Sobera on science-focused secondaries

Few firms invest in biotech and life sciences secondaries because it can be difficult to evaulate the portfolios, explains Johannes Rabini, managing director of Berlin-based Sobera Capital.

How do you compare with other secondaries firms that target a similar market and region to Sobera Capital?

Unlike many of our competitors we like complex structures and enjoy piecing together distressed funds and working with them in the restructuring process. We also invest in biotech and life science industries which not many people do. There are only a few firms that invest in these sectors. It is usually difficult to put a value on these portfolios and assets unless secondary buyers have specialised knowledge.

Sobera actively invests in the German secondaries market, what makes the market so attractive? 

We are German-based, so we know how it works here – the language, the legal environment and the people. We have also seen sufficient deal flow in Germany and the German-speaking region, making it a desirable market to invest in. Germany is a big market with a lot of tail-end funds and companies that have to be divested. We target tail-end funds in particular, as they contribute to a more developed and active market.

Purchase price is another obvious factor. Sellers often don’t have the money to support their portfolio companies in follow-on financing rounds, but we do. We hold on average 20 percent to 25 percent off the value when buying a fund, or assets from the fund, so we have enough to finance the portfolio after the acquisition. We normally acquire about one portfolio per year, which contains between three and 10 companies. That shows that there are is a lot being sold in Germany.

Explain a noteworthy secondaries transaction Sobera has completed in recent years.

In 2007 we acquired the Berlin Capital Fund, which had an evergreen structure, 14 portfolio companies at the time, and debt leverage on the fund and on the portfolio side. We have been able to work on this leverage and keep it simple. We participated in follow-on financing and exited company by company. Furthermore, we acquired further shares from co-investors on portfolio company level at attractive valuations which led to an overall very successful deal.

In 2012 we acquired a bio-pharmaceutical portfolio from Bayer AG, which was no longer interested in the portfolio. The competition in the process was limited because only some secondaries funds do life sciences. The challenge was to predict the follow-on requirements on a portfolio level to avoid the dilution that is usual in biotech financing rounds.

Since the acquisition of that fund, Baytech Venture Fund I, we have been confronted with pre-emption rights on the portfolio company level that had prevented the deal. Therefore we did not acquire the underlying assets directly but bought all the LP stakes in the fund and replaced the GP. This was and is a more complex structure but resulted in a further discount and less competition.