As Some Exit Europe, Others Double Down

While some firms are re-assessing their activities in Europe or altogether withdrawing from the troubled continent, a few expressed confidence in the region and are even expanding their operations there.

Upper mid-market buyout firm CCMP Capital Advisors LLC, for example, is looking to expand its Europe-focused team. Bain Capital and The Blackstone Group also have no plans to steer resources away from Europe, and global lower mid-market firm The Riverside Company, meanwhile, expects to start raising its next Europe-focused buyout fund next year.

As financing has gotten more expensive and competition for deals has increased, some firms are re-assessing their global footprint to focus on more high-growth regions such as Asia or their core market in the U.S. The moves by CCMP Capital and Riverside stand in stark contrast to how Vestar Capital Partners and TPG Capital are reacting to the market in Europe.

“The activity level in Europe right now is slow,” Erik Hirsch, chief investment officer at Hamilton Lane, told Buyouts. “There’s not a lot of growth in Europe; it’s a reallocation of resources.”

Vestar Capital, a mid-market shop managing $7 billion in assets, announced Nov. 4 that it was closing its offices in Munich and Paris after 11 years in the region “based on a combination of market dynamics and appropriate resource allocation,” Vestar Capital founder and CEO Daniel O’Connell said in a statement.

Instead, O’Connell said, Vestar Capital will keep a “laser focus” on mid-market opportunities in the United States and will add staff there. The firm has exited all but two of its European investments.

Robert Rosner, a managing director who led Vestar’s Europe operations, will return to New York, according to a Vestar Capital statement. Ten other executives will lose their jobs as a result of the office closures, according to The Wall Street Journal.

Meanwhile, at TPG, Philippe Costeletos will reportedly step down as co-chair of the firm’s European team to focus on deal sourcing, leaving Karl Peterson as sole European chairman. Reports also indicate that Matthias Calice, a London-based partner, will leave at the end of the year, and Vincenzo Morelli, an operating partner, will work part-time going forward. TPG will focus more on distressed debt in Europe, as opposed to buyouts, a source told Private Equity International.

CCMP Capital, which has 15 companies in its portfolio based in Europe, is looking to add a principal and an operating partner to its London-based European team, which currently has nine investment professionals. CCMP also is looking to add another operating partner, CEO Stephen Murray told Buyouts.

Competition for deals in Europe is fierce, Murray said. But CCMP’s funds are under no pressure to do a certain number of deals in Europe, instead only focusing on select opportunities where CCMP has a “discrete advantage” in providing operational transformation to challenged companies, Murray said. The firm had estimated its most recent fund, a $3.4 billion pool of capital closed in 2006, would be 75 percent to 80 percent devoted to North American deals; instead, it turned out that about 91 percent of it has gone toward North American deals.

“For me, if it was a market share game, you couldn’t cope,” Murray said. “There’s some insane competition. These European guys are very aggressive.”

Global lower mid-market specialist The Riverside Company, meanwhile, plans to start raising its fifth Europe-focused buyout fund next year, according to a source. The target for the fund is unclear. Riverside has nine offices spread across the continent; it has closed eight acquisitions there so far in 2011 and expects to close one more by year end, Tony Cabral, a managing partner at Riverside and fund manager for Europe, told Buyouts.

Cabral said financing is more expensive these days, but that that’s pretty much been the case since 2008. The firm is also more cautious in choosing management teams to back.

“The space for smaller buyouts still a large universe of companies we can invest in,” Cabral said. “We think it’s a pretty good place to be despite the challenges at the moment.”

Bain Capital, which has about 26 professionals based in London and two in Munich, said in a statement provided to Buyouts that it is “fully committed to growing in the Europe market, where we have already built a large team to both identify potential investments and provide support to our companies. We believe our unique approach of partnering with management teams to liberate non-core divisions and improve performance, even in difficult environments, will be more valuable in Europe than it has ever been.”

Likewise, The Blackstone Group is also staying put in Europe, where it has offices in London, Paris and Dusseldorf.

“We continue to see opportunities in Europe as the European banks finally start to shed assets and corporates need financing that they are unable to arrange from conventional sources,” the firm said in a statement provided to Buyouts. “We will keep our current level of staffing in Europe and periodically look at adding resources.”