HIG Europe's lower mid-cap strategy eyes succession and carve-out opportunities

The GP, deploying equity via its HIG Europe Lower Middle Market LBO III, has the flexibility to invest across situations ranging from pure growth to leveraged buyouts, recapitalisations, and corporate carve-outs. This strategy stands out from some of HIG’s peers with a narrower remit, who are “becoming very nervous in investing in these difficult times”, the source said.

The vehicle closed at EUR 1.1bn in November 2021. It has the mandate to invest in underperforming mid-market companies across Europe, primarily in the UK, France, and Germany, the source said. Around 30-40% of its dry powder has been deployed, the source said. The fund has an investment period of six years, according to Unquote Data.

Opportunities HIG is currently looking at include carve-outs, with corporates increasingly considering non-core divestments as they contend with cost inflation, among other worries, the source said.

The sponsor has made several notable carve-out investments, including the 2021 acquisition of UK-based Travis Perkins’ Plumbing & Heating business. In Germany, it acquired Covestro’s European polyurethane unit in 2019. The business has since been renamed PLIXXENT.

Succession is also becoming an increasingly notable deal driver for the fund, the source said, Many entrepreneurs are now considering taking on private equity investments to de-risk, following the challenging times they faced during the pandemic, they said.

One such succession-related deal is HIG’s buyout of sports marketing group Lagardère Sports from French entrepreneur Arnaud Lagardère. The unit has since been renamed Sportfive.

Structural trend drivers
In spite of the opportunities provided by the market, macroeconomic worries are high on HIG’s agenda, the source said.

“You haven't seen so many things in the market with negative impact. There's everything right now, from Covid to supply chain to chip crisis, to inflation on raw materials, to transportation costs,” the source said.

However, HIG is increasingly focusing on sectors driven by structural trends, rather than those dependent on GDP growth. This will also hold the GP in good stead in the current environment, the source said.

Examples include Germany’s Infratech, a general contractor of infrastructure services deploying fibre-to-the-home broadband networks. This plays into the wider trend of digitalisation, the source noted.

Similarly, HIG’s investment in German recycling group Der Grüne Punkt – Duales System Deutschland (DSD) played into the structural ESG theme, with the industry expected to grow regardless of the economic volatility, the source said. DSD was sold last week to plastic recycling trade buyer Circular Resources, as reported.

Additionally, the strategy’s focus on the European lower-mid market indicates that financing avenues will remain open, in contrast to the large-cap market, the source said. Strong fundraises in recent years mean there are high levels of dry powder among private debt funds, they added.

HIG declined to comment.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• GPs
• Investments
• Benelux
• DACH
• France
• Southern Europe
• UK / Ireland
• HIG Europe