GP profile: Silverfern

Silverfern was founded in 2006 and is led by founding principals Clive R Holmes and Reeta K Holmes. The firm originally invested solely in North America but made its first investment in a Europe-based company in 2012. It has offices in Frankfurt, Amsterdam, New York and Sydney, and a team headed by 10 senior investment managers. The GP also works in partnership with more than 50 industry experts.

The GP held a first close for Silverfern Global Opportunities III on more than €110m in April 2020, having launched the vehicle in 2019.

Spittler tells Unquote: "We used to fundraise for each transaction, but over the years the committed capital in mandates and managed accounts grew. We chose to create a fund a year or so ago; we reached out to our existing investor base and new investors, and took feedback on how to structure things. It took 6-12 months from the beginning to now, at different intensities. We also did two transactions at the end of last year and the beginning of this one with investors who wanted to see some dealflow prior to committing.

"We will have complementing existing mandates and co-investment pockets, so the overall commitments targeted will be around €500m, but the target size of the fund is €300m."

Asked about the final close, Spittler says: "We expect to hold a final close in 2020, but the current environment has obviously changed some of the expected timings. If the lockdown goes on until July, it may take longer, but if we open up in April or May, we will aim to close in late summer or autumn."

Zucker says the LP base will be similar to Silverfern's previous investor base, in which a group of more than 60 long-term family offices backed the firm on a deal-by-deal basis: "Historically we have invested on behalf of large family offices and institutions such as private banks, but now there is a growing number of institutional investors complementing our LP base. We have existing and new investors for the first close and we have both institutional and private investors."

Zucker adds that the fund is backed by LPs from a broad range of geographies. "The biggest part of the LP base is European in terms of numbers, then we have some from Australia and New Zealand, as well as Asian investors. But there are also family offices from the Middle East, Latin America and North America."

The new fund will deploy equity tickets of €20-100m, with the higher bracket being reached via co-investments with its LPs. The fund plans to deploy an average of €30m per ticket – although the average ticket will ultimately depend on the final close, Zucker says. "There are concentration limits, meaning that we will make 8-12 investments. Our anchor investors are interested in co-investments, showing a significant amount of appetite for this." Silverfern historically deployed $20-30m in equity on a deal-by-deal basis.

Spittler explains the new fund's geographic focus, which will reflect the strategy that the firm has been pursuing since 2012: "The fund is global in the sense of our office locations. We have done investments in India, for example, such as an IT outsourcing company, with its customer base in the US economy. So the main markets will be North America and Europe, as well as Australasia."

Click here to view a complete profile of Silverfern, including a comprehensive list of LPs and their individual commitments, as well as up-to-date portfolios, on Unquote Data

Looking to the future
The GP will be flexible in its investment strategy and will seek businesses that are profitable, but with significant potential for future growth. It aims for average entry multiples of 6-8x EBITDA per company. "The investments will be opportunistic in the sense that we are not really constrained to industries and regions," says Spittler. "The opportunity is in overlooked businesses, meaning businesses that are not in the focus of our competitors. Our objective is to make conservative investments in the private equity environment with low leverage and robust business models."

He adds that the type of investment is also flexible, but with one area ruled out: "We are not constrained to certain types of transactions and can engage in growth investments, traditional LBOs and so on. But we would not do restructuring investments."

Spittler says the current market is rich in opportunities that fit the GP's investment profile: "We focus on areas where value is misperceived, going into situations where it might be hard to see the value. The Covid-19 situation will create a lot of these opportunities arising from timing pressure or difficulty in analysing the numbers, leading to investments that are not just a plain-vanilla exercise. We will see a lot of opportunities for complexity, where you need experience. We have done this for many years and have seen economic downturns before, and we strongly believe that there will be a lot of opportunity ahead."

The GP therefore expects to increase its investment pace with the new vehicle, Spittler tells Unquote: "Our historic pace of investment was four per year, and last year we did two. This year we expect to go back up again – we are currently working on a number of opportunities for every team in every office location."

Zucker expects that the firm's historical approach to financing and leverage means that its strategy will be resilient to the coronavirus crisis. "It would be hard to get a debt package at the same level as one might have done in Q4 2019 now. But our historical entry leverage was often around 3-4x EBITDA, which is relatively low. With the market coming towards the levels that we are already used to working with, we will have to work very hard to gain trust and be able to acquire companies at a fair valuation with low leverage. But this is in our favour."

The GP has realised 13 investments so far, alongside three partial exits from its existing portfolio. The firm has made a composite gross IRR of 22.6% across its 22 private equity investments so far and will target similar returns with its new fund, following a similar investment strategy focused on organic growth and add-on acquisitions.

The GP's latest investments were made in North and South America. Prior to launching its fund, the GP's European investments included France-based biscuit producer Continental Bakeries, in which it acquired a majority stake along with Goldman Sachs.

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