French GPs opt for organic diversification

Consolidation among private equity houses, often used as a way to diversify a manager's strategy, has been a prominent theme in the French market, with several players choosing this route. Eurazeo's acquisition of Idinvest and MCH, along with Alantra's purchase of Access Capital Partners, and Tikehau's acquisition of Ace Management, are among the examples.

However, recent fund closes by French players show that organic diversification is still a valid option for some GPs and VCs willing to step out of their comfort zones.

In May, Capital Croissance closed its second and third vehicles, Cairn Capital II and K2 Business Club, while kicking off its diversification strategy. Cairn II has a similar strategy to its predecessor, as it provides €5-15m tickets and expects an investment period of five to eight years. K2 Business Club, on the other hand, provides equity tickets of €15-50m and sets out an investment period of 13-15 years.

"Long-term investing has been considered a valid option for Capital Croissance since its foundation in 2012, though we preferred to raise a vehicle featuring a more standard investment period, as it was its maiden fund," says Eric Neuplanche, founder and president of Capital Croissance. "Now having some track record and with long-term funds having become more common, especially in the US, the team felt it was the right time to raise a vehicle having a longer investment period than average – K2 Business Club." Importantly though, its original Cairn strategy is still in place.

Last year, a number of GPs opted for diversification. Archimed and BlackFin both started diversifying with the raise of their third vehicle. Blackfin closed BlackFin Tech Fund 1 in Q2 2018 – the venture fund represented a significant shift from BlackFin Financial Services Fund I and II, which targeted small to medium-sized companies with enterprise values of up to €100m. Archimed's MED Platform I, which held a first close in Q1 2018 on €530m, will aim to back only six companies, with enterprise values of at least €100m, to double the size of the companies during the investment period. The fund's predecessors, MED I and MED II, were not aiming for such an exponential growth and backed business with an enterprise value of less than €100m.

On the other hand, Sofinnova started diversifying further down the line, after having raised eight Sofinnova Capital funds providing seed, series-A and series-B financing for biopharmaceutical and medical device businesses (Sofinnova Capital VIII closed in 2015). The GP held a final close in Q1 2018 for Industrial Biotech 1, a sector-specific vehicle focusing on startups and corporate spinouts involved in the transformation of renewable raw materials. Shortly after, it also held an interim close for Sofinnova Crossover 1, which focuses on a new market section: the vehicle backs companies related to the biopharmaceutical and medical device sectors with EVs of €50-150m. Sofinnova's strategy shift shows organic diversification can also be appealing to seasoned players.

Flurry of multi-strategists
Both organic and acquisitive diversification strategies are far from uncommon in the French market. Omnes, Siparex, Andera, Idinvest and BPI France have all had a multi-fund strategy since the pre-crisis years. According to a guide on diversification strategies recently published by France Invest – the industry's trade body – a few GPs that were diversifying struggled during the crisis years and needed to refocus on their original investment strategy. But things picked up subsequently: BPI France and Roland Berger's study Transformation of the Private Equity Industry, which looks at trends characterising partners of BPI France between 2007-2017, reported that almost 40% of GPs had at least two strategies, if not more, in 2017.

What the latest closes reveal is the good health of the current fundraising environment: although not first-time-funds, these vehicles are essentially the first test of a new strategy.

Following the examples of well-established French GPs, fairly new players are deciding to not lay all their eggs in one basket. The deployment of these new funds will show whether organic diversification is a winning option even in today's crowded market.

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• Topics
• GPs
• France
• France
• Archimed
• Sofinnova
• Capital Croissance