French investment manager Idinvest Partners has held a first close for its third-generation mezzanine fund on €235 million after six months on the road.
The fund, Idinvest Private Debt III, is due to hold a final close by year end, according to the firm. It expects to surpass its target of €300 million, although chairman Christophe Bavière told Private Debt Investor that the firm will “not go too much beyond that”.
Having initially raised about €120 million from French LPs – what Bavière called “friends and family investors” – Idinvest then went on to win commitments from other European investors and a handful of international family offices. The final €65 million or so will come largely from international institutional investors, Bavière said, as the firm looks to accelerate its global fundraising efforts.
Idinvest has already made three investments with the fund, with a fourth currently in exclusivity. It backed Equistone’s acquisition of Park & Suites in April, Brockhaus Private Equity’s buyout of German company J&S Automotive Technology, and Benelux DIY group Maxeda.
The fund’s strategy focuses on investments in the €5 million to €20 million range in mid-market European SMEs via mezzanine and unitranche instruments. It also has the flexibility to invest in direct secondary deals (i.e. purchasing mezzanine debt tranches on the secondary market).
“Debt is undoubtedly back in Europe, but mezzanine is a niche market. The largest European transactions are typically financed either entirely with senior debt, or via a private placement. The very best companies may high yield too. The opportunity for mezzanine is at the lower end of the mid-market, and in financing companies just setting out on a buy-and-build strategy.”
The fund will target returns of 12 percent, based on a 6 percent cash coupon and 6 percent PIK element, with warrants offering the potential for further upside. Risk will be mitigated by applying conservative leverage ratios at c.4x debt to EBITDA in deals with a significant equity contribution from a sponsor of around 50 percent.
Proceeds from the fund will be systematically distributed rather than recycled, and there will be no leverage in the fund. The term of the fund is eight years, subject to two one-year extensions, with an investment period of three years, (also subject to two one-year extensions). The management fee, charged on deployed capital, will be 1.3 percent with carry of 15 percent and a hurdle of 6.5 percent.
Idinvest’s previous mezzanine vehicle, Idinvest Private Debt II, raised €280 million.