EQT closes €1.1bn mid-market fund

Alice Murray
21 January 2014

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After more than a decade of swelling fund sizes, EQT has returned to its roots by closing a mid-market fund on €1.1bn.

According to unquote" data, the last time EQT raised a fund of a similar size was in 2001 when it closed its third fund, EQT Northern Europe III, which raised €2bn and was three times the size of its predecessor. This was the firm's first foray into investing outside of the Nordic region. In the decade since, the industrial-focused buyout house has seen each subsequent vehicle creep up in size, moving EQT into the mega-buyout space. Its most recent fund, EQT VI, closed on €4.75bn in October 2011.

The new vehicle, which was launched in February 2013, will be deployed by 35 EQT investment advisory professionals based in Copenhagen, Frankfurt, Hong Kong, Shanghai, Stockholm and Warsaw.

Jan Ståhlberg, deputy managing partner of EQT, will lead the new vehicle. Speaking to unquote", he said that despite the over-saturated market for mid-cap buyout funds in the Nordic region, EQT's new fund will differentiate itself by straddling both Europe and Asia. The firm's rapid growth over the last 10 years has meant that it has developed a strong international presence, opening an office in Hong Kong in 2005, launching its Greater China fund in 2006, establishing an office in Shanghai in 2007 and opening an office in Singapore in 2010.

Ståhlberg observed how only the mega-buyout-focused funds including Bain Capital and KKR have so far offered an investment strategy that enables European companies to develop into Asian markets. He also noted how, when reviewing EQT's most successful investments, the most impressive returns had been generated by either moving portfolio companies' manufacturing activities into Asia, or taking advantage of emerging market growth found in the Far East. Indeed, LPs are increasingly demanding funds able to push assets into fast-growing eastern markets (read our analysis here).

Investors
EQT Mid Market received 95% of capital raised from existing EQT investors. This includes pension funds, insurance companies and family offices.

Geographically, 51% of commitments came from investors in the Nordic region, 22% from European investors, 16% from the US and 11% from Asia.

Investments
EQT Mid Market, which originally targeted €1bn, has already made five investments: online photographic art retailer Avenso; German bakery BackWerk; Swiss dental chain Swiss Smile; Swedish fibre-based data communication provider IP-Only; and China F&B, operator of Dairy Queen and Papa John's Pizza chains in China.

The fund will invest in mid-market companies in both Europe and Asia, with a view to taking advantage of potential benefits thrown up by trade linkages between the two continents.

EQT Mid Market will look to invest between €80-150m for European deals and €80-200m for companies in Greater China and Southeast Asia.

The vehicle will focus primarily on buyout and growth equity transactions. Dealflow is expected to come from family- and entrepreneur-owned businesses, corporate carve-outs and PIPEs.

EQT believes many mid-market businesses lack the necessary expertise to move into international markets, implement best operational practices and improve profitability. The firm also believes that many companies in this segment can develop through internationalisation.

People
EQT's Mid Market team is led by Jan Ståhlberg, one of the founders and deputy managing partner of EQT.