Apax/EPF merger highlights consolidation trend in French GP landscape

A new platform created through the merger of EPF Partners and Apax Partners Mid-Market – to be named Apax Partners Development – will focus on the French small-cap market, targeting businesses with an enterprise value below the €100m mark, and investing tickets ranging between €10-30m.

Similarly to Apax Mid-Market, the new branch will place a strong focus on businesses with a digital angle, and will cover four main areas: telecommunications, media and technology (TMT); consumer goods and retail; healthcare; and business and financial services. Around September, Apax Partners Development will kick off the fundraising of its first vehicle, Apax Partners Digital Development III, targeting €200-250m in commitments.

"For us, the merger's purpose was twofold," explains Apax France CEO Eddie Misrahi. "On one hand, the goal was to present our LPs with a larger offer that would include two products instead of one; and on the other hand, it was an occasion to widen our investment opportunities and get access to smaller deals that we couldn't previously cover due to the larger size of our funds."

According to the CEO, the merger had been in the making for around a year. Virginie Bourel, a Triago partner who advised Apax on the deal, says: "Two conditions will make a merger between two firms much easier if they are fulfilled: choosing a team that has a proven track record, and associating people who have already worked together. In EPF's case, both conditions were met."

There is definitely a rising demand from LPs, who instead of cherry-picking a different fund for each type of transaction, would rather invest in a single firm – preferably one that has a proven track record" – Eddie Misrahi, Apax France

Other parameters, such as timing on the fundraising front – Apax recently closed its Apax IX fund on €1bn, while EPF was about to launch a new one – and the compatibility between both teams were also key. "With Apax and EPF, we felt a very strong will to work together coming from both sides, and common values in terms of company culture, which helped conduct a very smooth transaction," adds Bourel.

Other GPs have preceded Apax in completing this type of merger. Last year, LBO France acquired Innovation Capital from Caisse des Dépôts to make a foray into venture, and inherited the firm's €68m of assets under management. The previous year, Siparex merged with XAnge Private Equity with similar motivations. And in 2014, Bridgepoint took over Rothschild's Edmond de Rothschild Capital Partners (EdRCP) entity, with the goal of strengthening its lower-mid-market presence.

Triago's Bourel believes the trend is gathering weight: "We've been working on similar projects for the last three or four years. Some time ago, being an independent firm was perceived as 'the Holy Grail', but nowadays, people have started seeing that standing on your own can be more challenging – especially for smaller structures managing funds below the €100m mark."

An increasingly challenging and costly regulatory environment in recent times may have also acted as a trigger for the GPs to unite, Bourel adds.

Aside from the cost-cutting perks that a merger presents, acquiring an up-and-running structure may also be a way to create efficiencies compared with the time-consuming procedures related to the creation of brand new entities and recruiting the right team to manage it. "And there is a higher risk in creating a new team than in buying an existing one," says Misrahi.

Adapting to a changing market
If mergers offer a clear set of advantages for GPs, they also respond to an evolving demand on the LP side. According to Misrahi and Bourel, LPs are now seeking larger, more complete structures in which they might invest more money at once, rather than scattering their contributions across different structures.

Says Misrahi: "There is definitely a rising demand from LPs, who instead of cherry-picking a different fund for each type of transaction, would rather invest in a single firm – preferably one that has a proven track record."

For Bourel, the first wave of GP mergers in France occurred post-crisis, around 2009-2010. Those transactions, she says, were however more "defensive" and came as a response to difficult conditions within the financial sector. She places the current GP consolidation trend under a different light: "The logic behind it is now much more positive – we are in a 'business development' dynamic, where GPs are looking to grow and expand.

"The French private equity market has changed – 10 years ago, it certainly did not have the required level of maturity for such synergies to occur between GPs. What we are currently witnessing is the birth of real private equity brands within the French market, increasingly resembling groups of the likes of KKR, Blackstone and others on an international level."

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