Azulis set to hit the road in 2014

Azulis will be looking to raise up to €250m for its fifth vehicle, Middle Market Fund V, roughly in line with its previous efforts. The GP had received €225m of commitments for its Fund IV in 2010, while Fund III had raised €265m in 2005.

Azulis's current fund, Middle Market Fund IV, is so far invested at 63% and the GP is on track to complete a couple of deals to wrap up the vehicle. Exit-wise, Azulis is currently in the process of finalising the first divestment from Fund IV – which should complete by early October – with another exit, still in its early stages, in the pipeline.

Meanwhile, the GP remains hard at work with its Fund III. "We have so far sold 12 out of 24 holdings in Fund III's portfolio and returned 100% of committed capital to our LPs already," says managing partner Michel Rowan. "We are currently working on a 13th exit for this vehicle, which we expect to achieve by the end of the year."

The upcoming Fund V will keep to Azulis's established strategy, providing €8-15m per deal, focusing on French mid-market businesses valued in the €25-80m range. Sector-wise, Azulis will again stick to its guns and continue to focus on the industrial, agro-food, retail and healthcare services sectors, with a mix of buyout transactions and growth capital.

As with previous vehicles, buy-and-build will be a major value driver: "The goal is to actually increase the focus on this strategy," says Rowan. "In order for us to meet our LPs' returns expectations in a low-growth, low-leverage environment, capitalising on the EBIT/EBITDA parameter is crucial – and build-up operations are obviously a good way to achieve that."

As far as investors go, Azulis will look to broaden its horizons: "The LP base for Fund IV was mainly French, while it was more pan-European for the 2005 vehicle," Rowan explains. "We are currently approaching our existing investors and are considering broadening the LP base, both in France and across Europe." Azulis has enlisted the help of placement agent Acanthus to assist on the fundraise.

Succession planning
The new fund will also see the beginning of a changing of the guard for the GP. "We have been implementing a succession plan for the past three years, with four founding partners due to retire by 2016. We have been putting a lot of work into making sure the transition is as smooth as possible, and communicated to our LPs transparently and well ahead of time," explains Rowan.

Three founders, Yann Collignon, Pierre Jourdain and Christine Mariette, will stay with the firm and play a more prominent role, supported by the other two partners that joined the GP over a decade ago. Azulis will then look to build the team progressively following the fundraise and according to the timing of the various departures.

Looking forward, Rowan is bullish on the French market's capacity to rebound following a tough 18 months. "We are currently witnessing a subtle shift in dealflow, and several corporate financiers we are used to working with stated they have secured quite a few new mandates. Processes remain tough, though, with current trading issues being a major turn-off. Sale candidates facing strong headwinds won't just experience a price drop – the process will be pulled altogether. But as far as the French economy as a whole goes, 2014 and 2015 could shape up to be interesting rebound years."

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