GP Profile: Hayfin seeks European mid-market opportunities with PE strategy

The strategy, which has been deploying its second vintage since mid-2021, is focused on direct deals such as single-asset GP-leds, co-investments and equity injections in existing assets. These currently represent around 70% of new transactions, as well as primary fund investments, Erroz said.

The firm can tickets of EUR 20m-EUR 40m, with the potential for larger transactions together with other pools of capital from Hayfin. If the ticket size goes into the EUR 40m-EUR 120m range, the strategy can add capital from other parts of the "Hayfin family", Erroz said, adding that "it helps to be part of the platform" in these cases. Hayfin focuses on businesses with EBITDA of EUR 10m-plus for its direct deals.

While typically known for its private debt offering, including a reportedly newly established healthcare-focused private credit fund, the sponsor launched its Private Equity Solutions strategy in 2018 and now now has EUR 1bn AUM across the two vintages.

The first vintage was seeded by British Columbia Investments (BCI) and, while not guaranteed to persist, it is showing "encouraging returns" having completed two exits from direct deals, said Erroz, who joined the firm in 2019 following a nine-year tenure in the private equity division of insurance firm Allfunds.

Co-investment support
Hayfin been selective in its approach in spite of the opportunity it sees, doing just 3% of the deals that it looked into while investing the first vintage, Erroz said.

This selectivity has determined the fund’s portfolio construction. "In 2019, we anticipated that a crisis would likely come at some point – we were, of course, not considering COVID-19, but we anticipated that the market would likely drop in the next couple of years," he said. "For our first vintage, we decided to focus on resilient and downside-protected sectors, namely healthcare and tech services, which made up around 70% of our deals. The remaining 30% was opportunistic, covering sectors from food and beverage to business services."

The Private Equity Solutions strategy has made co-investments in new platforms targeted by GPs, as well as co-investments aimed at add-on-investments for GPs who want to add more equity to a platform for buy-and-build or to accelerate growth, Erroz said. “A very small amount of the deals that we look at are in syndication, and we usually look at potential deals very early on, even when it is just an idea,” he said.

The firm makes co-investment both with managers who are already in its portfolio and with external managers, diverging from the usual approach to co-investment processes. "We aim to deliver a much larger deal flow funnel, allowing us to be much more selective about new opportunities," Erroz said. "We can also add some fees and carry on co-investments with external managers to have a better alignment of interests."

The firm recognises the importance of acting fast in any co-investment opportunity that it reviews. "As well as coming in early, we strive to give a very quick answer," said Erroz. "After clearing the required NDA, we can typically deliver an indication of interest over a period of seven to 10 days, depending on the information available."

The firm has historically discussed these opportunities with its investment committee as part of this process, Erroz said, adding that the IC usually also shows interest in the GP itself. "We believe there is no downside to showing new ideas, as, at the very minimum, they will help the GP to get additional exposure," he said. "We have historically declined a lot of our deals, but everyone gets to know the GP better."

Companies in Hayfin's Private Equity Solutions portfolio include France-based medical clinic chain Vivalto Santé, which it backed in 2021 alongside sponsors including Vivalto Partners and IK Partners, according to Unquote Data.

Funds in focus
Hayfin typically makes fund investments in vehicles of EUR 200m-EUR 2bn but can back larger vehicles in some cases, Erroz said.

The strategy’s first vintage was made up of 50% direct deals and 50% funds, while the second vintage comprises 70%-plus direct deals and around 30% funds. Around four out of five of its fund deals are re-ups, Erroz said.

The firm expects its future fund investments to be "broadly similar" to those that it has made to date, Erroz said. "We don’t do VC and growth currently, but we may look to change this in the medium or long term. It will remain our aim to continue to back top-quartile assets and funds."

Its co-investments complement the strategy’s fund investments, which also allow Hayfin to grow and develop its relationships with managers as they raise subsequent funds. "We have a usual cycle with managers, which typically starts with us doing one or two direct deals with economics," Erroz said. "Then we would usually do a staple – for example, committing EUR 20m to a fund and EUR 20m to a direct deal related to that manager." After this, the strategy can participate in re-ups with the GP until it reaches a fund size of more than EUR 1.5bn. "Then we might speak to our BCI colleagues about the opportunity, seeing if they would like to participate as their ticket size can be bigger," he said.

GP-led boom
Hayfin views its ability to back GP-led secondaries as another line of support to managers in the current market. The landscape around these deals has changed, Erroz noted, with sponsors forming top-up funds or bridge funds to address similar problems related to lack of capital around 2008-9. LPs have adjusted to the growing number of continuation funds in the market, forming sophisticated teams for these deals to support their appetite to take part in them.

"On the GP side, our experience has been that a lot of managers who would not have considered doing a GP-led two or three years ago now see this as another tool to improve the rate of growth of their best assets or to keep assets with a long runway, which is particularly important in a crisis," he said. "Managing this well also means that these firms can optimise both the deal economics for the team and availability of firepower across cycles."

Although Hayfin sources some dealflow via intermediaries, the firm also works directly with GPs in the EUR 200m-1bn domestic and semi pan-regional range (occasionally larger), who have often not done many GP-led deals in the past, Erroz said. "We will have done a lot of background work with them on this, meaning that we can come into these deals early on. They need to make sure that their LPs are happy with the transfer price and the process, as they may not do the deal if they don’t view it as 'clean'."

The firm has undertaken a lot of work with sponsors in Spain and Italy, he added, as well as other geographies, noting that while many of these managers were new to GP-leds, some are now considering them.

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