GP Profile: Riverside Europe

To date, none of Riverside Europe's portfolio companies have shut down operations due to the coronavirus crisis. Managing partner Karsten Langer attributes the firm's achievements to the sharing of information in portfolio companies across Europe and its operating team.

"We have several businesses in Italy that we helped operate within the restrictions put in place," Langer says. "Because events there occurred a lot earlier, this gave us a head start and we were able to institute a lot of what we learned there for the rest of our portfolio." The firm has invested in several assets in Italy, including mineral water and soft drinks producer Galvanina, and catering spare parts supplier LF Spa.

The firm has taken measures to protect employees using sanitary conditions and procedures, and made sure all portfolio companies moved to a work-from-home policy, as did Riverside professionals themselves.

"If sites had to be open to operate, we implemented social distancing," says Langer. "This included segregating shifts, closing off communal areas, segregating changing rooms and having strict procedures for the entrance of distributors and truck drivers. So far, among all of our portfolio companies, we've only had three cases of Covid-19."

Riverside has not provided fresh equity to any portfolio companies yet: "We haven't had to do so as all the companies have access to additional liquidity from their banking partners. The shareholders of the companies will be there to provide support if liquidity does run out over the coming months.

"I'm very proud of how my team has taken this challenge and the way we've been able to react quickly across the portfolio," Langer says. "That's due, to a large degree, to an operating team that's very close to the portfolio."

So far, among all of our portfolio companies, we've only had three cases of Covid-19" – Karsten Langer, Riverside Europe

In addition to the investment team, which works with portfolio companies, the firm also employs five operating professionals in Europe. In addition, it has a global network of operating partners in other business units, such as Riverside Australia and Riverside North America, and a group of consultancies vetted by the firm, which is known as the Riverside Toolkit. The operating resources are aimed at creating a systematic approach to portfolio growth initiatives, operational improvements and add-on investments.

Langer says: "We share origination tools and resources across the firm. For example, our European team might help other funds with an add-on strategy in Europe. When our companies are looking to grow or do add-ons in North America, the operating team is coordinated at a global level to help us with that."

Strategy update
Riverside Europe launched its sixth fund in April 2019 with a target of €600m and a hard-cap of €750m. The fund held a first close on €314m in July 2019, according to Unquote.

If the target or hard-cap is achieved, the sixth-generation vehicle would significantly surpass its predecessor, Europe Fund V, which closed on €340m in 2017. The fund was short of its €450m target and smaller than the €420m Europe Fund IV, which closed in 2010.

However, while the target does represent an expansion, many other firms have grown their funds at a much faster rate. Langer says: "There's probably potential for our product to be bigger than it is, as there are enough companies out there to invest in. We've always had the ambition to do more deals of the type that we do rather than of a larger size, but it's tough to have too many investments."

The fund will pursue the strategy led by its predecessors, acquiring controlling stakes in 10-20 companies posting EBITDA of up to €30m. The overall value of add-ons typically equates to up to 50% of each fund – but only about 10% is usually called from the fund, with the rest coming from resources available at the portfolio company making the acquisition.

Riverside Europe IV has made three investments to date: Germany-based party tent manufacturer Toolport and bike retailer Bike24, and Spain-based pharmaceutical ingredients manufacturer HealthTech.

We won't net benefit from this. We'll be happy if we get out with a mild impact. We have to think about the effect of public market valuations on our portfolio, so it's unlikely we'll benefit in valuation terms" – Karsten Langer, Riverside Europe

While Riverside has a pan-European mandate, Langer notes that it had invested a lot in Germany and southern Europe recently. "We try to be present in every region of Europe, enough that we are seen as local, because we do hire local investment professionals," he says. "We also try to be light of foot enough that we're not required to deploy in areas just for the sake of being busy in a market. If we find the market is not throwing up the right opportunities, we won't invest there."

Riverside Europe Partners IV and V are both in their realisation phases, with the former still to sell four assets and REP V having made two exits. Langer says of the long-term effects of the coronavirus crisis on the portfolio: "We won't net benefit from this. We'll be happy if we get out with a mild impact. We have to think about the effect of public market valuations on our portfolio, so it's unlikely we'll benefit in valuation terms."

Despite this, Langer notes that some companies have seen a positive shift in revenue streams. "We've yet to get a long-term view of trading under these conditions, but all our businesses that produce consumer staples do sell online and have seen significant increases in consumer-led revenue," he says.

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