GP Profile: Ardian Expansion doubles down on generalist approach, eyes EUR 3bn Q2 fundraise launch

The key difference between Ardian and Ardian Expansion is its ticket size; the sponsor deploys tickets of around EUR 300m-2bn from its flagship private equity funds, whereas it deploys EUR 100m-EUR 250m per deal for its Expansion investments, targeting businesses with EUR 15m-EUR 50m EBITDA.

In addition, Ardian Expansion focuses on expanding the companies it invests in, with an emphasis on people and management, Jerphagnon said.

Jerphagnon views Ardian Expansion’s generalist approach as a strength in the current market environment, arguing that it will be favoured by LPs seeking consistency. “In the past, LPs would say they want the best return possible,” he said. “Now LPs want the right level of return against the right level of risk.”

LP sentiment is mixed in the current market, Jerphagnon said, citing liquidity constraints and the denominator effect. He remains optimistic about the prospects for the Expansion strategy in spite of the headwinds, however. “It is not a problem for us as, when it is a complicated market, [LPs] go to more established GPs who they trust to deliver good returns,” he said.

When the GP raised its previous, EUR 1.5bn, 2020-vintage Expansion fund, it had a re-up rate of close to 100%, he said. “We got feedback that we will get [a] strong reup [rate],” he added.

Although some LPs are able to allocate less in the current environment, the GP has a diversified LP base across geographies and investor types and is not dependent on one single LP. “We are tracking LPs we already have relationships with,” Jerphagnon said.

Jerphagnon is therefore “humble but confident” when it comes to the prospect of future fundraising. “We have consistency in our approach and a close relationship with our LPs,” he said, adding that the majority of entrepreneurs from the businesses that the strategy has backed have gone on to become LPs in the firm’s Expansion funds themselves.

Fundraise ahead
Although Ardian declined to comment on fundraising, a source close to the situation told Unquote that the GP is going back on the road for Expansion Fund VI in Q2 2023. The fund has not launched yet but it will target EUR 3bn, the same source added. Fund V is 80% deployed and holds 15 portfolio companies, the source said.

The fund will have the same strategy as its predecessor and will invest in 20 companies, the source said, adding that the GP is expected to continue its generalist approach to sectors for the next vintage as “there is good money to be made from every industry,” the source said.

Ardian Expansion Fund IV, a EUR 1bn fund which closed in June 2016 is generating 150% distribution to paid-in capital (DPI) as a result of trade exits, said the source.

The sponsor’s LPs include Téthys, Sogecap and BNP Paribas Cardif, the source said.

Digitisation dynamics
Ardian Expansion typically invests in four companies in Europe every year, Jerphagnon said. A third of the GPs current portfolio is made up of IT and technology businesses. “We like IT services and tech hardware because we want to benefit from dynamics of digitisation,” he said. “Pure software companies are expensive and we do not see the rationale to pay 20x EBITDA. We can instead pay 12x EBITDA for IT companies, which benefit from the same growth dynamics.”

For example, in 2020, Swissbit, a technology hardware portfolio company, was generating EUR 24m EBITDA when the GP invested, and it is now producing EUR 60m EBIDTA, he added.

The GP focuses on companies that provide mission-critical products or services because they have pricing power. “Last year, on an organic and inorganic basis, our companies grew 16% as they could pass the price increase to customers. If it is a mission critical business, you can increase prices,” he said.

The sponsor is avoiding companies that rely on commodities, he said, adding that it also invests in business services, healthcare and some industrials companies.

The GP welcomes pitches from advisers with sell-side mandates and M&A advisers, Jerphagnon said.

Dedicated to growth
Typically, the GP grows the companies that it backs via its Expansion strategy organically (at least 10% EBITDA growth year-on-year) and inorganically (with each business making five bolt-ons on average). The goal is to make each company more appealing on exit, primarily for trade buyers, Jerphagnon said.

As a result of the market volatility, smaller companies tend to be more fragile as standalone businesses, so they are more open to being bought, while their management often likes to reinvest, he added.

“We put limited leverage in our deals, it is about 4x EBITDA,” Jerphagnon said. “We have enough cash flow generated by our portfolio companies to finance build-ups. We want cashflow to be dedicated to growth.”

The GP has made 3.1 x gross money multiple return on all its exits for Ardian Expansion, according to Jerphagnon. Half of this result comes from organic growth and 25% from inorganic growth, he said. “Even if we sell to another sponsor, the fact that there are trade buyers in the room means we get the upper end of the price,” he said.

The GP mostly acquires majority stakes but can also acquire minority stakes in return for governance rights, he said.

This year, Ardian has completed three platform acquisitions via its Expansion strategy. It acquited Assist Digital, an Italy-based end-to-end customer experience services and digital CRM technology provider, in January; and Swiss IT services company, Mimacom Flowable Group, in March. Both companies are growing organically and inorganically, primarily domestically, Jerphagnon said.

The GP announced its acquisition of Germany-based electric chain hoists and control systems producer Liftket yesterday (4 May).

The Ardian Expansion team is made up of eight managing directors (MDs), with another six directors who will become MDs in the next three years. There are 32 investment professionals in the team in total, he said.

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