GP Profile: OpenGate pushes ahead with intensive buy-and-build plans

Established in 2005, OpenGate Capital is a private equity firm that focuses on the lower-mid-market, acquiring businesses throughout North America and Europe.

The firm is headquartered in Los Angeles with an additional office in Paris, and employs 42 investment professionals, managing around $1bn in assets. OpenGate specialises in corporate carve-outs, including orphaned divisions, stand-alone units, and non-core divisions of larger corporations and public companies.

"With our corporate carve-out strategy we have created a lot of value over the years, by refocusing the potential of non-core assets, adding new financial resources, providing fresh expertise and human capital, while eradicating bureaucracies, streamlining processes and deploying standalone structures," says Fabien Marcantetti, managing director of European M&A at OpenGate Capital.

"Over time we have also specialised in other types of transactions, including a variety of special situations such as distressed/secondary LBO opportunities with an angle to create additional value and improve management, as well as insolvency situations and family-owned businesses with succession issues," says Marcantetti.

OpenGate targets companies generating revenues of up to $1bn, with enterprise values of up to $500m, primarily active across the industrial, technology, consumer, and business services industries. Since inception, the firm has completed 35 platform acquisitions and numerous add-ons.

"We usually target businesses with a clear path to value creation through operations, high-growth potential, and operating in fragmented market segments with consolidation opportunities," says Marcantetti. "We have been investing extensively across a wide variety of sectors, with a special focus on industrials and software. Our industrials expertise spans a number of verticals including manufacturing of B2B and B2C goods, consumer, chemicals, metals and telecommunications."

The GP follows a flexible strategy, making both full-equity deals and leveraged buyouts, depending on the profitability of the target. "We provide flexible capital and operational strategies to drive performance and value," says Marcantetti. "Depending on the growth path of the target company, we can deploy full equity or use some leverage to complement the financial structure of the deal. We are able to use every debt instrument available, from mezzanine to unitranche, senior debt, and bonds raised locally."

The firm raised its first institutional fund in 2015, collecting $305m. The vehicle has been deployed across nine companies, five based in Europe and four in North America. It is currently fully invested and has already exited two companies. It sold US-based renewable energy business Power Partners to Pioneer Transformers, a portfolio company of private equity firm Mill Point Capital, in 2019.

More recently, the fund exited French building materials provider Bois & Matériaux (B&M) to Chausson Matériaux. OpenGate originally acquired B&M as a carve-out from Wolseley in 2016, and has since boosted the company's growth through a series of operational changes, leading to a 10x increase in EBITDA, which reached €28.6m in 2020.

The GP told Unquote that it is currently working on a number of exits both in the US and Europe for its first fund, and that it expects the rest of the portfolio to be realised fairly soon.

OpenGate Capital Partners I portfolio

Company	Date Acquired	Country	Sector
Alphaterm	Jun 2016	Italy	Speciality chemicals
EverZinc	Nov 2016	Belgium	Speciality chemicals
Hufcor	Sep 2017	US	Construction
Mersive Technologies	Dec 2017	US	Software
Jøtul	Feb 2018	Norway	Consumer goods
Fichet	Jul 2018	France	Electrical components & equipment

 

OpenGate is investing its second fund, which held a final close on $585m in November 2019. It deploys equity tickets in the $15-100m range, with a sweet spot of $40-60m, targeting a wide variety of companies, from loss-making to around $75m in EBITDA.

The vehicle is in the process of finalising its latest deal, the acquisition of Belgium-based visual simulations businesses ScioTeq and US-based Treality from TransDigm Group. After the closing of this deal, expected by the end of May, the fund will be around 75% deployed. With the remaining capital, the GP intends to ink one additional platform deal and various add-ons.

In addition, Unquote has recently reported that the GP plans to launch its third fund in the next 6-12 months, with a target of up to $700m. Like its predecessor, the vehicle is expected to focus on corporate carve-outs and operationally complex businesses in niche segments of the market, deploying equity tickets in the $15-100m range.

Portfolio management
Although the pandemic affected the companies in OpenGate's portfolio, especially those operating across the industrials sector, in some cases with a 15-20% revenue decrease, most businesses have recovered and in 2021 are expected to exceed the performance recorded before Covid, Marcantetti says.

"The pandemic was highly disruptive, especially for the manufacturing sector, which was badly affected when factories were closed for a period of time in 2020," says Marcantetti. "Depending on the level of disruption of each specific segment, some companies were more impacted than others and needed more time to get back to full operational speed, but the recovery has been fast, and we have seen notable performance improvements across the entire portfolio."

OpenGate has also been pursuing an intensive buy-and-build strategy with both its funds. For its first vehicle, the GP plans to ink one add-on with electronic security business Fichet, which OpenGate acquired in 2018; and one or two bolt-ons for Norwegian company Jøtul, a manufacturer of cast iron stoves and fireplaces.

With its second fund's portfolio, the GP plans to make one bolt-on for Norwegian silicon carbide producer Fiven, which it acquired in May 2019 from ceramic engineering specialist Saint-Gobain. The fund is also planning to complete an add-on for Smac, a French provider of waterproofing and building envelope systems, which was carved out by OpenGate from Colas Group in February 2019.

In addition, the GP is working on two advanced add-on deals for expanding the business of Kongsberg, which OpenGate carved out from Esko-Graphics, the packaging and print systems business of Danaher Corporation, in December 2020.

Furthermore, the GP is in advanced talks for some add-ons that could add value and complement the latest addition to its portfolio: the visualisations business combining ScioTeq and Treality.

"The market is recovering, and we have seen more deals in Q2, but in the carve-out space there is a limited number of good opportunities, while valuations have been increasing across the market," says Marcantetti. "We will need to be quite prudent in the coming months and focus on identifying the right assets that can benefit from OpenGate's operations toolkit, and that includes digital and technological transformation. In addition, we plan to further expand and diversify our scope to a broader spectrum of special situations deals, with the aim of offering tailor-made solutions to a large pool of companies across Europe and North America."

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