Certior Capital holds its Annual Investor Day 2019 in Rotterdam with an extended group of international institutions and investment managers

HELSINKI – Certior Capital’s Annual Investor Day recently took place at the Mainport Hotel in Rotterdam in the Netherlands. The event started with an informal dinner to welcome attendees from a number of European countries including the UK, Spain, the Netherlands, Ireland, Belgium and Finland. The main event included updates on Certior Capital’s key funds and discussions on the private equity and private credit markets across Europe as well as presentations and case studies from guest speakers representing leading investment managers.

Certior Capital’s own funds continue to develop on track with their focus on backing new teams in undercapitalised sub-sectors of the European market. Certior Credit Opportunities Fund, established in 2015, now contains around 200 senior and collateral backed loans in European SMEs and is well on track to achieve the targeted 8–10% net IRR. The successor fund, Certior Credit Opportunities Fund II, has raised EUR 82m from investors and has already made a number of primary, secondary and co-investments. Fundraising will continue until Q1 2020. Certior Private Equity Fund I has made 4 fund commitments to first time European funds focusing on smaller transactions and specific niche sectors and has an additional commitment to a global special situations fund in final closing.

On the private credit market, the discussions led by Ari Jauho, chairman and founder of Certior Capital, touched on a number of key areas of interest in the current environment including deal sourcing, portfolio management and fundraising. John O’Sullivan, the co-head of investments at Beechbrook Capital Ireland, commented on the different character of sponsorless and sponsored transactions in Ireland. “We are likely to be the only provider of capital in a sponsorless situation which is very different to sponsored deals where there is a lot of competition. Leverage is generally a lot lower at typically 2–3x and covenants will be included”. In his view the risks of Brexit to Ireland are often overstated in the international media. “Ireland actually exported more to Belgium in 2018 than it did to the UK, according to the Irish Central Statistics Office. Brexit is really more of a political issue than an economic one. Indeed for many decades Irish government policy has been to reduce economic reliance on the UK. That said, sectors such as agriculture and food producers, which have a very close relationship with the UK, will be negatively impacted but they only represent around 8% of Ireland’s economy nowadays”.

Raphael Geys, partner at Dexteritas Investment Management based in The Hague, sees private credit as being complementary to private equity. “We are not looking for “hairy” companies”, he said. “We want to provide loans to stable companies which have proven business models which want to go from A to B and which a bank is unwilling to help. Entrepreneurs know how to run their businesses and often say to us that they are not yet ready for private equity. They can do fine without it and will then consider it again at the next stage of their company’s growth”. Meanwhile, on the topic of what happens when deals go wrong, Timo Hara, partner and founder at Certior Capital, underlined the benefits of early intervention. “In our experience, if problem are going to occur they often happen in the first year. If a loan is on track then the deal generally performs in line with our initial underwriting expectations. This also underlines the need for prompt action to counter any underperformance”.

During a wide-ranging private equity discussion the benefits of investing in times of instability and during economic downturns as well as the broader attractions of investing in smaller companies were highlighted. “A lower volume of transactions are being completed in the UK as a result of Brexit instability and in the last 2-3 years prices have been going up so we are now seeing double digit earnings multiples, especially in London and the South East. We have seen a lot of retail pain which is not over yet and we are also overdue a market correction”, said Michael Joseph, Chairman of NorthEdge, a UK regional private equity manager headquartered in Manchester and a 40 year industry veteran. “That said, the best deals are often made in downturns. Parent companies need to sell their subsidiaries and family owners look for liquidity as concerns grow. I always feel more worried about investments made at the top of the cycle”.

Valuations of smaller companies can still offer an attractive arbitrage, however. “Prices are typically 5-7x earnings for small and medium sized companies in the Netherlands while larger transactions which attract international players are going for 10x earnings or more”, says Rob van der Laan, the founder and managing partner of NewPort Capital in Amsterdam. He went on to illustrate how deal sourcing works at this level of the market. “When we decide to invest in a company we already have a good view on the industry, the company and the management. We have a strong network and some 50 local entrepreneurs as LPs that help a lot. We focus, in particular, on stable, mature industries. For example, our most recent deal, Lamme Textile Management, which offers textile cleaning services to clients mostly in the airline and hospitality sectors, was founded in 1834. We don’t go to auctions and we want to have lunch and beer with the management 5 or 10 times before investing. We need to get to know them, to understand what they are doing well and how we can accelerate this with a strategic plan”.

About Certior Capital

Certior Capital is a value-add focused private equity and private credit advisor and alternative investment fund manager supervised by the Finnish FSA. The firm’s core expertise is in European lower- and mid-market private equity and credit markets, where the team’s experience is one of the longest in Europe. The company’s latest fund, Certior Credit Opportunities Fund II, held a first close in August 2018 and has a target of EUR 300m. It focuses predominantly on the European SME direct lending segment, in particular in cornerstoning emerging managers. Certior also manages three other investment programs: Certior Credit Opportunities Fund invests in SME direct lending funds and makes investments directly into loans, Certior Credit Investments invests in European mid-market direct lending transactions and Certior Private Equity Fund I focuses on European small- and mid-market private equity opportunities, with an emphasis on backing emerging managers.

For further comments or additional information please contact Ari Jauho.

Email: ari.jauho@certiorcapital.com
Tel: +358 50 3378 282