Capza launches SME decarbonisation fund with EUR 1.3bn target

The fund will support companies in their transition to carbon neutrality, as well as companies that develop products and services that contribute positively to sustainable development issues, particularly environmental ones, according to a statement. Its goals will be in line with the Paris Agreement.

Linklaters is providing legal advice on the fundraise.

The vehicle is an Article 8 funder under the SFDR, according to the statement, as are all of the funds that Capza is currently raising or deploying from.

Flex Equity Mid-Market II is the successor vehicle of Capza Flex Equity Mid-Market I (formerly known as Capza Expansion Fund), a minority investment fund that held a final close in September 2021 on EUR 500m.

The team will be led by three Capza partners: Guillaume Basquin and Frédéric Chiche joined Capza in 2021 from 3i, while fellow partner Stéphanie Frachet joined Capza earlier this month from BPI France.

The GP believes that its flexible strategy is likely to generate more opportunities in the current macroeconomic climate, according to Chiche. "We are seeing an increasing number of deals where a management team or family want to find a new partner, limit their dilution, and at the same time accelerate the development of the business, notably by acquisitions," he said. "They don't want to leave too much of their money to a plain vanilla fund to accompany the business."

Capza said in a statement that head of sustainability and impact Aurore Gauffre, who joined the firm in May 2021, will support the fund's team in implementing its sustainability strategy. According to the same statement, the GP believes that value creation now depends on the implementation of a sustsinable development strategy. 

"If we see an interesting build-up with a decarbonisation angle, we will push for this," Basquin said of the fund's sustainability-linked value creation approach. "But we will mostly focus on organic initiatives. We will implement a roadmap decided on and committed to by the management team, based on specific KPIs around decarbonisation. The alignment of the management team's interests will be made through our incentive packages and financial instruments, and we ourselves will be impacted by these objectives as an investor as well."

This refers not only to ESG-linked debt instruments, but also ESG-linked equity ratchets to incentivise management.

The fund's first investment is WiFirst, a France-based workplace Wi-Fi provider for which the GP already has an ESG-linked value creation plan in place. We have identified sustainability challenges for WiFirst: notably data and energy consumption, diversity, climate and decarbonation," Chiche said. "We will push for more optimisation of the service they provide and will push the usual levers when it comes to sub-contractors and waste managers."

The firm plans to bring the kind of ESG analysis often conducted by public companies to its portfolio companies. "Large listed businesses are already advanced in terms of sustainability, while SMEs and mid-caps are only at the beginning of the curve, and we are reaching out to that area," Chiche said.

Investors
Asked about the LP base, Basquin told Unquote that the fund already has commitments from investors such as institutional investors, insurance companies, family offices, and high net worth individuals. "Many of these are currently Capza clients, as well as some new ones, which will potentially be more international," he said.

Capza Flex Equity Mid-Market I was solely financed by Axa France, according to Unquote Data. LPs in Capza's other strategies include Ardian, Eurazeo, Golding Capital Partners and the European Investment Fund (EIF), as well as BPI France and BNP Paribas.

Investments
Capza Flex Equity Mid-Market II will invest in 10-15 companies, taking minority or majority stakes and investing via equity or a range of non-dilutive instruments.

"We will be supported by our local partners to help us source and execute these deals," Basquin said. "As of now, the team is mainly based in France, and over the mid term we plan also to recruit dedicated people in all four geographies where we have offices: Italy, Spain, Germany and Benelux." He added that the fund can also make deals in the Nordics and the UK, provided that the GP sees a strong angle for the deal and can leverage its sector knowledge.

Although the fund will take a generalist approach, it expects to invest in sectors where the firm and the Flex Equity Mid-Market team have specific expertise, according to Chiche; namely healthcare, B2B services, and technology. "We have already invested in one technology deal and one healthcare deal in this fund," he said, referring to WiFirst and gastroenterology and dermocosmetics business Laboratoires Mayoly Spindler. "We are looking for favourable tailwinds, strong secular growth, and resilience. We will be very selective, but we could invest in other sectors with attractive risk-adjusted returns."

The GP is currently finalising one deal from the fund and expects to do one to two more deals this yar, Chiche said. "We are currently looking at one in healthcare, one in software, and one pure industrials," he added. "We are aware of the current context and believe our flexible model will produce opportunities for entrepreneurs who want to accelerate and make add-ons in better conditions in Europe."

Asked about deal sourcing, Chiche said that a portion of the fund's deals will be primary. "There might be less of those in the next two or three years, so that portion could decrease, but we will still be more inclined to do a deal in a proprietary contest or in a limited contest where we have a strong angle," he said.

"The flexible strategy is in itself a sourcing strategy, given that we can invest with shareholder and management teams with the way we approach the deal, depending on the dilution and structure they want," Basquin said.

People
Capza – Guillaume Basquin, Frédéric Chiche, Stéphanie Frachet (partners).

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