GP Profile: Investindustrial eyes near-shoring opportunities as third growth fund closes

"One trend is the nearshoring of our production in Europe, with Northern Italy a beneficiary of that," he said. "It has nothing to do with geopolitical tensions, but more about being able to control the supply chain."

While high inflation means that there will be extra costs related to "Made in Europe", the medium term looks positive, he said, noting that many of its LPs are seeking exposure to investment opportunities in this area.

The trend has been notable within its portfolio company Artsana, an Italian baby care products producer and owner of parenting brand Chicco. The company noted in its 2020-21 annual report that supply chain issues had "negatively impacted Artsana's capability of ensuring business continuity" during the COVID-19 pandemic, including its relationships with suppliers in China.

Beyond industrials, the London-headquartered GP will be seeking investments in areas including healthcare, high-end consumer brands, business services and food ingredients generating at least around EUR 10m-EUR 20m EBITDA range, he said.

"Healthcare has generally been very resilient, while there are a number of high-end consumer brands in our core region with global potential that we like," he said.

Its deal hunt has, however, been affected by continued high valuation expectations on the part of sellers. "We're very focused on having a good entry valuation, so we need to take our time with vendors," he said. "While pricing is coming down across markets, it sometimes takes many months to work through that bid-ask spread."

One way for the GP to break the impasse is to convince vendors to become a minority shareholder, which will offer a route to create "meaningful value creation for them", he said.

Investindustrial has recently named in several live processes, according to reporting from Mergermarket. These include the sale of Silvateam, where it is in exclusive talks to buy a minority stake in the Italian plant extracts produce. Investindustrial is also reportedly following the auction process of Orkla Food Ingredients. Nauckhoff declined to comment .

Strong European showing
Investindustrial's deal search comes at a time when the GP has just wrapped up the fundraise for its third lower mid-market vehicle, raising EUR 1.1bn, as reported.

For Investindustrial Growth Fund III, the GP raised funds from around 50 LPs. It had a "very strong following" who came from US endowments, pension funds and insurance companies, he said. Around 90% of the fund's commitments were from existing investors, with the balance made up of new investors.

Around 75% of the capital committed came from European LPs, with the remaining from North American investors, he said.

The stronger European LP representation came in part from investors who are already familiar with the European markets and the wider macro-economic environment, especially considering the recession fears and the continuing war in Ukraine, he said.

"There is a higher percentage from European investors than compared to our most recent funds, reflecting European investors being able to take a better read on the opportunities in Europe," he said.

"While the headline GDP numbers look very subdued at the moment, good managers are still able to produce returns that are not particularly linked to economic growth. The further away LPs are from Europe, then perhaps it becomes more difficult to read into that," he argued.

Other factors impacting the LP geographical makeup include the fund size, with a EUR 1.1bn strategy not a sweet spot for many of its large US pension funds. Instead, its flagship buyout funds would be a more natural place for them to commit capital, he said.

The fundraising took "a little longer" than expected as LPs across the market continue to feel the impact of the denominator effect, as well as higher competition from other GPs seeking re-ups for their strategies, he said. However, it was able to keep fundraising within a 12-month period, which he said is a "big success" for this market.

While ticket sizes from investors have come down for this fund, Investindustrial managed to get new LPs on board, which should act as a "very stable foundation to build on", he said. "After the great financial crisis, many of the investors that allocated to PEs at smaller trough sizes tended to then come back up to larger amounts in the years following," he added.

Candidates for exits
Investindustrial has "a couple" of candidates that could be considered for exit this year, although Nauckhoff noted that it is expected to be a "quieter" year for divestments given it had already made 11 realisations across its strategies over the last two years.
"We have a young and tight portfolio, so there aren't many natural exits for us left in the portfolio," he said.

The GP believes that the current environment is "not a natural exit market" for either the IPO market or private equity buyers, who now require higher leverage ratios to get the deals done, he said. Where an exit route remains open could be to trade buyers, where 60% of its exits have historically gone towards, he said.

Within InvestIndustrial's current portfolio, companies with high "likely to exit" (LT) score, according to Mergermarket's predictive algorithm, include Northius, a Spanish vocational education provider. Last year, the GP mandated Rothschild for the sale process with CVC, Cinven and Providence reportedly showing interest in the Spanish vocational educational provider.

Among some of the longest held businesses at Investindustrial includes Artsana, as well as Italian pumps and valves manufacturer CEME and UK furniture retailer OKA Direct, which have been part of the GPs portfolio for five to six years.

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