
• DACH
• UK / Ireland
• Benelux
• Nordics
• Southern Europe
• Aurelius Equity Opportunities
• Carve-out