Weekly round-up: Alternative funding models, Leverage on the rise, and more

Fundraising in the DACH region reached a post-crisis record in 2017, raising €6.2bn across nine different vehicles. However, as the market matures, some GPs are looking at alternatives to the standard LP fund model. There are some clear advantages to raising a traditional private equity fund: equity capital is readily available for fast deployment and GPs are clearly incentivised to be focused on the eventual exit and therefore the LPs' returns. Yet, in the last year there have been some high-profile examples of GPs having success with other models. Brockhaus Private Equity recently launched a listed investment vehicle and its CEO Marco Brockhaus tells Unquote: "A lot of our past investments continued to show impressive growth trajectories after our exit; with a longer term exit horizon the full value of investments could be realised." Read more

With an increasing number of private equity houses raising debt vehicles, GPs are being offered – and must subsequently compete against – some of the highest levels of leverage since 2007. According to data by Unquote sister publication Debtwire Par, 48% of mid-market issuance – for which Debtwire has obtained a leverage metric – was between 5-6x levered so far in 2018, a significant rise from the 29% figure for 2017. Debt funds achieved a market share of 47% in Germany in the first quarter of 2018, up from 35% in 2017, according to GCA Altium's recent MidCap Monitor – and only 53% of senior deals were bank-only in Q1 2018, compared with 65% in 2017. Debt is a fierce competitor," says Louise Nilsson, CEO and partner at Stockholm-based private equity house Priveq. "We have competed in auctions against bidders with leverage [in their supporting debt packages] of 6-7x EBITDA for mid-market assets." Read more

The interest of Chinese GPs in French businesses, and the advent of trade sales to Chinese corporates, have become increasingly common in recent years. On the buyout front, Fosun International acquired all-inclusive holidays specialist Club Mediterranée in 2015 and backed womenswear retailer Iro in 2016. Meanwhile, in terms of trade sales, KKR sold SMCP, which operates luxury clothing brands Sandro, Maje and Claudie Pierlot, to Chinese corporate Shandong Ruyi Technology Group in 2016. Elsewhere, Cathay Capital, a French GP founded in 2006 with assets under management of €2bn, was launched with a Sino-French-specific strategy. The firm's co-founder and managing partner, Edouard Moinet, says: "We are going to see more Chinese investments in Europe in the coming years, as the ecosystem has been structuring itself in recent years with the development of Chinese banks and the creation of a very professional approach to international equity investment." Read more

That's all for this week's round-up – don't forget to check unquote.com for more in-depth news and analysis.

You can follow Unquote on Twitter via @unquotenews for all the latest private equity and venture capital updates and, of course, on unquote.com.

Kenny Wastell
Features editor, Unquote

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