Granville Private Equity Managers (GPEM) is preparing an October formal launch for its sixth fund-raising exercise. With a target of GBP250 million (ecu 356 million), Granville Private Equity Managers Fund VI (GPEM VI), will be the group’s largest fund-raising effort to date, and will also incorporate GPEM’s first dedicated non-UK vehicle.
GPEM VI comprises two parallel LPs, one to focus primarily on UK investment and one exclusively for deployment in Germany. The group late last year opened Granville Private Equity Deutschland (GPED), a joint venture with Hamburg-based Steffens Alvano & Partner, an independent corporate finance house (EVCJ December 1997/January 1998, page 7).
GPEM has not set specific individual targets for the separate LPs. Chief executive Mike Proudlock said that given current levels of interest expressed by investors, Granville “would not be surprised if the two LPs ended up broadly equal”.
GPEM raised GBP82 million in 1996 for its fifth fund, which is now approaching full investment. While the vehicle was slated primarily for investment in the UK, it could deploy a maximum of 20% in Continental European opportunities. The UK component of GPEM VI will have a similar remit, enabling as much as one-fifth of its capital to be channelled into other Western European markets, Germany excepted. The German LP, however, will be deployed exclusively in Germany.
Property is the only sector in which the funds are precluded from investing. However, Granville has developed a strong focus on telecommunications, IT and outsourcing. The group sees its sector specialisation, which over the years has generated a strong proprietary deal flow, as a key factor for successful geographic expansion. Therefore, although both component funds can take an opportunistic approach to investment across the industrial spectrum, GPEM VI’s ultimate portfolio is likely to have a strong weighting towards the group’s favoured sectors.
Rather than moving with the general European drift towards larger deals, GPEM will maintain its mid-market focus, targeting transactions in the GBP5 million to GBP50 million entry valuation range.
Having a clear exit route in mind at the time deals are made is crucial to private equity investment discipline. Mike Proudlock said that GPEM would make “M&A-ability” – in other words, an investment’s likely appeal to trade purchasers – a key investment criterion, particularly for investments in Germany where the potential for IPOs has historically been less than in the UK.
GPEM’s adherence to the mid-market has been well rewarded, with the group generating annual returns of 40% in the course of the past seven years and 30% over 13 years. Potential investors will note that this strong track record was achieved on a UK-centred portfolio. However, although GPEM completed its first German deal lead, Elmeg, only last year, its joint venture parter has a strong track record in achieving private equity deal flow, which prior to the relationship with GPEM was completed by other private equity houses.
GPEM’s intention to replicate a proven strategy in its approach to the German market, combined with widespread institutional appetite for exposure to German private equity, appears to be balancing the appeal of the UK and German components fairly evenly. Director Alison Ridge confirmed that GPEM had encountered similar levels of interest for the German and UK funds during the pre-marketing period. She predicted that a large number of existing investors would be joined by “quite a few new groups” at a first closing scheduled to take place before the year end, which is likely to take GPEM VI past the GBP100 million mark. Hermes (formerly Postel), a GPEM client of long standing, will be a cornerstone investor in the fund. GPEM will concentrate primarily on European institutions until the first close before stepping up its marketing effort in the US. GPEM VI will hold a final closing by mid-1999.