European Fund Briefs, June 2011

Advent Calendars New Technology Fund

Six months after it finalized its first life sciences fund, London-based Advent Venture Partners is preparing to launch a dedicated technology fund.

Targeted at £100 million to £150 million ($143 million to $214 million), the new fund is set to be up to twice as large as the £75 million ($120 million) life sciences fund it closed in November 2010, but the firm is optimistic that fundraising will be significantly easier this year.

“Our life sciences fund took two years to raise and we couldn’t have started at a more difficult time. But the conversations we’re having for the technology fund are very encouraging,” according to a source at Advent.

The new fund, like much of Advent’s technology investment in recent years, will focus on growth equity opportunities in companies with sales of more than £4 million ($6.5 million).

“The message of reliable returns driven by growth is a very powerful one that investors do relate to and there is also a belief that if you’re going to generate value, there’s a limit to what you can generate just from improving operations or from leverage,” the source said.

A 30-year veteran of Europe’s VC industry, London-based Advent Venture Partners has undergone a change of direction in recent years.

The firm decided to move away from overarching funds—such as the 2005-vintage, $200 million Advent Private Equity IV—to separate funds dedicated to its two focus sectors of life sciences and technology.

“Investors wanted to do their own asset allocation,” explains Peter Baines, general partner at Advent. “We also tend towards early stage investment in life sciences, while technology has increasingly been focused on growth equity.”

Advent’s tech investments focus on startups with sales above £4 million ($6.5 million) and which are often seeking external capital for the first time.

“Many of our companies have been bootstrapped on friends-and-family money,” Baines says. “Increasingly, that’s been made possible because the costs of starting up Internet, digital media and software businesses have really come down, meaning there are lots or capital-efficient businesses out there with sizeable revenue.”

Although Advent participates in early and late stage rounds, Baines sees significant opportunity in growth equity deals, which he says is underserved.

“In growth equity, we find competition varies with the deal, since there are an awful lot of companies, but relatively few firms are focusing on it,” he says. “On some deals, we might see the growth equity parts of venture players like Index, Accel and Benchmark, but on other deals we won’t see them at all.”

Earlier this year, Advent participated in a $17 million round of funding for U.S.-based Virtue, which helps businesses manage their social media presence, and which plans target more opportunities in Europe.

There have also been healthy exits for Advent in 2011, with sales of video hosting site Dailymotion to Orange and special effects software developer Foundry to The Carlyle Group.

However, despite strong deal flow, a growing portfolio and five exits since 2009, Baines is concerned about the potential impact of Europe’s proposed Alternative Investment Fund Manager (AIFM) directive, which may require managers to maintain external deposits of fund assets.

“It’s unclear yet if we need to register, but if we do, we may not be allowed to make any cash movements ourselves any more. It would all be passed out to an external firm, generating a lot of additional cost and bureaucracy for absolutely no gain to our investors,” Baines says.

Lift-off for Altitude

Altitude Partners’ debut fund is off the ground after a first close at £7 million ($11.4 million), which has been raised solely from “a tight base” of private individuals.

The fund, which is targeted to raise £15 million ($24.5 million), was launched in April 2010.

“Everyone has found fundraising pretty hard recently,” Altitude founder Simon White told VCJ. However, he expects a final close before the end of 2011.

The fund aims to invest in Southern England and will invest from £500,000 to £3 million ($810,000 to $4.9 million) at a time. The partners expect to announce the firm’s first deal before July. White hopes to complete two or three investments this year.

Southampton-based Altitude claims to be the first dedicated private equity presence on the South Coast of England since 3i shuttered its Southampton locale in 2000.

“The South has always been a good area for investment and we chose Southampton for practicality. We want to be close to the businesses,” White says.

New Turkish Fund

Turkey’s position among the fastest-growing G20 economies has been recognized by a new wave of private equity.

Mediterra Capital Management, based in Istanbul, has reached a €100 million ($143 million) initial close of the country’s first significant private equity fund since 2007, the Financial Times reported.

The Mediterra fund was launched by Murat Erkurt, a former partner at Lehman Brothers’ private equity unit, and Ahmet Faralyali, a former executive of Kohlberg Kravis Roberts & Co.

The pair is targeting a final close of €300 million ($429 million) and hopes to raise €250 million ($358 million) before the end of the year. In February, the European Bank for Reconstruction and Development, said it was considering investing up to €40 million ($57 million) in the mid-market fund, which will mainly target Turkish companies with enterprise values ranging from €50 million to €500 million ($71.5 million to $715 million).

Foreign firms have often struggled to invest in such companies due to their family ownership structures. This year, however, New York-based Cartesian Capital bought a minority stake in fast-food giant TAB Gida, Burger King’s largest global franchisee.

Montagu Cruises to €2.5B Fund

Montagu Private Equity, one of Europe’s oldest private equity firms, has finalized its fourth fund on target at €2.5 billion ($3.6 billion), as investors backed the firm’s solid track record.

London-based Montagu said that the fund was “substantially” oversubscribed.

First close of the fund, at €2 billion, was reported in January 2011, though HSBC’s contribution, expected to be 5% of the total, had not been made at that point.

Most of the fund’s limited partners are repeat investors, with Montagu reporting increased commitments from institutional investors and high net-worth individuals in Europe, the United States, Asia and the Middle East.

Montagu IV marks one of Europe’s largest private equity fundraisings since the collapse of Lehman Brothers, though fellow London-based firm BC Partners is on its way to a €6 billion ($8.6 billion) buyout fund after holding an initial close at €4 billion ($5.7 billion) in March.

In March, 2009 London’s Charterhouse Capital Partners closed its ninth fund at €4 billion, significantly below its original target.

Finnish Fund Finalized

Nordic investor Intera Partners will focus on acquiring mid-sized Finnish companies after closing its second fund at €200 million ($286 million).

Limited partners in Intera’s second fund include Nordic and European institutional investors.

Intera, a Finnish private equity firm, typically takes majority stakes in profitable companies with revenues from €10 million to €100 million ($14.3 million to $143 million), often seeking subsequent expansion through acquisitions, mergers and international growth.

The firm’s first, 2007-vintage fund closed with €125 million ($180 million) in commitments and invested in seven companies, including buildings renovator Consti, household goods producer Orthex and electronics developer Trafotek.