It’s too early to tell who are the real winners and losers from the Brexit referendum, but the pressures on the UK banking sector are appearing to increase. With a possible recession on the horizon that may force many banks to further retreat from the market, established debt fund managers such as Ardian are arguably well placed to fill the void and seize on the opportunities.
Q How has Brexit affected Ardian’s plans?
The main impact of Brexit today is on the currency, but our portfolio is largely protected from such macroeconomic shifts because we hedge our positions. Usually when the market faces something which has such a huge impact, it is possible that it offers opportunities in the private debt market. We are currently suffering from not knowing what could happen for the next two to three years. This reality creates opportunities for us because there is a lot of volatility and it’s when you require a longer-term view. We have a closed-end fund and we have three to five years to invest the money.
Q Has Brexit affected dealflow?
It is difficult to say. We have seen transactions that collapse because expectations from the pension funds and the seller are not matching with what the bidder is proposing, but I don’t think it is necessarily related to Brexit. Over the last 12 months, we have seen a lot of transactions where the multiple is quite high and the expectations from sellers in the market doesn’t really fit what we are looking for.
Q Does Ardian look at syndicating the transactions it is involved with?
We are in the business of arranging our own loans. The only syndication for us is if we work with co-investors who are interested in direct investments. We source transactions, we negotiate the transaction, we arrange the transaction and we manage it and monitor it. If some of our investors have the appetite, and the price is adequate, then we can syndicate part of it. At the moment, the syndication market is suffering because it is more sensitive to volatility.
Q Increasingly, debt funds are arranging unitranche deals above the €90 million mark. Is this something Ardian is involved in?
Yes. We manage a €2 billion fund and we have some co-investors that have the appetite to take some paper beside us. The size of our last unitranche deal was €200 million, while we arranged a unitranche of €275 million for another transaction with Bridgepoint in 2013.
Q Are the opportunities to arrange sizeable unitranche deals increasing?
More funds are looking at these kind of transactions, but in order to look at those opportunities you have to be managing funds within the €1.5 billion to €2 billion range. Two years ago, there were very few players who could complete deals above €250 million, and it was mainly the banks which could do this, but now you are looking at 10 players. Banks’ willingness to keep risk is more sensitive and it is why they now step back from these opportunities because they realise individually they cannot include a big risk on their balance sheet.
Q What are the biggest challenges for the rest of the year?
Finding the right opportunity, which offers us the kind of level of risk and rewards which we look for, at the right time. I would have given the same answer 12 months ago and I hope that I give you the same response a year from now. We had downturns in 2001 and 2009, but we’ve also had many good years in between. The important thing is to adapt to the environment.