Nord Holding launches Small-Cap Fund

The GP has simultaneously announced the opening of an office in Frankfurt, in addition to its current presence in Hanover, Berlin, Munich and Milan.

The team will be headed by Jan Markus Drees, who has joined the firm from VR Equitypartner. Former VR Equitypartner colleagues Maximilian Finkbeiner, Johannes Fleck and Margarita Decker have also joined Nord Holding and will comprise the remainder of the current Small-Cap team.

"It’s always a great advantage for a fund to have a team of professionals in Frankfurt, as the lawyers, advisers and M&A houses are here, and my team was already located here,” Drees told Unquote. “We will be able to work with Nord Holding’s other locations, which will also be a great advantage."

The launch of the fund is part of Nord Holding’s ongoing growth plan, the GP said in a statement. “Nord Holding’s mid-cap strategy targets companies typically with EUR 5m EBITDA or more, but there is a huge potential and a lot of opportunities below that threshold,” Drees said. “My team and I had worked on those types of deals in the past and Nord Holding wanted to capture those types of opportunities, too, and it made sense from their perspective to broaden their market penetration.”

The Small-Cap team will also have access to Nord Holding’s existing ESG and digitalisation structures. “We can really leverage the experience from the mid-cap team on ESG,” Drees told Unquote. “Small companies generally have not really implemented ESG in the German market so far, but we can help them to do this. Digitalisation has also not really been implemented in many of these small-cap companies, so that is another value creation layer for us.”

Nord Holding’s existing mid-cap strategy focuses on Mittelstand succession solutions, carve-outs and growth financing for Mittelstand businesses, with the GP investing via its own balance sheet. The strategy targets companies with revenues of EUR 20m and EUR 500m and EBITDA of EUR 5m-EUR 15m, making equity investments of EUR 30m or more.

The firm also makes fund investments, focusing on European micro-and small-cap private equity funds and making primary, secondary and co-investments. The GP said in a statement that it regularly acts as anchor investment for newly established funds.

Investors
Nord Holding has made an initial commitment of EUR 50m to the vehicle, allowing it to make its first investments, the GP said in a statement. Both new and existing LPs are expected to join the fund’s LP base as the fundraise progresses, Drees told Unquote, including DACH and European institutional investors, such as insurance companies and trade associations.

Investments
The fund will target investments that fall below the remit of its existing direct investment strategy. It expects to make equity investments of up to EUR 25m per deal, targeting Mittelstand DACH region companies with EBITDA of up to EUR 5m. In addition to majority participations, the fund can also make selective minority investments.

The vehicle is expected to make six to eight deals, with one or two expected to come in 2022, Drees said.

“We will align with our colleagues in other offices in order to leverage on Nord Holding’s sectors of focus: software/technology, healthcare, smart industries and business services,” Drees told Unquote. “The strategy will be similar to the mid-cap approach.”

However, he noted that some of the opportunities for the Small-Cap fund will not be available via auction processes led by M&A advisers. “We will also do deals from our personal networks, via direct contacts, or advisers such as lawyers, but we are of course open to advisory approaches,” he said.

Drees also highlighted the value creation opportunities in small-cap deals. “In terms of valuation, the small-cap environment is typically one or two notches below the mid-cap sector,” he said. “But we can develop a company from around EUR 4m-EUR 5m EBITDA to a EUR 10m EBITDA company via digitisation, ESG and buy and build and get multiple arbitrage through this.”

People
Nord Holding – Jan Markus Drees (partner).

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