Private equity: Mid Europa scores private equity hat-trick

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By:
Guy Norton
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Mid Europa Partners, the leading independent private equity firm focused on central and eastern Europe, has established a notable benchmark for the industry in the region, raising €1.5 billion in commitments for its latest fund, Mid Europa Fund III.

The largest buyout-focused fund in the region to date attracted contributions from more than 60 investors, both existing and new, including Axa Private Equity, Caisse des Dépôts et Consignations, Citi, European Investment Bank, Government Investment Corporation of Singapore, Goldman Sachs Asset Management and Unigestion. About 28% of commitments came from pension plans; 24% from funds of funds; 19% from banks, insurance companies and other financial institutions; 16% from government-related entities and international financial institutions; and 13% from endowment funds and foundations. European and North American investors accounted for 50% and 36% of total commitments, respectively, with the 14% balance coming from the Asia-Pacific and Middle East regions. Mid Europa committed €30 million of partner capital before launching the fund to investors in May and made an initial close at €1 billion in September. Thierry Baudon, Mid Europa’s managing partner, says: "We are delighted with the quality and diversity of the investors who committed to our third fund. With our second fund already 80% invested in less than 24 months, this new investment vehicle will allow us to continue to take advantage of the rapidly expanding flow of quality buyout opportunities in central and eastern Europe." Mid Europa’s second fund was closed at €650 million in January 2006, following the initial $550 million fund raised in June 2000. "We’re seeing deal sizes increasing all the time and so we need to raise funds to reflect that," says William Morrow, Mid Europa’s chief operating officer. "Companies which were too small for us to consider for the first two funds are now of a size we can look at for the third."

Controlling stake

Mid Europa normally seeks to take controlling stakes in its investments, either on its own or working alongside other financial or strategic partners. It typically invests €50 million to €200 million in companies with enterprise values ranging from €100 million to €1.5 billion that are cashflow generative and have dominant market positions in sectors with high barriers to entry. To date, the bulk of its investments have been in the telecoms and media sectors. "There are large, interesting and profitable investment opportunities in those sectors and people give us credit for the expertise we have there," says Morrow. "We’re not necessarily a sector specialist though." The firm has also invested in railway operators, oil and gas, basic industries, healthcare services and manufacturing firms.

To date Mid-Europa, which has some €2.6 billion of assets under management, has concentrated its efforts largely in the emerging European states that have already joined the European Union. Recently, though, it has expanded its focus to include such aspirants to EU membership as Serbia, where it bought a controlling stake alongside Bedminster Capital Management in Serbia Broadband, the leading cable TV and broadband internet player in Serbia and a rapidly growing provider of satellite TV services in the former Yugoslavia. The groundbreaking deal was the first leveraged buyout transaction in Serbia. "The Balkans are now very much on our radar screens and we’re seeing more and more interesting opportunities there," says Morrow.