Danish pension funds Danica Pensions and Lægernes Pensionskasse are among investors that have committed to CataCap, a private equity fund that invests in small and medium-sized enterprises (SMEs) in Denmark, and which has raised DKK1.1bn (€150m) at final close.
CataCap said it was the first time in several years a Danish private equity fund had been established from scratch without backing from captive investors.
The first closing in December 2012 raised DKK500m.
Other investors include a Danish foundation, CL Davids Fond og Samling, and an unnamed German pension fund.
CataCap invests in SMEs characterised by significant development potential and an innovative business model with long-term sustainability (10-15 years).
Vilhelm Hahn-Petersen – a partner at CataCap and one of the three entrepreneurs setting up the fund – said: “We are sceptical of fashion products but more enthusiastic about, for example, new and enabling IT concepts that can help productivity.”
Preferred sectors are business-to-business services, technology, telecommunications and media (TTM), transport and general outsourcing.
The maximum size of investee companies is €100m enterprise value – i.e. the value of a company on a debt and cash-free basis.
When fully invested, the fund will hold 7-9 portfolios with an average equity injection from the fund of approximately €15m.
So far, three direct investments have been made, including the mobile phone service provider Telecare, which has more than tripled in size within a year by acquiring its two largest Nordic competitors in one go.
This was also the first time a bond issue was used in the Danish small-cap market to carry through outright acquisition financing, securing attractive terms compared with the usual funding sources.
CataCap will invest alongside the investee business owners, acquiring a stake of 60-80%.
It will always have board representation and the opportunity to offer expertise on a regular basis.
Hahn-Petersen said: “There is a large population of attractive SMEs in Denmark, with high potential for value creation.
“At the same time, the competition among local private equity funds in small cap is lower that for the mid cap and large-cap segments, giving an attractive supply and demand balance.”
He added: “We also felt there is a need for hands-on investment in companies that don’t have the resources of the larger companies, allowing them to operate beyond Danish borders.”
Returns will be largely from capital growth, with the fund aiming to deliver a minimum of three times the money paid in.
Stakes in SMEs will be kept for 3-7 years, with an average of 4-5 years.
Hahn-Petersen said: “This fund will give pension fund investors exposure to a market segment that offers diversification into high-yield assets but where it is very difficult to invest directly.
“We aim to deliver above-average returns based on our investment strategy and the profile of the companies we invest in.”
The fund will typically exit from an investment via an industrial sale or a secondary sale to another private equity fund, although a sale to a mid-cap fund or even an initial public offering may be possible, if the SME has grown substantially.