Cathay Capital closes Midcap II on €800m

Alessia Argentieri
14 May 2020

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Cathay Capital has closed its Midcap II fund, dedicated to supporting the international expansion of mid-market companies in Europe, China and North America, on тЌ800m.

The fund was launched in June 2018 with a target of €1.2bn and held a first close on €600m in December 2018.

"We launched our fund with a very ambitious target, which helped us to get momentum and complete a very successful first close," says Hervé Descazeaux, managing partner of Cathay Capital. "Subsequently we decided to reduce the fund target to a size that better suits our investment project."

The fund's predecessor, Midcap I, held a final close in December 2014 on its hard-cap of €500m and is now fully invested.

The GP has also raised €500m for its Cathay Innovation II fund, which targets startups with a special focus on the digital transformation and the industrial revolution induced by artificial intelligence across the retail, fintech, healthcare, transport and energy sectors.

In addition, the GP is currently managing its Small Cap Fund III, which closed on €230m in December 2017. Unquote understands that the fund plans to make two more investments in the coming months before closing its investment period; one in the healthcare industry and one in the digital services sector.

Subsequently, the GP intends to start fundraising for a fourth vehicle by the end of the year.

Investors
Midcap II's LP base includes BPI France, the China Development Bank, the European Investment Fund and the Silk Road Fund, which make up around 40% of the fund. The remainder is composed of 30% French institutional LPs, primarily insurance companies and banks, and 30% European family offices and entrepreneurs.

"Following the first close we were able to raise an additional €200m from new investors that were attracted to our successful track record," says Descazeaux. "In addition, the vast majority of the LPs from our previous vehicle re-upped to our new fund. This allowed us to build a wide and well-balanced LP base, which spans through different categories of investors and geographies."

More than two-thirds of the fund's LPs are from France and the rest of Europe, while the remainder comes from the rest of the world, including some Chinese and Singaporean LPs.

Investments
Midcap II targets companies based in Europe (mainly France and Germany), Asia (China but also south-east Asia via the group's new office in Singapore), and North America. Potential companies must have high-growth potential and ambitious expansion plans.

The fund intends to make around 15 deals by providing equity tickets of €30-100m and is open to co-investments with its LPs for larger deals. It targets the healthcare, consumer, technology, manufacturing, and business and digital services sectors.

The fund plans to deploy around half of its capital in Europe, 40% in China and 10% in the US. "This is the first time we have expanded our allocation to North America, "says Descazeaux. "This will deepen our presence in the US and Canada, a key element of the firm's globally integrated investment strategy."

The vehicle targets companies with enterprise values of more than €100m. It acquires both majority and minority stakes, making LBOs and growth capital investments, and using moderate leverage in its buyouts.

The fund has already made four investments: two in China, one in the US luxury sector and a fourth in France, by acquiring a minority stake in a medical devices company.

"Despite the coronavirus crisis, we are open for investments," says Descazeaux. "The recovery in China has been fast and we are very active in the Asian market. In Europe, the M&A activity is currently very slow but we are finalising two transactions with our small-cap fund. In the mid-cap space, we don't have any deals in due diligence currently and we have noticed a significant dealflow scarcity, but we are looking for new opportunities and expect to make some investments in the coming months."

People
Cathay Capital – Hervé Descazeaux (managing partner); Mark Woods (head of North American private equity).