Qualium bets on high dry powder level to sustain exit valuations

Min Ho
14 October 2022

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French sponsor Qualium Investissement is optimistic that the USD 1.8tn dry powder gathered by private equity funds will continue to support its strong exit returns despite the increasingly global gloomy economic forecast, said managing partner Jean Eichenlaub.

The mid-cap investor, which typically grooms its French portfolio companies for buyers such as Montagu, Permira, Platinum and other upper-mid market Anglo-Saxon peers, is not highly dependent on capital market moves, notably the IPO market for its exits, he said.

"A majority of [our buyers are] typically larger PE firm looking for a well-managed market leading mid-sized firm with further international growth perspective," he said. "Our view is that there is a lot of capital available at the upper end of the market, for strong businesses operating in healthy markets with solid organizations, including on ESG matters which become even more critical as you grow."

The comments come as the GP approaches the EUR 500m fundraising target for Qualium III – a goal it had communicated earlier this year. Closing is expected well before year-end, with the fund having so far secured EUR 425m in commitments, according to a source.

Eichenlaub declined to comment on the fundraising progress, apart from noting that LP support is strong, allowing the GP to start investing as early as last November.

Its third flagship fund has so far backed four companies this year against an objective of building a portfolio of 10 companies, he said.

While valuations are down in certain segments and sectors, companies that interest Qualium have typically fared better, he said.

The GP has a sector-agnostic approach to investments with a belief in "remaining agile and sufficiently opportunistic". Its main experience is in sectors including food, healthcare, digital & IT platforms and industrial services, he said.

Macro uncertainties
"Ukraine, inflation, supply chain or recession threats are serious issues we all have in mind," he said. "We are typically very mindful of energy and other manpower cost increases when reviewing deals."

For manufacturing companies, the cost of electricity and gas will impact margins, and it will take several months to increase prices to end customers, but B2B or digital platforms have more flexibility to deal with the current issues, he said.

The environment is also affecting the fundraising mood, with the managing partner "conscious" that fundraising can be a challenge especially when seeking new LPs, he said.

But Qualium has benefited from LPs increasing their commitments in its latest fund, just as LPs face re-up constraints alongside a desire to concentrate GP relationships, he said.

Qualium typically buys EUR 10m-15m EBITDA business with the aim of doubling or sometime tripling their size to attain a critical size for larger international funds, he said.

Among its latest transactions are the exit of French industrial electric heating group Vulcanic to UK's Spirax-Sarco Engineering in a deal valued at EUR 261.7m, as well as the investment of Verdot Industrie, a purification equipment manufacturer for the biopharma industry.