Alcedo to launch €230m fifth fund

The GP expects to hold a first close by December 2020 and a final close by March 2021.

"Despite the uncertainty triggered by the Covid-19 pandemic, we are confident that given our long and solid track record our investors will re-up to our fifth vehicle," Alcedo partner Michele Gallo told Unquote. "We have already started promising discussions with several LPs and expect a smooth and fast fundraising process in the coming months."

Alcedo is currently investing its fourth fund, which held a final close on €195m in May 2016, exceeding its €175m target. The fund is currently 70% deployed across eight companies.

The firm's previous vehicle, Alcedo III, closed on €173m in November 2008 and made 10 investments. It reaped a 3x return and a gross IRR of 28%. The GP expects to reach the same return with its fourth fund.

"We plan to complete the deployment of our fourth fund by the end of the year," Gallo told Unquote. "We expect to ink two more deals in H2 – one in the mechanics industry and one in the packaging machinery sector. In addition, we have four add-ons in our pipeline: one for Demetra, one for Stranich, a large add-on for Eurochef and a smaller one for Bertoncello."

Alcedo IV's current portfolio is composed of retail display business Exa Group, acquired in February 2016 with an €11m investment; cosmetics and nutritional supplements manufacturer SwissCare, backed in September 2016; heavy-duty centrifugal fans maker Aeromeccanica Stranich, also bought in September 2016; industrial machinery manufacturer Duplomatic Oleodinamica, purchased in March 2017 for €27m; farming machinery producer Demetra, backed in September 2017; footwear specialist Atlantic Stars, bought in May 2018; and ready meals producer Eurochef, acquired in July 2019. 

"Almost all our companies have performed well despite the lockdown," Gallo said. "The only business that has encountered some challenges is Atlantic Stars, given the negative effect that the pandemic has had on the fashion industry, but overall our portfolio's revenues are growing at a faster pace than the previous year."

The GP said that Duplomatic and Exa have been performing particularly well. Duplomatic reached €114m in revenues in 2019, following the acquisition of Hydreco as well as intensive organic growth. Exa also increased its turnover substantially, from €70m when it was acquired by Alcedo to €172m in 2019, via both organic growth and the acquisition of Mobil Project, which contributed around €40m in revenues.

The GP told Unquote that it plans to complete at least two exits in 2021. Gallo said: "Despite the pandemic affecting the world's economy, we don't forecast a long-term recession but only a temporary slowdown. Recovery signs are already visible, at least across our companies and the sectors that we have been targeting. We plan to be even more cautious and selective in our future investments, but we expect a quick recovery for the numerous and successful family-owned businesses that compose the Italian small-cap and mid-market."

Investors
Gallo told Unquote that the firm plans to build a large base of investors, very similar to Alcedo IV's, which was composed by around 50% Italian institutional investors, primarily pension funds, insurance companies, banks and family offices, and 50% international investors, mostly European fund-of-funds.

Gallo said: "We expect a high re-up rate to our new fund. We also plan to slightly expand its international investor base with the addition of some new LPs from Europe and probably the US, where we have already had some positive discussions."

Investments
Like its predecessor, Alcedo V will target Italian companies operating in a wide variety of sectors, with high-growth potential and an export-orientated approach.

It will deploy equity tickets of around €15-20m in companies with revenues of at least €15m. The fund will support its portfolio companies' organic growth and will pursue an intensive buy-and-build strategy in Italy and internationally.

The fund will acquire primarily majority stakes and some qualified minority stakes when clear exit clauses are in place. It will apply moderate leverage of up to 3-3.5x EBITDA.

People
Alcedo – Michele Gallo, Filippo Nalon, Maurizio Tiveron (partners).

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