Seven2 to launch 11th fund in next 18 months as fundraising normalcy nears

The mid-cap investor, formally known as Apax, expects to complete two to three more deals for its EUR 1.6bn Seven2 X before launching the new strategy, said Thomas de Villeneuve, partner and head of tech and telecom investments.

Its 10th fund is 60% deployed across seven investments, including Opteven, a European motor insurance group, he added. The roadside assistance and breakdown insurance provider is seeking bolt-on acquisitions to bolster its presence across the continent, as reported.

The Paris-based GP typically begins fundraising when it hits 70% deployment for its incumbent funds, De Villeneuve noted.

Seven2 declined to comment on the fundraising target.

The firm has five active opportunities lined up in its pipeline, all at varying stages, with two potential deal to close before year-end, De Villeneuve said. They sit within the fund’s 20 sub-sectors within tech, telecom services, healthcare and consumer, he added.

Seven2 today announced the acquisition of Infraneo, a French infrastructure surveying services. It has also appeared in the auction for Italian bicycle manufacturer Pinarello, although that has since been sold to a private family office.

There are companies within its Apax MidMarket IX fund that have “significantly grown” and may be targets for divestment soon, De Villeneuve said, but added the firm must be sure that the multiples and valuations are appropriate. The ninth fund, which raised EUR 1bn in 2016, has so far returned EUR 900m – a “quite significant” amount of money through four exits and two partial exits, he added.

One of its portfolio companies on the market is Belgian cloud communications business Dstny, which could be valued at EUR 900m-EUR 1bn, as reported in February.

Companies that rank highly as possible sale candidates according to Mergermarket’s Likely to Exit model include architecture software group Graitec and foods group Europe Snacks.

The GP’s return to the fundraising trail may coincide in what Cousseran hopes will be a return to normalcy towards the end of the year.

“We are towards the end of the denominator effect issue with many LP interests having already been sold on the secondary market, or they have stopped investing since mid-2022,” he said. The phenomenon refers to the need by LPs to rebalance their private capital allocation following a drop in valuation for their publicly traded assets.

For now, the market remains “a bit stuck” with flows of capital blocked and limited money being ploughed into the industry, said Cousseran, pointing to limited distributions by GPs, alongside the denominator effect.

A wave of fundraising means LPs can afford to be selective, with many Seven2’s peers in fundraising mode, even for re-ups, Cousseran said.

Market slowdown

Seven2 is continuing to make investments despite an increasingly difficult M&A environment with the expectation that its focus on top quality assets, backed by managements with a track record of growth and profitability, will continue to drive dealmaking.

“For us. [the challenging M&A market] doesn't really matter,” said De Villeneuve. “We are still executing the deals we want to execute, and we are still targeting the companies we want to invest in.”

However, the market continues to be hindered by the difference in valuation expectations between buyers and sellers, with vendors often unwilling to accept lower prices, De Villeneuve said.

“We’ve seen valuation multiples in 2020-21 that we probably won't see for the next 12-24 months, especially in the tech sector. The slowdown became more significant towards the end 22 when financing became more difficult to find,” De Villeneuve said.

“There has been a large amount of less good quality assets, and some will definitely see their valuations drop in this new environment given the interest rates level, financing conditions, potential recession, geopolitical risk, sustainability policy, as well as increasing cost and CapEx,” he said.

*Mergermarket's LTE predictive analytics assign a score to sponsor-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction.

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