Direct secondaries opportunities in Germany on the rise

Portfolios of funds that were impacted by the global financial crisis are now ripe for picking, according to Michel Galeazzi, co-founder of Zurich-based Evoco.

Opportunities for secondaries investments in Germany are growing, Michel Galeazzi, co-founder at direct secondaries firm Evoco, told Secondaries Investor.

Between 2002 and 2007, German general partners focusing on small to mid-cap strategies were busy raising new funds. But following the global financial crisis, some of these GPs ran into some problems and these funds are now ripe for picking.

“Between 2005 and early 2008, many funds used the available capital to invest aggressively,” said Galeazzi. “When the crisis hit the portfolios, some fund managers lost companies and for others, the value creation got delayed, prohibiting them to reach the carry hurdle.”

These managers, which had an over-proportionate amount of struggling companies in their portfolio, or which had delays in their value-creation plans, are now facing a tough fundraising market.

They are faced with only a couple of choices going forward.

They can either restructure their portfolio with fresh capital and new terms or sell part of their existing portfolio of companies, explained Galeazzi, whose firm has acquired or managed a total of 16 companies in the last three years.‎

“We solve these situations in collaboration with the existing GP in order to develop the most suitable deal structure and take into account specific requirements of the LP base,” he said, regarding Evoco’s strategy once it makes an acquisition.

Evoco, which has a current portfolio of 11 companies, including five in the German-speaking region, is currently looking at a handful of opportunities and plans to have another closing in the next six to nine months.

The Zurich-based company typically works in co-operation with existing GPs of portfolios they acquire, with key members of the GP sometimes joining the Evoco team. Evoco usually liquidates the portfolio within two to four years following an transaction. It also invests in France, Switzerland, Benelux, and Nordic countries. It has a set of core investors and also complements transactions with capital from the secondary market.