UK-based mid-market buyout firm Electra Partners Europe has scaled back new investor commitments to its latest fund amid concerns about investment discipline in the market. Electra closed its second pan-European fund at €1.25bn (US$1.51bn) on July 25, resulting in circa 10% scale-backs for new investors, according to sources close to the fundraising.
The fund, which is slightly bigger than its €1bn predecessor, was capped at €1.25bn, said Nigel McConnell, Electra’s managing partner. “We placed a hard cap on this second fund to ensure continued investment discipline during a period of possible excess liquidity in equity and debt markets,” McConnell said.
Sources close to the fundraising said that at least €1.5bn was raised in commitments through an in-house placing and with UBS acting as placement agent. Around 50 investors joined the fund, down from about 65 in Electra European Fund I.
The fall can be attributed in part to the withdrawal of bank investors, which have greater pressure on their balance sheets with changes pending under Basle II. Fund I investors with an established relationship with Electra re-committed for larger amounts in the second fund.
More than 80% of the money in Electra II is accounted for by re-ups from the first fund. By value, 46% of investment came from North America, 44% from Europe, and 10% from the rest of the world. By institution, 31% of commitments came from pension funds and insurance companies and 24% from endowments and family offices, with the balance from state and funds of funds.
Demand for allocations was helped by successful exits this year from Ashbourne Healthcare and waste recycling company Safety-Kleen Europe. The sale of Ashbourne to Bank of Scotland Corporate Banking for £280m in February returned 7x for a 200% IRR, a deal source said.
Electra invested £15m in equity and assumed £14m of debt to back a management buy-in. Proceeds from the sale were £112m. Safety Kleen delivered a 3.8x return and a 41% IRR.
Electra European Fund II will continue to specialise in buyouts in support services, healthcare, leisure, financial services and industrials in Western Europe. Typical equity commitments to individual companies will range from €50m to €150m, although the fund has the flexibility to bridge up to €375m in any one deal. SJ Berwin acted as legal adviser to the fund.
Recent investments by Electra include the acquisition of Covenant Healthcare, the UK’s largest cosmetic surgery business, and the acquisition of ThyssenKrupp Fahrzeugguss in Germany (rebranded KSM Castings), a specialist aluminium castings supplier to the automotive industry.
Electra has a team of 20 private equity professionals and operates from London, Paris and Frankfurt. The firm is also reportedly considering a split between its investment trust arm and its buyout division.
McConnell, who heads the buyout team, was reported to be considering splitting from Hugh Mumford, who would be left with the listed investment trust valued at £450m (US$822m) and two venture capital trusts.