The Last Word: Capzanine flies under the radar

Laurent Bénard capzanine 180

How did Capzanine come together?
Capzanine was created in 2004 by Christophe Karvelis and David Hoppenot. Both had extensive experience in the private equity world and realised there was an opportunity to spread private financing to the SME market. Capzanine is the oldest debt fund in France and has raised €1.5 billion since inception. The team now comprises 18 people focused on companies located in France with EBITDA up to €40 million. 

In 2011, I pioneered unitranche in France with Flexitalic; this allowed the firm to expand its footprint in the market and offer a complete financing solution, from senior to mezzanine. 

In 2015, Capzanine received the support of two institutional investors, AXA and Eurazeo, who committed significant amounts to its various strategies and became minority shareholders.

And how would you describe the market opportunity you are targeting?
The opportunity to arrange alternative financings for mid-market French companies (EBITDA from €10 million to €40 million) is very deep. France is the second-largest LBO financing market in Europe for transactions of less than €350 million. At Capzanine, we see over 250 investment opportunities a year without taking into account the ones we generate ourselves from our existing portfolio. 

We see very attractive opportunities in our three areas of activity: unitranche, mezzanine and senior; hence we have deployed over €300 million in the last 12 months. Given continued banking disintermediation, we strongly believe the market will grow over the next 10 years.

How do you read broader market conditions at the moment and what impact do they have on your firm?
First of all, the market is more cyclical than ever – ie, bank financing is harder to predict for sponsors ahead of a transaction and, at the same time, an increasing amount of money has been and is being raised to invest in European private debt, including in France. Base rates are low and will remain low, but we are well protected in case interest rates were to rise, as all our financings are floating.

We feel very well positioned to deal with both challenges. Capzanine Private Debt is positioned as a private debt financing house with a broad offering (senior, unitranche and mezzanine) and this allows us to be responsive to the sponsors’ needs, whatever the bank’s position is. Our long, historical relationship with sponsors, the depth of our team and proximity to the lender are all keys to succeeding in an ever more competitive environment.

Our focus is on extracting value by always acting as the arranger or co-arranger, as opposed to working on widely advertised and syndicated deals.

Two recent deals illustrate this: in May 2016 we arranged and syndicated financing for IK Investment Partners’ acquisition of French implant manufacturing company, Marle, from Carlyle; and in March 2016 for Bridgepoint’s acquisition of dental technology company, Acteon.

The French private debt market seems relatively low profile despite being such a big opportunity. Is there any particular reason for that?

As I said before, France is a relationship-driven and proximity market, especially in the SME segment. Many of the lenders and sponsors prefer to work with local players who have a strong understanding of the legal framework. Many of the most attractive transactions are proprietary and, as such, do not make European headlines. Pan-European players have historically under-allocated to France and failed to build significant local teams. We are happy to keep our leadership position under the radar.

What do you see as the biggest challenge today?
We are a credit manager, so our biggest challenge is the same today as it was 12 years ago, to get repaid with interest. Otherwise, the market is volatile, and the European macro situation is fragile at best. The liquidity events driven by the ECB, the stock market, the banks’ balance sheets – in the context of the uncertainty of politics – can, of course, have an impact on broader financing conditions. However, Capzanine has been around since 2004, through numerous cycles and we are proud to say our DNA and resilience allows us to face such challenges.