GP Profile: Sparring Capital in final push for €200m fundraise

Sparring Capital Fund 2 (SFC 2) is aiming to close within the next six months. The vehicle has a hard-cap of €225m and is working with Northern Lights Alternative Advisors as placement agent.

SFC 2 was registered in early 2018 with a target in excess of the amount raised for its predecessor (€110m). The fund was eventually launched in June 2019 and went on to hold a first close on €115m in December. The GP was initially looking to close around the summer of 2020, but the coronavirus outbreak pushed timelines further along, Leclercq says.

"The lockdown certainly made things difficult, with many LPs wanting to get a full view of their exposure across their overall PE allocation before making a call on further commitments," he says. But Leclercq adds that virtual meetings had a definite silver lining for a firm aiming to internationalise its LP base: "We also used that period as an opportunity to initiate discussions with a number of international investors that we would have had a harder time meeting in more normal circumstances."

Founded in 2002, Sparring was known as Pragma Capital until 2018, when the GP rebranded following a leadership reshuffle. Current team leaders Arnaud Leclercq and Denis Catz took over in 2016 from Pragma founders Jean-Pierre Créange and Gilles Gramat. The firm has since added a third partner, Johann Le Duigou – he joined in September 2018, having previously worked for 14 years at Nixen Partners, where he was one of the partners.

Strategy
Sparring had raised three funds under the Pragma banner prior to SFC 2. Its latest effort, Pragma Capital III (which has since been renamed to SCF 1), had an initial target of €250m, but ultimately held a final close on €110m in November 2016 due to internal team strategy changes, according to previous Unquote coverage. It switched its focus to backing small-cap buyouts with an enterprise value in the €15-75m range, investing between €7-15m, mostly for majority stakes.

Sparring has stuck to this strategy since, Leclercq says: "Our angle is not to go after too heavily intermediated, plain-vanilla deals. We specialise in more proprietary transactions for less visible assets, where we can really undertake transformative work."

The GP stated at the time of the launch of SFC 2 that it would not look to move away from its sweet spot, despite the larger fund size. The fund would instead be more likely to back a higher number of transactions.

Sparring has already started deploying its latest vintage, inking its first deal at the start of 2020: Sparring acquired a majority stake in Pure Trade Worldwide, a France-based company engaged in designing and manufacturing luxury retail and promotional packaging products, from Initiative & Finance and Isatis Capital.

The GP is now in the process of closing a second deal with the fund. Although the asset remains unnamed, Leclercq says it is a good fit for Sparring's approach, being a primary buy-in management buyout, in a resilient sector and sourced on a bilateral basis

Portfolio management and dealflow
SFC 1 is now fully deployed for new investments, with some dry powder left for add-ons to the existing portfolio. Last year was a particularly busy one for the GP, with three new platforms deals. These included the MBO of Intermèdes, a tour operator and a travel agency bought in February 2019; Weecap, an electrical engineering company bought from Capzanine, SG Capital Partenaires and the founders in April that same year; and Belgian tech consultancy Nalys, acquired the following September. In addition, Sparring has made a number of bolt-ons for its portfolio in the past couple of years.

Leclercq says the portfolio has remained resilient in the face of Covid-19, although Intermèdes has been more badly hit: "The company focuses on cultural travel, with a generally older clientele, so obviously the pandemic and travel restrictions have had an impact on the top line. But a big part of our strategy for the business was to accelerate its digital transformation, so recent months have been a good opportunity to focus on that work and make good progress to prepare the business for the 'new normal'."

In addition to its ongoing fundraise, Sparring will continue its buy-and-build efforts for the rest of 2020, with Leclercq saying the firm is in exclusive talks on a number of bolt-ons for its portfolio companies (including for some processes initiated post-lockdown). "The current crisis is likely to add up to a year to exit calendars for most PE firms, as no one will rush to bring assets to market in this environment – but that is also a great opportunity to keep adding value to the current portfolio," he notes.

That said, Leclercq is generally cautious regarding the levels of activity that can be expected in the current market: "Dealflow has actually been pretty good in September. But part of that could be due to the market finally unlocking post-lockdown, and it remains to be seen whether that can be sustained for the rest of the year given the macroeconomic environment and the uncertainty around EBITDA adjustments for a number of businesses. Nevertheless, and despite these challenging conditions, 2020 will remain a good deployment year for us, with two deals for the new fund and a number of build-ups in the pipeline."

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