GP Profile: Metric Capital confident of structured capital strategy demand with multiple exits in pipeline

“At present, in economic conditions where the prevalence of challenges related to capital raising increases, we're seeing a very attractive pipeline as a structured investor with a tailored offering,” he said.

The firm, which markets itself as an alternative to private equity and private debt, is currently seeing “extremely good” deal flow, said Sinik. With its fourth fund MCP Private Capital Fund IV 85% deployed, the sponsor expects to close its investment period this year, with the fund making about 13 to 14 transactions in total, Unquote reported. The fund held a final close on EUR 1.2bn in December 2019.

With a number of deals in exclusivity for its fourth fund, Metric Capital remains on the lookout for mid-sized opportunities in Europe with attractive risk-adjusted returns. In doing so, the investment team is more sector-selective and cautious when it comes to the type of transactions and deal structures that it goes into, he said.

In the meantime, the firm is set to hold a first close for a successor vehicle imminently, as reported. Sinik would not comment on the progress of the fundraising for the EUR 1.5bn Fund V that will largely continue its predecessor’s strategy and will only open for investments once MCP IV is fully invested, as reported.

Exit opportunities
Metric Capital is also looking to exit several of its investments across its three latest funds, said Sinik, noting that this will translate to “quite meaningful” returns. “All companies in the portfolio of our Funds III and IV are performing at or above business case and that's putting us in a position of strength where we have several options available to contemplate an exit, whether it's through refinancing, a sale or an IPO,” he added.

The sponsor and Evolvere Capital are actively looking to sell Spanish digital marketing specialist BeeDIGITAL, Unquote sister publication Mergermarket reported. Metric Capital has been the majority shareholder of the firm since 2017.

Since the inception of the firm, the GP has exited more than half of its investments and has generated a realised IRR of 25%, said Sinik. Its last three exits have generated returns of 80%, 60% and 50% IRR respectively, he said, without naming the businesses directly. Its most recent exits include Dublin-based specialty pharmaceutical firm Noden Pharma in October 2022 and Finnish rental school and day care provider Parmaco in February 2021, according to its website.

Non-discretionary in focus
When it comes to capital deployment, the sponsor is focusing on resilient and inflation-proof market segments across all industries, exercising extensive diligence, he said. It is also targeting asset-backed deals that can collateralise an investment in case of economic headwinds, he added.

Seeking to invest in a “more defensible” setting, within healthcare, for example, it remains interested in non-discretionary pharmaceuticals. In 2020, the sponsor acquired stakes in Greece-based contract development and manufacturing (CDM) provider of drugs and food supplements Famar and in Turkey-based branded pharmaceutical company Sanovel.

In consumer, it is targeting a range of inflation-proof segments, including quick-service restaurants, exemplified by its recent investment in Australia-based Mexican restaurant chain Zambrero. It is also looking at high-end venues such as Dream International, a Turkey-based operator of several restaurant brands that it backed in 2018.

Leveraging contractual returns
LPs are increasingly looking for investment guidance and are conscious of their private capital allocations, meaning that they are requesting access to quarterly reports from GPs, said Sinik. Metric Capital’s investment approach of writing up the portfolio of its latest two funds each quarter throughout 2022 has therefore been “very well received”, said Sinik.

“I have not seen this type of focus on quarterly statements before and our LPs are communicating to us that we are in the minority, as other GPs were finally starting to mark their portfolios down in the second half of 2022,” he said.

To overlay the characteristics of a credit deal or private equity deal with security over assets or shares, with a layer of protection, the GP often structures its transactions with a contractual return embedded in its deals, said Sinik.

This typical contract-backed return is an annualised mark up of 10%-12% each quarter, with equity return on a zero cost basis for some transactions, he said. “So the basis on our equity is lower than that of a private equity deal,” he said. As a result of this, the firm is seeing a markup in its investments, with its 22 portfolio companies across its Funds III and IV performing at or above its underwriting case, he added.

Metric Capital provides a range of instruments across the capital structure, including senior debt, subordinated debt, convertible instruments and preferred and/or common equity. Its origination network is pan-European, with offices in Spain, France, Germany, Sweden and Luxembourg.

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