Updated 25/10/2022

Financial Markets? The era of private markets platforms

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visuel Virginie Morgon

I had the pleasure of speaking at the 2022 IPEM Conference last week on the era of private markets platform. Here is an excerpt from my discussion.

 

6 years ago, Eurazeo, was a monoline investor specialized in buyout investments. We are now a diversified platform serving Europe’s middle market.

We are one of very few firms in the sector having put in place dedicated teams with expertise to support companies in all phases of their – from startups to unicorns, from SMEs to multi-national mid-caps. Eurazeo can offer value-added partnership, and an array of funding solutions, ranging from equity investments to private debt financing.

 

Why do we choose to become a diversified platform?

It made us better investors & shareholders

At our core, we are best at helping companies scale, we are a growth-oriented firm. We like to partner with good management teams, with great companies, and help them scale across the world.

This means internationalization, it means strategic repositioning, it often means buy and build. That’s where our balance sheet and our scale come in: we have the large-cap resources that small and mid-sized companies can’t easily get access to: International Networks, Hands on Operating Support, including Digital Acumen, ESG Best Practices, Capital Markets, and Talent Advice and Procurement. During uncertain time, it is critical for founders and CEO, who are often very lonely in their organizations, to rely on partnership from their shareholder.

Our four focus sectors are scalable and global by nature: Tech-enabled, Financial Services, Healthcare, and Consumer. We follow these from seed-stage to mature, which gives us the insights and deal flow to help us source the right ones. The real challenge then begins when we own the company, and again, we can draw on the large cap resources of the Eurazeo platform to scale and transform companies from good to great.

 

We can help LPs access to an attractive part of Europe’s growth opportunity

We are finding that our limited partners struggle to access broad exposure to continental Europe, particularly in the context of the local networks in the middle market and start up ecosystems. By partnering with Eurazeo, LPs can access this attractive segment of the market, with lots of opportunity to create value.

This is part of a trend, we have noticed that LPs are consolidating their relationships with GPs who have an edge. 45 GPs above €20bn AUM around the world, representing 6% of total number of funds, capture 45% of capital raised. It is becoming increasingly difficult to compete in the market without a scale effect.

Our LPs are looking for partners who they know will be able to:

  • Generate the best deal flow,
  • Attract the best talent,
  • Develop the best companies,
  • Provide the best ESG standards, and
  • Assure the best customer service.

We cannot underestimate the importance of the human and digital service we provide to our LPs to ensure they know their valuable capital is being managed by a responsible fiduciary.

We are convinced that sustainability and performance are intricately related. Environmental, social and societal levers contribute to making a company more efficient and resilient at all levels. Managing ESG issues and integrating them into the business help to anticipate market trends, identify future-proof companies and avoid stranded assets. It plays a key part in making a company more attractive to our LPs.

Our challenge may seem paradoxical, but for me it is the key to our success: we must both appear to our clients as an overall strong platform, but also as the one with the best vertical expertise. The central level and the brand must be robust but without ever diminishing the quality of the expertise at the level of the investment strategy. The Group must be coherent, but each expertise must remain a “couture house”.

 

Diversification is a protection during uncertain time

Our diversification plays in full, building resilience and protecting value. In volatile times, portfolio effect is key:

  • In Buyouts, we invested in market-leading companies in asset light sectors like business and financial services or healthcare, which generate strong cash flows. These companies, such as Elemica and Scaled Agile in tech-enabled business services, Cranial and DORC in Healthcare, are able to pass on price increases which can provide a natural hedge to inflation.
  • In Venture and Growth, we continue to benefit from the digitalization of Europe’s economy and our companies generate outsized revenue growth and are well capitalized. Our sector leaders like Doctolib, Contentsquare or BackMarket continue to gain market share and expand geographically.
  • In Real Estate and Infrastructure businesses, we benefit from natural pass-through of inflation and from opportunities to invest behind trends around the very attractive energy transition sector, the increased importance of healthcare, as well as the recovery of hospitality around Europe.
  • Finally, our Private Debt business is doing extremely well, with a very strong portfolio, lightly leveraged, very secured, and benefiting from floating rates. This makes it a compelling investment in the current environment.

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