- Speaker #0
Welcome to Private Market Square, the meeting of private and capital investment investment. I am Yann Charrère, co-founder of Airfun. Whether you are a beginner or an expert, fund manager, investment advisor or investor, discover the backstage of private investment, the strategies of the best managers, their specialties, their differentiating axes. Discover how capital investment, real estate or infrastructure dynamize your investment wallets by bringing diversification and performance. So if you think this podcast is made for you,
- Speaker #1
subscribe. Have a good episode everyone! Parisian winter, so thanks for coming and exchanging with us about Riverside, the company, the global private equity firm. Today we will talk about the fund also you are about to launch, Riverside Europe Fund No. 7. Maybe we could start by a short introduction about yourself.
- Speaker #2
Yes, of course. Again, thank you for having me. So my name is Carsten Langer, I'm the managing partner of the Riverside Europe Fund. I've been in this business for about 18 years. And prior to that, I was in the banking world and in the corporate world as well. I'm from Denmark originally. I live in Belgium. I was educated in France. So I'm quite a European person.
- Speaker #1
Thank you. Thank you for the introduction. Yes, a true European people. Can you tell us a bit more about Riverside, which is, if I understand well, a U.S.-based private equity firm?
- Speaker #2
Yes, the Riverside company is a global private equity fund focused on the lower end of the middle market. So we have today about 12 billion euros of assets under management, which are spread across seven different financial products. But they're all focused on providing capital and growth assistance to small and medium-sized companies.
- Speaker #1
Okay, thank you. What is the global reach and investment approach of Riverside?
- Speaker #2
Yes, so we are present in North America, we're present in Europe, and we're present in Asia, in particular in Australia. In total, we have 15 offices, and over the years, the firm was founded in 1988, so we're celebrating our 37th birthday next year. We have made over 1,000 control investments, so Riverside has really grown to become one of the most experienced. private equity investors in the world.
- Speaker #1
Okay, so you have already invested in 1,000 companies. Yeah, that's interesting. And I hope you can share some examples later during the podcast. Maybe you mentioned the global reach of Riverside. How do you leverage this presence to create value for your portfolio companies and in the end, the investors?
- Speaker #2
So the smaller end of the middle market where we operate is mostly populated by single country or regional funds. With the global footprint and the global resources of Riverside, we can offer companies assistance to grow globally. For example, going to the U.S. market or even going to the Asian market. This means that we very often have a mutual attraction with the owners or the management teams of companies that have this ambition and this potential to grow. internationally. So for us, it's really very much about international growth and a hands-on approach to helping them achieve that goal.
- Speaker #1
Thank you. It's really interesting because it seems to be quite a unique positioning because usually private equity firms are addressing lower mid-market. Indeed, as you said, they are more regional or local because of the size of the deal and the sourcing that needs to be local. But you have this local sourcing with the, I would say, the advantage, the benefits of a... global network.
- Speaker #2
That's right. And you're right about the needs to be local from a sourcing point of view. And for that reason, in Europe, we have four offices from which we originate and conduct investments in Stockholm, Munich, Brussels, and Madrid. And in each of those offices, we have a local originator who's spending all of his or her time speaking to local intermediaries, being in the local business networks. but also doing research on a more thematic basis in our sector verticals, which are pan-European.
- Speaker #1
Okay, we will come back to the sectors indeed. So the fund that you are launching is the seventh vintage of Riverside Europe. Can you tell us a bit more about the investment strategy and the key objectives?
- Speaker #2
Yes, of course. So the Riverside Europe fund focuses typically on founder-owned or family-owned companies that face a succession situation or that are looking for a partner to help them. Okay. scale up and grow internationally, as we said, and that maybe have some improvements that they still need to make in the way the management team is structured, in the way the strategy is designed and deployed. So we focus on companies that have a strong position in a niche market, which is well protected on the downside, so typically stable, quite sizable markets, but still with some niche aspects to them. And where we can then deploy our resources and our value creation playbook to help them to grow and succeed.
- Speaker #1
Okay, great. So we mentioned a bit earlier the sectors. Which sectors are you focusing on and why?
- Speaker #2
We work in four main sectors, which at the high level are technology, healthcare, consumer and specialty manufacturing. Now, those are very broad sectors. So you need to... dive into each of them. And for example, in software or in technology, it's mainly about SaaS software, B2B SaaS software. In healthcare, it's mainly about specialty pharma and supplies to the pharma industry. In consumer, it's mainly about consumer staples and ingredients. It's not about retail and fashion, for example. So we have very specific... sub-niches, if you like, of sectors that we are specialized in within each of those four big categories.
- Speaker #1
Okay. That's interesting. Maybe one question more related to what happened recently with the Trump election in the U.S. and the beginning of some changes in the world. Does it have an effect on your investment strategy? How do you deal with it?
- Speaker #2
It's a great question, and it's one that I've been... thinking about for the last, I would say, since Trump was president the first time, because this is really not new. This reduction, if you like, of globalization has been coming for the last, you know, 10 years or so. And what we concluded is that actually, in a world where trade barriers are higher, having multiple locations that you can do business from is better than if you're stuck in a single market. because you can arbitrage your locations in a better way to serve your customers. So actually, we conclude, and I think there is historical evidence that proves this, that by having multiple locations and by being more international in their footprint, companies can better weather a period of global trade wars and these kinds of challenges. Okay.
- Speaker #1
You also mentioned the end zone approach. Does it mean that... At Riverside, you have what we call in private equity operating partners helping the firms you acquire to develop?
- Speaker #2
Yes, that's right. Globally, Riverside has about 65 operating partners. Okay. In Europe, we have eight. And these are senior executives with experience from running companies that work hand-in-hand with the management teams of our portfolio companies. on strategic improvement and on deploying what we call the value creation playbook to help those companies to grow and become bigger and better versions of themselves.
- Speaker #1
By the way, what is the value creation playbook for you?
- Speaker #2
So the value creation playbook is essentially a list of about 10 things that we can do in almost every company. And it's things like focusing the strategy. enhancing the management team, focusing on sales automation and sales acceleration. So very often, you know, small companies don't necessarily have a very sophisticated sales approach. We make sure they do. It's a new product development. It's anything to do with efficiency in the product delivery and product, you know, manufacturing, if it's a manufacturing company area. And then it's also implementing digitization. Implementing ESG growing internationally and doing add-ons for strategic growth as well. Okay,
- Speaker #1
that's really interesting, but we want to have, I think, concrete examples. What can you tell us about previous acquisitions?
- Speaker #2
Let me tell you an example of a company that we just sold, in fact. It went through the full cycle and we sold it very successfully with a gross return of four times the invested capital. in a period of exactly five years. This was a Spanish company called Health Tech Bioactives, and it was a company that we bought as a spin-off from a Spanish pharma company where it was kind of a non-core business unit. And what they do is they make extracts mainly from orange and from B12 derivatives that are used as ingredients in food supplements. which are then integrated into either food supplements or pharmaceutical products. And with this company, we did a very big effort on all of the things I mentioned, really. In terms of sales expansion, we helped them to set up a sales team in North America, including their own operations and distribution in North America and win clients over there. We helped them invest about 30 million euros in a new factory so that they could become fully independent from the... Spanish pharma company that they had been a part of before. And we made significant enhancements to the management team, especially in the area of product development, so that they could really accelerate their new product development. All this resulted in a company that grew revenues by about 50% during the period, from about 50 million to about 75 million, and doubled its EBITDA during the same period. and this allowed us to make a very attractive return for our investors.
- Speaker #1
And so this company participation was in the previous fund, so number six?
- Speaker #2
In the Riverside Europe Fund six, exactly.
- Speaker #1
So now you have launched the number, vintage number seven. I think you already made some acquisitions.
- Speaker #2
Yes, we have already made three investments in Riverside Europe Fund seven. One of those investments incidentally has already made five add-ons. So one of the investments is really a buy and build, if you like, which has kicked off very successfully. This is a company that supplies consumables to the clean room manufacturing industry. And we are doing a buildup of this business, mainly in Northern Europe.
- Speaker #1
Okay. And nice to see that for this already investments that are at work. What is the... Talk a bit about the performance. What is the expected return for this fund and the track record from the previous vintage?
- Speaker #2
So the team that is managing this fund realized a track record of 3.4 times gross money multiple over 15 exits with no losses. So since 2012, when this team started working together and took the leadership of the strategy of the fund. We have not experienced any realized losses. So we are underwriting our investments to a target return of 20% and in the kind of normal case, net that is, and 25% plus in the upside case.
- Speaker #1
How many investments do you want to make through the fund?
- Speaker #2
We expect to have around 10 investments between 8 and 12 in the fund.
- Speaker #1
If we come back to the macroeconomic, consideration. We talked about Trump and the effects on international trade. What about interest rate? Is it really changing the appetite for buyout or not?
- Speaker #2
The rise in interest rates that we experienced, I think, had a bigger impact on the larger deal space in the private equity universe. In the smaller end of the market where we operate, leverage is typically not that significant. For us, average leverage across the portfolio is just over three times EBITDA. Some companies, the technology companies, are done with no debt at all. So really, and our interest coverage has really not changed even through the cycle of higher interest rates. So we are quite, I would say, reasonable in our use of leverage because we're really much more focused on growth.
- Speaker #1
Yeah. Interesting. And indeed, that's also why we at Airfund, currently, we prefer recommending funds investing on small caps, because we also believe that there is less impact from interest rate, given that the... Debt leverage is much less higher than on the larger caps.
- Speaker #2
The other benefit of small cap, if I may, is that the magic is in the micro, not in the macro. So it's really all about finding excellent small companies that have a unique ability and potential to grow more than it is relying on the macro economic cycle.
- Speaker #1
We did not talk yet about sustainable investment. What is your... What is your policy?
- Speaker #2
We are launching, or we have launched Fund 7 under Article 8 of the EU directive, which means that we take sustainability into account, but we don't insist on doing only sustainable investments. And what that means practically for us is that we do make a plan for every portfolio company to become carbon neutral in scope 1 and 2. We do have certain criteria in terms of gender diversity that we want every company to apply. We want every company to have a dedicated sustainability person making sure that the company is doing everything that it can that makes sense within its own business context. And we ourselves, of course, we issue an annual sustainability report that includes a lot of metrics from the portfolio. about the progress that we're making on all these sustainability measures.
- Speaker #1
Okay, thank you, Kerstin. Maybe it's also time to discuss about the collaboration between Airfund and Riverside, because usually the previous funds were mainly for institutional investors. So now you have decided through the partnerships we have with you to open up to individual investors. Why did you decide that?
- Speaker #2
So I think it's the trend in the market at the moment. I think it's no secret that there's an enormous interest among high net worth individuals and smaller family offices that maybe historically have not been private equity investors to access this asset class. And on the other hand, on the part of the private equity funds, Riverside included, there's a large interest in getting to know that investor base and having them. in our funds. And of course, Airfund is extremely well positioned as a pioneer in the use of these digital platforms to facilitate the contact both ways. So we're very eager to establish this relationship with you.
- Speaker #1
Thank you. And of course, all financial advisors and private banks will be able to access the funds documentation and marketing on Airfund soon. That's Really nice. Maybe one, if we would try to summary for investors the key takeaway, why they should invest into Riverside Europe Fund
- Speaker #2
7? So an investment in Riverside Europe Fund 7 gives an investor a diversified exposure to what we believe is a selection of excellent European companies that have a strong potential to grow internationally and they benefit from. our resources to help them achieve that. And they're putting their money with a manager who has been in the market for over 35 years and has a lot of experience in this world of lower mid-market investing.
- Speaker #1
Thank you. Of course, we always say that, but we remind to investors that private equity investment is a long-term investment. It's risky, it's illiquid, but there is a lot of upside and and potential that you mentioned.
- Speaker #2
Indeed.
- Speaker #1
Really interesting. Thanks a lot, Carsten. What can we wish for Riverside for the next few months or for the next year?
- Speaker #2
You can always wish us great investments and success in meeting all of your contacts and clients.
- Speaker #1
Thank you.
- Speaker #0
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