GP Profile: Sherpa Capital

Established in 2010, Spanish GP Sherpa Capital has recently reached €500m in assets managed through its special situation and private equity funds. The firm has strengthened its team with eight new hires in the last six months, and now has a staff composed of 32 professionals.

"We target special situations across the lower-mid-market, deploying tickets of up to €20m, and always focusing on operational transformation of our target companies, in order to improve their EBITDA and overall performance," says Sherpa founding partner Eduardo Navarro. "This is a space where there is not much competition in Spain and our strategy has been thriving over the years."

The GP recently held a final close on €120m for its new fund, Sherpa Special Situations III, after less than a month on the road. Around 75% of the capital was committed by institutional investors from Europe and North America.

"Our fundraising began and concluded in just a few weeks, with most of our previous fund’s LPs re-upping to this new vehicle," says Navarro. "This was possible thanks to the track record of our firm, which has historically generated above-market returns."

Sherpa Special Situations III targets companies in distress due to the current economic environment triggered by the pandemic, or as a result of strategic, operational, financial or shareholding transformations and special situations. It invests in a wide variety of industries, excluding the financial and real estate sectors, with a focus on industrial, wholesale, healthcare, distribution, food, services, transport, logistics and leisure.

The fund plans to make 8-10 investments, writing tickets in the €10-25m range to back companies with turnover of €20-300m. It deploys mainly equity but can also make debt investments in loan-to-own transactions.

Navarro says: "Our vehicle will target a broad and flexible spectrum of potential deals. It will invest in family businesses, divestitures and carve-outs from large groups, and companies going through insolvency or bankruptcy proceedings."

Deployment plans
The fund expects to ink its first deals in the coming months. "The special situations space is very active at the moment," says Navarro. "We have already identified several interesting investment opportunities, and plan to complete a number of transactions with our new fund throughout 2020."

Alongside Special Situations III, Sherpa has also raised a co-investment vehicle that will enable the firm to complete considerably larger transactions in partnership with its LPs, adding significant investment capacity and covering a much broader segment of the Iberian market.

The two vehicles together will be able to deploy up to €100m per deal, and plan to invest most of their capital in the next 12-24 months.

Navarro says: "We decided to keep the size of our new fund in the small range and raise a co-investment vehicle on the side. This strategy will allow us to invest in numerous special situation opportunities that will become available after the coronavirus pandemic in all segments of the market, including larger companies that have typically been outside our investment scope."

Sherpa is also currently managing the portfolio of its Sherpa Capital II fund, which closed on €100m in 2014 and targets lower-mid-market distressed companies based in Iberia and active across all sectors. The fund is currently around 65% deployed and plans to use some of its remaining capital to pursue a buy-and-build strategy for its existing companies.

Navarro says: "We have seven portfolio companies in this fund, which are all performing very well despite the crisis, and we are working on a couple of add-ons for the coming months."

In addition to its special situation range of vehicles, the GP manages Sherpa Capital Private Equity, a fund dedicated to profitable companies based in Iberia. The vehicle closed on €150m in May 2018, exceeding its €125m target, and is currently around 20-25% deployed. It invests in small and medium-sized Spanish and Portuguese companies with EBITDA of €1-8m, and deploys equity tickets in the €5-25m range.

The fund has inked three deals so far: the acquisition of Omega Spice, a Spanish producer of spices, dehydrated vegetables and dried herbs; the investment in Portuguese luxury carpet manufacturer Ferreira de Sa; and the purchase of a majority stake in Barcelona-based bike sharing company CityBike. The fund plans to make a total of 8-10 main deals and around 10 add-ons, and already has two new deals in its pipeline.

Navarro says: "While in the special situation segment we have seen dealflow massively increase with numerous interesting deals, in the private equity segment the outlook is more uncertain. This is why with our Sherpa Capital Private Equity fund we intend to be more cautious and selective, looking primarily for resilient and anti-cyclical opportunities."

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