Rothschild enters buyout market

French banking group Rothschild is raising a EURO200 million fund dedicated to mid-market buyouts. LCF Rothschild Asset Management has recruited Erick Fouque and Eric de Montgolfier, previously with Astorg Partners, to lead the new venture.

The Rothschild group already has EURO150 million, out of total assets of around EURO10 billion, committed to venture capital investments in IT and life science. It is putting EURO30 million into the new fund and will finance any deals done before the first close, which should be held at EURO75 million to EURO100 million. De Montgolfier said initial reactions to the fund had been positive: “The Rothschild name is magic, it’s under-used in the buyout market.”

Although the team will have exclusive access to Rothschild deal flow the supervisory and operational functions will be separate. “We are an autonomous fund, and won’t be considered as a first time fund or a captive,” said De Montgolfier.

Fouque and De Montgolfier had been at Astorg for 15 and 12 years, respectively, but left in March, wanting to move in a different investment direction from the firm. They now lead a team of five, with a total of 40 years experience, under the name LCF Rothschild Capital Partners. The majority of deals that the pair, both partners at Astorg, worked on were rollouts and they aim to continue this focus under the Rothschild name.

LCF Rothschild LBO Fund is emphasising its ability to increase companies’ operating value. Investing solely in companies based in France, sectors the fund will take a special interest in include retail, business-to-business, services to industry, light manufacturing and publishing. The fund is looking for non-capital intensive companies aiming to carry out leveraged build-ups and roll-out situations where the strategy has already been validated on a smaller scale.

De Montgolfier says these types of investment represent a lower risk: “We’re not in the business of taking risk but of creating value.” The fund will invest at the lower end of the mid-market and in deals with relatively conservative debt ratios, with leverage of one to 1.5 times equity so as not to stifle company’s growth.

De Montgolfier believes the EURO15 million to EURO100 million segment is the most interesting of the mid-market. He says it is now less competitive than other areas: “Our successful mid-market competitors are raising larger funds and moving up-market to bigger deals.” The fund will make 10 to 12 investments averaging EURO20 million each over the next four to six years. The fund is already in exclusive second round negotiations for four deals.