At first glance, the turn towards growth capital by buyout funds seems staggering, and a startling indication of how barren life is in their traditional investment space. A move into growth was the subject of much speculation following the banking crisis last year – the argument went that following the huge funds raised by both the mid- and mega-deal firms in 2006-2007, the collapse of the debt markets, they would be forced to move down the food chain in search of smaller companies and make smaller investments.
The problem with this is no-one operating in the growth capital space has seen any buyout houses making growth capital investments. The issue would appear to be down to the definition of growth capital, and EVCA’s appears broader than adopted by most growth firms, as includes buyout funds investing in venture deals and sometimes taking majority stakes in companies, which specialists tend to avoid.
The reconciliation of the discrepancy between the data and the observation is the size of the deals classed as growth equity. Many of the growth players don’t go beyond €100m per investment. 3i’s sweet spot is around €80m, Kennet looks to invest between €10m and €15m, Index Growth fund between €20m and €30m. Some of the cheques that have been written by the buyout houses have been well beyond this.
LBO France paid €300m for a one-third stake of Converteam, the French power company, for example, whilst Candover paid €250m for a 40% interest in Italian fitness equipment supplier Technogym, and Carlyle bought a 48% stake in sportswear maker Moncler for €150m. These deals, and there are a handful more, are well beyond the reaches of most growth capital firms, with the exceptions of TA Associates, General Atlantic, Warburg Pincus and Summit Partners.
However, their presence in the space is not seen as part of a trend, more as opportunistic moves – without leverage, they will have to find a return from somewhere.