Fund in Focus: Ardian raises €4.5bn for sixth LBO Fund

Closed after just four months on the road, Ardian's Fund VI is the quickest fundraise completed by the French GP to date, and is nearly double the amount the GP raised for its previous vehicle: LBO Fund V closed on €2.41bn in October 2013.

On top of the €4bn gathered for the France-domiciled fund itself, Ardian also put in place a €500m co-investment pocket for its LPs – a way to strengthen relations with investors, according to the GP. A similar measure had been put in place for Fund V, with co-investment rights amounting to around 15% of the fund.

“Our current success is the result of the work we’ve done since inception, and of the success of the fund’s five previous generations,” says Philippe Poletti, head of the GPs mid-cap buyout team. “People hardly ever refer to 'Axa Private Equity' nowadays, which for us is proof that we’ve done well.”

We could have raised a lot more money, but purposely limited ourselves as we wanted to stay within the mid-cap segment and make sure there were enough investment opportunities to fully deploy the fund" – Philippe Poletti, Ardian

Having started off in France, the firm expanded into Germany, Italy, Spain and the UK, and now has a total of $55bn in assets under management.

Commitments from institutional investors have also been on the rise, with insurance companies representing 17% of the latest fund’s LP base, against 8% for Fund V. Banks, meanwhile, saw their contributions rise from 1% in the previous fund to 6% in Fund VI.

“We could have raised a lot more money,” says Poletti, “but purposely limited ourselves as we wanted to stay within the mid-cap segment and make sure there were enough investment opportunities to fully deploy the fund.”

Proof in the pudding
For Poletti, the successful fundraise of Fund VI owes a lot to the groundwork laid with previous fund generations. With Fund III and Fund IV, portfolio companies grew their turnover by an estimated 50-60% over the holding period, while their EBITDA increased by 62-69%. The companies’ international expansion often played a significant part in their development, with an average 25% of their revenues made abroad.

“Another very attractive element for our investors,” Poletti adds, “is our capacity to close a significant amount of proprietary, as well as primary, transactions.” According to him, more than half of the investments made with Fund V were primary deals.

As a result, around two thirds of LBO Fund V investors stayed on, committing 112% of the amount they contributed to the previous fund. Of the investors, 42% hail from Europe, 20% from Asia, 19% from North America, 14% from the Middle East, and 5% from South America. Ardian primarily depended on its internal fundraising team to source commitments, with a placement agent only employed in countries where it was mandatory, namely Chile and South Korea. Linklaters provided the GP with fund structuring advisory services.

Two investments have already been made via Fund VI, with the acquisition of Hypred in May, and that of Dedalus in July – both primary and proprietary transactions. A third one, in Germany, should be closed by the end of the year, according to Poletti.

Planning ahead
As with the fund’s previous generations, six core sectors will be targeted: aeronautics and defence, food and ingredients, healthcare, consumer goods, chemicals, and insurance.

The GP might make a few more investments from its new vehicle than it made from the previous fund, targeting 20 portfolio companies rather than 15, with enterprise values falling within the €175m-1.5bn range. In terms of equity tickets, the fund’s sweet spot typically varies between €100-300m.

Similarly to Fund V, Fund VI has a lifespan of eight years with a two-year extension, and a typical holding period of four to five years.

Geographically speaking, Fund VI will more or less follow the same map as Fund V, which was invested 50% in France, 19% in Germany, 13% in Italy, 9% in Belgium, 5% in the UK and 4% in Austria. While around 85% of Fund VI will therefore be re-invested in these “core” markets, the GP will devote the other 15% to additional opportunities in Spain, the UK and potentially other locations, Poletti confirms.

A very attractive element for our investors is our capacity to close a significant amount of proprietary, as well as primary, transactions" – Philippe Poletti, Ardian

In keeping with the increased size of this latest fund, Ardian has grown its mid-cap team from 25 to 36 members over the last three years, hired an extra four managing directors to reach a total of 14, and opened extra offices in Spain and the UK.

And the group’s progress does not stop there. The recent closing on €1bn of Expansion Fund IV – focused on lower mid-cap investment opportunities with enterprise values falling within the €50-150m range – means Ardian currently has some €5.5bn to invest in the European mid-market segment.

Keen to enhance its coverage of the EU market, the LBO mid-cap team at Ardian is currently considering a way to achieve better coverage in the Netherlands, and later the Nordic region, according to Poletti. A €5bn+ mid-cap fund could then be on the cards in the near future, Poletti says.

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