ESO Capital

Marketplace lenders have a wealth of information at their fingertips, giving them what they think is a vital advantage. But why do some investors still need convincing of their merits? By David Turner with additional reporting from Andrew Hedlund and Andy Thomson.

 

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ESO Capital

PDI sought the opinions of the market on private debt's finest operational, turnaround and restructuring experts. Here we present a selection of individuals viewed with respect by their peers.

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ESO Capital

Heading off issues before they appear is one of the keys to engaging with the SME market and you can only do that if you have scars born of experience, insists Alex Schmid of ESO Capital.

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ESO Capital

Artificial intelligence is gaining ground, but humans still have their uses in private debt underwriting. Written by David Turner - June 2019

It is a common and complacent misconception that highly skilled workers are less at risk of finding themselves usurped by artificial intelligence. Long after any doctor has been forced into early retirement by the synthetic brainpower of AI, the nursing assistant will still be lifting patients on to and out of beds – something robots still find it hard to do because of the sheer unpredictability of any physical action involving humans.

This is not a cheery thought for people in the cerebral area of private debt underwriting – and AI has already reached the smaller end of the market. ESF Capital, which lends between €500,000 and €5 million to European businesses, uses it to whittle down the number of potential borrowers to about twice the final total, says Alex Schmid, London-based founding partner and CEO of ESO Capital and chairman of ESF, an ESO Capital spin-out. The remainder are considered by humans. The firm also uses AI to scan the market for potentially suitable borrowers.

“If ESF didn’t use AI, in the long term it would not be able to compete well,” he says. “It would need a significantly larger team, which would mean a higher cost base.” However, when it comes to the final separation of the wheat from the chaff, “people look at the potential loans and say: ‘Does this make sense in my experience as a lender?’ At that point, human judgement becomes more critical in questions such as: ‘Is the owner trustworthy? Do they have a good or bad history? Can we work with this person?’”

A balance with the bots

However, it is reassuring for private debt underwriters that ESO Capital – which makes loans worth €10 million to €40 million – does not use AI in underwriting decisions. This is to do with the more manageable volume: it makes about five loans a year, which it decants from a funnel that starts at about 700 possible deals. “It’s relatively easy to reduce 700 to about 30 if it’s done by people with experience,” says Schmid. “Larger firms tend to have highly practised people who can make decisions more quickly and better than a machine through a few calls to character referees.”

Schmid’s assessment is echoed by Nicolas Nedelec, managing director at Paris-based private markets investor Idinvest Partners, which focuses on deals worth between €50 million and €70 million. “We don’t use [AI] on a regular basis, but sometimes in our due diligence process it can be useful,” he says.

Idinvest has used it to analyse potential borrowers, such as insurance brokers with millions of items of anonymised data on customer transactions that can only be processed by sophisticated and powerful AI.

However, Schmid believes AI could gain further ground in underwriting corporate debt deals both small and large as it becomes more powerful and as the datasets it crunches grow larger, more complete and more interlinked globally. It could even become expert in that last step of deciding whether a potential borrower is inherently trustworthy if it can combine “very detailed psychometric tests” with background checks and financially based credit grading.

George Ralph, managing director at RFA, an IT services firm with a number of private debt clients, acknowledges that adoption of AI for underwriting is for the most part slow – for now. “What will happen, as happens with all technologies, is that one firm will adopt it and become incredibly competitive,” he says. “Then other firms will have to adopt the technology just to keep up.”

However, he adds that even when AI breaks through, humans will never be taken completely out of the underwriting process: “I think someone will always have to click ‘Accept’.”

ESO Capital

How robots are changing private equity forever. By Toby Mitchenall - 3rd June 2019

The revolution has begun; here’s what the advent of robotic process automation and artificial intelligence means for your job.

Cloverlay is not your typical mid-market firm. It is young – founded in 2015 – and bills itself as an investor in “adjacent private markets” through co-invests, platforms, joint ventures, fund restructurings and secondaries. Like many private capital firms, however, Cloverlay is a “slim shop,” says principal and CFO Omar Hassan. The firm has 12 full-time staff managing approximately $360 million. It will soon raise Fund II with a $400 million cap, according to market sources.

Hassan was previously a controller at Apollo Global Management and held similar roles at other firms in the credit and PE spheres. “I don’t have a tech background, but I have always dabbled in it,” he tells Private Funds CFO. “Robotics is taking operational efficiency to the next level.”

Processing invoices used to be a thankless job that required a lot of human hours and “you really needed to get it right,” says Hassan. Thanks to robotic process automation (RPA), for the last two years this has not been the case. Supplier invoices are now sent to an email inbox at Cloverlay; the invoices are scanned, information extracted and costs allocated to the appropriate funds or cost centers for sign-off.

This was never a massive volume task for Cloverlay; the firm processes anywhere between five and 15 invoices per week. But the human intervention typically required to allocate the expenses with consistency meant headaches and human error. The robot, which has been taught how invoices from various suppliers should be coded, now takes the strain. Humans are not removed entirely from the process, but by the time a human is involved around 85 percent of the work is already done.

It took Cloverley between four and six weeks to get it up and running and complete the necessary testing. The firm worked with a consultant; “in the grand scheme of things it was pretty painless,” says Hassan, who has discussed this with other CFOs at similarly sized firms, but has yet to come across a peer doing the same thing. A lack of volume is a commonly cited reason, he says.

If you’ve not come across RPA before, it is – put simply – a way of getting a piece of software to undertake simple rules-based routine activities. Think of a program that can open emails, access databases (it has its own log-in, like a human), gather data, fill out forms and perform calculations. It is best suited to repetitive, rules-based tasks that involve structured data. Among the leading providers of RPA software are Blue Prism, Ui Path and Automation Anywhere.

Giant financial services firms have already caught on. In the space of 20 months, Royal Bank of Canada’s wealth management division used Blue Prism software to save 153,000 hours of direct manual work, which in turn equated to circa 170,000 hours “given back” to the bank (the extra 18,000 hours comes from not having to correct errors). One process that formerly took a human around six hours is now completed in around 10 minutes by Blue Prism’s bots.

 Contract killers

 AI’s ability to read, translate and determine sentiment from documents or human speech can revolutionize contract analysis. EisnerAmper uses IBM’s Watson for its AI solutions; a contract that could take a human staffer two to three hours to review may only take Watson a few seconds.

“It can ingest the contract and then produce a summary of important issues, such as revenue recognition trigger points, along with any other issues that auditors and internal accountants identify,” says EisnerAmper’s Jay Weinstein, managing partner of markets and industries. He also suggests that this type of contract analysis could work wonders with company pension plan documentation; those 400-page doorstops. AI can now be trained to look for key matters in those documents.

“For the finance function specifically, machine learning through software functionality will automate bookkeeping transactions as they happen across bank accounts,” says Jason Bingham, managing director of product development for the fund administrator Sanne. This means recognizing transactions, even new transactions, posting them, and with machine learning, classifying that data and pulling it through to general ledgers.

Most private equity firms are not of the same scale of RBC. This should not preclude them employing RPA within their operations, as the Cloverlay example illustrates.

At the private equity coalface, however, “many smaller PE houses operate on spreadsheets rather than purpose built systems,” says Ben Booth, chief information officer for fund administrator Ocorian.

We asked 15 CFOs of mid-market private equity firms how many used an automated waterfall calculation tool, and – in support of Booth’s assessment of the situation – only three said they did, with respondents saying their waterfall was either too simple or too complicated to automate.

But the industry is changing. What could be called enterprise resource planning solutions for private equity – systems provided by the likes of eFront, iLevel and Investran among others – are starting to proliferate.

“The ability to turn this data into usable information and the speed in which you can do that is transformational,” says Richard Butler, the COO of lower mid-market firm ESO Capital. “We’ve recently implemented a powerful platform called Ipreo, enabling us to better compare our portfolio company KPIs, even for businesses across different industries.”

For the last three years, Harbourvest’s CFO Karin Lagerlund has been working on upgrading her team’s processes. “We looked at where we had cumbersome manual processes, or a lot of Excel spreadsheets, and began prioritizing how to digitize and use technology to streamline those activities. We digitized our journal entries and created a system that pulls the back-up data automatically and stores it for us in a cloud solution,” says Lagerlund.Butler explains that just three years ago, he would need a team of people to manage this information, and now he can do so at the touch of a button.

Automation will pay a huge part in the next generation of improvements. EisnerAmper’s Jay Weinstein, managing partner of markets and industries, explains how his firm is channelling resource into producing ‘bots’ that are capable of automating major processes within PE firm operations.

As an example, a fund may have month-end reporting for thousands of investors that they are currently recording on Excel spreadsheets. These spreadsheets include numerous calculations, which they spend hours producing. A bot can automate the spreadsheet and eliminate the manual inputs and reconciliations to validate those investor calculations.

“Those tedious reconciliations can take two or three days to complete,” says Weinstein. “And with the bot, the staff is freed up to handle more interesting and productive work, while also enhancing accuracy by limiting input errors.”

These technologies allow firms to migrate to an exception-based review and

reporting process, so that staff are not looking at every number or calculation, only those that represent aberrations, say when a data point communicates a loss, when the market for a particular portfolio company is booming.

RP-nay

RPA may not be for every firm. Partners Group – a private markets firm with $83 billion in assets under management across multiple asset classes – has a 90-strong technology team. The firm recently worked with a consultant to analyze the firm’s operations to see where RPA could drive efficiency. The result came up negative. “Because we are quite tightly integrated from the front office to our database, we did not find a single place where we could get upside from RPA,” Raymond Schnidrig, Partners Group’ chief technology officer, tells Private Funds CFO.

“A typical application is when reconciliation is needed between two systems that are not talking to each other. We don’t have much of that.”

Partners Group does deploy software robots to conduct regression testing when implementing new software. “We have quite a big bank of internal developers either building or buying in software,” says Schnidrig, “We have to test this and use robots to do it, which is quite standard I believe.”

What would it take to make RPA more relevant to Partners Group? “The heavily rules-based RPA methods would have to become more intelligent, with more variable input and output handling; this could result in coverage of more use cases,” he says. “Then it might become more applicable to lower volume work.”

Which leads us on to artificial intelligence. There is much excitement around how AI will change private equity firm operations. A survey conducted in late 2018 by fund administrator Intertrust found that 91 percent of private equity professionals believe AI will disrupt their sector within the next five years (the firm surveyed 80 PE executives).

So how does artificial intelligence differ from RPA? Definitions of these types of tech can be slippery (and debated fiercely by technologists). Consulting firm CBF Bots puts it like this: “On the most fundamental level, RPA is associated with ‘doing’ whereas AI and ML is concerned with ‘thinking’ and ‘learning’ respectively. Or brawn versus brains, if you like.”

Taking the invoice processing example: RPA knows what steps to take, because it has been told, but it may require AI to read the invoice and consider where to find each bit of the data it needs.

By this definition, AI is already hard at work in many private equity firms. Anyone using an expense system that scans pictures of receipts taken with your phone and transforms these into a claim – such as SAP Concur – is already working with it.

AI is also more often characterized by its ability to take oceans of data and discover patterns that humans cannot. And this is where private equity firms are starting to use their imagination.

Returning to Partners Group: the firm worked with a niche provider to develop an AI approach to identify negative news about its portfolio companies. This resulted in the creation of a bespoke tool used by its ESG team as part of its due diligence and portfolio monitoring activities. The firm has several thousand portfolio companies around the world, so to use conventional search engine notifications would have produced too much “noise” for humans to sift through. The AI program does the sifting.

Robo-regulation

The Securities and Exchange Commission has understood the power of data analytics in its work for more than a decade. It has been conducting deep data analysis on the public company front, particularly using XBRL, Extensible Business Reporting Language, for many years. XBRL, which is based on XML language, is a way to exchange information and data between different systems. It already is starting to use machine learning for reviews of public companies and for detecting potential market misconducts.

Much of this data-driven approach work has focused on publicly traded companies, and it remains to be seen whether the SEC will duplicate that to private equity firms and whether it can use some of the same analytic tools to perform exams of general partners.

With the exams being locally run and the SEC putting such an emphasis on visiting firms and staying weeks to analyze documents, it’s unlikely the exam process will become much more automated in the next few years.

“SEC inspections are likely to increasingly leverage access to data and systems, yet personal interactions will probably continue,” says David Larsen, a managing director at Duff & Phelps.

Deal sourcing sorcery

Most private equity firms do not have many thousands of portfolio companies to monitor. Indeed, most do not even have ESG teams. What all private equity firms have, though, is a need to source deals.

A million analysts to look at a million companies? How about one investor to look at a million companies? This is the vision presented in a slide deck from Paris-based growth equity investor Jolt Capital.

Jolt is a relatively new firm, having been established in 2012 with backing from Temasek subsidiary Vertex Ventures among other investors. It has a team of 11 and right now it is raising its fourth fund for which it is seeking around €200 million, according to market sources. It is not a private equity giant, but the expectation of its partners is that one day it will be.

Jolt’s ability to scale should be greatly enhanced by its investment in a proprietary AI-driven software platform, Jolt Ninja.

Ninja monitors a vast array of opensource and third-party information services to find suitable investment targets. Since starting development in 2016 and going “live” in 2018 it has led to two bolt-on acquisitions for portfolio companies and one new investment for the firm. Another Ninja-sourced deal is due to be announced imminently, managing partner Schmitt tells Private Funds CFO. This is impressive for a firm that is not a volume player.

“We invest growth capital in late stage tech companies with revenues of between €10 million and €100 million,” Schmitt says. “These are often too big for TechCrunch to cover and too small for the Financial Times. They are not sexy.”

As a result of this lack of media sex appeal, Jolt’s target investment universe is opaque and not easy to map; at least not for the human brain. Ninja, however, ingests data from open web sources, like company websites, as well as closed ones like subscription databases. It takes in datapoints from LinkedIn, news sources, patent filings, events and other data sources numbering in the hundreds of thousands. It uses natural language processing software to extract relevant information and build graphs of people, companies, revenue numbers and distribution agreements with resellers.

It has ingested and processed information on over 300,000 companies. Now half of all Jolt Capital’s outbound deal sourcing is led by Ninja’s recommendations.

Ninja even tailors its recommendation depending on the preferences shown by each member of the investment team. What’s it like working with this type of robot? Much like working with a rookie human who responds well to training. “Every week I get an email saying that here are the companies that have been matched by Ninja,” says Schmitt. “At the start, probably only one in 20 leads would be interesting, but the more I tell it what I like, the better it gets.”

Such a program is not cheap to build. Schmitt does not give a figure for the investment, but the project has been the work of three full time engineers reporting into chief technology officer Philippe Laval and four analysts since work began on it in 2016.

Exciting as it is, has it been worth it? If Jolt were to remain a small player – raising less than €100 million per fund – then the answer would be no, says Schmitt, but this is about scalability: “We formed Jolt in 2012 and are growing fast. We asked ourselves what firm we wanted to be when we reached €1 billion in AUM. We are now more scalable.” Ten percent of Jolt’s revenue will continually be invested in Ninja.

Side note: the existence of Ninja has, says Schmitt, has had a deep impact on the partners investing behavior; they feel they can negotiate on a different footing. “Most people are worried about losing an opportunity. We are less worried about losing a deal because our dealflow is so robust.”

CFO Q&A

Heramb Ramachandran is CFO of XPV Water Partners, a specialist private equity firm that invests in water-related companies. It has $400 million in capital under management and an operations team of seven.

What does robotic process automation mean to you?

I view it as breaking down a process into its respective components and determining which components can be performed by humans or machines. Through process automation, the ultimate goal must be to simplify the original process while reducing risk.

As a firm believer in lean back offices, the benefits of process automation in the finance world are evident. For example, a CFO’s period-end closing of the books can be potentially automated. Many of the components of this process are routine, high volume and can easily be performed by a machine.

How about AI? Is that on your radar?

It is certainly on my radar. I am continuously evaluating strategies to drive value for an organization while managing risk. With the evolution of AI, there will be an even greater emphasis on data-driven analysis that will require the back office to adapt. The days of plodding through spreadsheets to generate a calculation will soon be replaced by an AI algorithm.

Have you implemented anything recently that has reaped efficiency gains?

Sometimes it’s the simple things that generate the most value.

We introduced Expensify, which is a cost-effective, cloud-based expense management system to our organization. We used to prepare expense reports in excel and manually post the individual transactions to our general ledger. This was time-consuming, prone to error and added zero value to the organization. There would often be a one-month lag before an employee was reimbursed their expenses.

The introduction of this simple software has transformed a process that previously took the finance team two days to complete down to 30 minutes through effective process automation. Moreover, employees were reimbursed within one week of submitting their expenses, so the benefits of this software impacted the entire organization.

How long will it be until the finance function is staffed by robots?

Financial operations lag behind other functions with respect to widespread adoption of innovative technologies. The majority of back offices at small and mid-size companies use outdated accounting software with fragmented technology stacks. Reconciliations performed outside the system still tend to bridge the data across multiple platforms. There are years of process inefficiencies embedded in the operations which can’t be fixed overnight. The full-scale adoption of AI and process automation are still years away to practically benefit smaller organizations.

Robots finding deals

The ability to find and assess investment targets is clearly where many firms see the future. Returning to the Intertrust survey, a third of respondents identified “screening investment opportunities” as being the area in which digital innovation is currently having “the greatest impact,” but nearly two-thirds (59 percent) said it that this would be case in five years’ time. Likewise for “quicker due diligence” and “improved investment decisions.”

While a young firm like Jolt Capital is looking outward at what data it can absorb, firms with decades of their own data are looking inward. One is Riverside, a global firm focusing on businesses with enterprise values of less than $400 million. In private equity terms – certainly in the lower mid-market – Riverside is a volume player, with more than 90 companies in its portfolio. The firm has made more than 600 investments since it was founded in 1988, so within its vaults is an ocean of data to analyse.Before this dream becomes a reality, Riverside must overcome an obstacle that will be familiar to many of its peers: organizing and structuring data that is currently “scattered around a dozen or so” different internal systems. “Don’t underestimate the data management piece,” says Feldman, “getting the core plumbing in place in order to leverage the data – ours and third-party data.”Chief information officer Eric Feldman tells PFCFO that the firm’s leadership dreams of a presence on the investment committee akin to IBM’s Watson, the computer system made famous by winning the TV gameshow Jeopardy! in 2011. Riverside’s version would be able to look at a small manufacturing company in Omaha and immediately analyze hundreds of thousands of comparable businesses around the world in a way that none of the humans around the table could.

Implementing the AI technology is the easy part, experts say. What’s difficult and can turn firms off the whole idea is the creation of one data source. Before firms can take advantage of AI technology, automation processing and robotics, they have to go back into their data and create a data warehouse.

“Surprisingly, the single ‘source of truth’ approach to deal-management enabled by effective data warehousing was not adopted by a large margin of funds until very recently,” says Michael Asher, chief information officer of RFA, a service provider with a focus on technology. “By doing so, GPs can build algorithms that look at portfolio data from all phases of the cycle holistically and say, ‘Well, this is a great deal’ or ‘Our research indicates this is something that we should be looking at.’”

In other words, AI requires an enormous amount of data to learn from, says Jason Bingham, managing director of product development for the fund administrator Sanne. “To be effective, machine learning needs millions, if not billions, of data points,” says Bingham. “And many firms are still in the process of structuring all their data into a ‘single source of truth.’ Much of the ‘big data’ captured in the past five years does not as yet have a long enough time series to be properly validated and may be more commonly used by firms five years from now.”

Luddites will be proved wrong

So we are all agreed: robots are great. But how afraid should members of the knowledge workforce be as automation eats into their workload? A recurring theme among CFOs and service providers is that this next wave of technology is about maximizing what current staff can do. The asset class tends to staff leanly as a rule and every firm aims to do more with less.

“We are looking for how many hours automation can save, not just now, but during future growth as well,” says HarbourVest’s Lagerlund. “So, we fully expect to be able to increase efficiency, without necessarily increasing our accounting staff.”

Cloverlay provides a case in point. Processing invoices was never a full-time job – two or three hours a week typically. Instead, the hours “given back” allow operations professionals room for creativity. “It allows us to step back and say, ‘What do we want to spend our time on?’” says Hassan.

Some firms are hiring a special class of IT project manager – with skills in both IT and project management – to make the most of today’s solutions. They collaborate with business users and the IT team to decide if a project could be handled by a consultant or in-house, and whether a solution is available off the shelf or would need to be built from scratch. And then they see the project through to completion.

For firms with less tech in their DNA, the revolution may lead to their first CTO, or a different expert altogether. “Data management is only going get more critical and complex,” says Lance Taylor, CFO of Palo Alto-based mid-market firm HGGC. “So, there may be the need for a kind of data scientist, or data expert, who can think about how best to organize and manipulate data for value.”

For many it is difficult to imagine a world in which robots take on human tasks and the result is not human job losses. But as ever, the picture is more complicated than that.

For small, young, lean firms with ambition, automation provides tools to scale quickly. In the case of giant firms with legacy systems, we are more likely to see repetitive finance jobs replaced with technology positions.

We have grown used to the idea that the role of the private fund CFO transcends finance to encompass wider operations and projects. In the automated world this will be more so than ever. The future-proof CFO will be adept at managing IT projects… or hire someone else who is.

ESO Capital

ESO Real Estate (‘ESO’), an investment manager focused on European asset-backed special opportunities, announces it has secured another tenant at The Maylands Building in Hemel Hempstead, close to the M1 in Hertfordshire. The Dispute Service, a government approved deposit protection service for landlords, agents and tenants, has acquired 8,400 sq ft on the first floor on a ten-year lease and will take occupation in June 2019.

This follows a string of recent lettings at the building earlier in the year; Spaces acquired the whole ground floor and Annodata acquired part of the first floor.

Under ESO’s ownership, The Maylands Building has been comprehensively refurbished throughout and includes an expansive reception of 11,800 sq ft of highly serviced amenity rich space including a premium café operator, Gather & Gather, which opened this month. The building offers an onsite concierge service and an unrivalled car parking ratio of 1:189 sq ft. Each floor has been designed with a strong emphasis on community and collaboration, with flexible floor plates to meet the needs of any occupier. Single suites of 7,300 sq ft are available in addition to whole floors of up to 27,000 sq ft.

CBRE, Lambert Smith Hampton and Doherty Baines advised ESO Real Estate.

Zena Namih, Director at ESO Real Estate, commented: “We are delighted to welcome another tenant to The Maylands Building, which is proving very attractive for businesses north of the M25. Our recent complete refurbishment of the building is reflective of modern occupiers’ demands for flexible office space, high quality amenities, collaborative break-out areas and high parking ratios.”

- Ends -

For further information

Kepler Communications

Charlotte Balbirnie

CBalbirnie@keplercomms.com

+44 7989 528421

 

Notes to Editors

About ESO Real Estate:

ESO Real Estate is an investment manager focused on asset-backed opportunities throughout Europe. It supports strong management teams that have specialist assets with both debt and equity capital.

The ESO Real Estate team incorporates extensive investment capabilities that leverage ESO Capital’s experienced finance, asset management and business development teams.

www.esocapital.com

ESO Capital

ESO Real Estate, an investment manager focused on European asset-backed special opportunities, announces that it has invested in Genesis Homes (‘Genesis’), an Irish housebuilder that delivers family housing in regional locations. The investment consists of substantial development funding and a significant equity investment to support Genesis’ plans to deliver in excess of 1,300 homes over the next five years, with a gross development value of over €340 million.


With ESO Real Estate’s support, Genesis will develop a mixed tenure business model which combines build-to-rent, build-to-sell and social elements. Utilising the institutional funding and expertise of ESO Real Estate, Genesis will transition into a nationally significant Irish housebuilder.


Developments are located in the major regional cities of Cork, Limerick and Galway, and the ‘M50 corridor’, where there is strong demand for family homes and good links to the local economy, employment bases and key amenities, such as airports.


Two new projects have been identified which will deliver almost 400 homes, with the first completions due in early 2020. Importantly, these projects will include the first institutionally developed build-to-rent communities of scale in their respective regions.


ESO Real Estate’s deep sector knowledge and expertise in housebuilding will support Genesis’ growth and help to develop the businesses organisational infrastructure and team. Having a committed source of capital will give Genesis a competitive advantage in securing pipeline opportunities.


David Christie, Head of ESO Real Estate, commented:
“We are delighted to be investing in Genesis Homes. Barry and the management team have the skill and experience to deliver high quality homes in volume. With ESO’s backing, the team will become a major player in the Irish build-to-rent and build-to-sell sectors. This partnership will not only deliver a platform and portfolio that is in high demand from institutional investors, it will also play its part in solving Ireland’s housing crisis, which is an important social objective for ESO as a firm.”


Barry O’Connor, Managing Director of Genesis Homes, said:
“We look forward to working with the ESO Real Estate team and benefiting from their extensive property and build to rent expertise. The shortages in the Irish housing market have been well documented, so there is a clear need for the strong pipeline of developments that we have already identified.”


- Ends -

For further information


ESO Capital Partners
Tingting Peng
+44 203 642 2600

Kepler Communications
Charlotte Balbirnie
+44 7989 528421


Notes to Editors


About ESO Real Estate:
ESO Real Estate is an investment manager focused on asset-backed opportunities throughout Europe. It supports strong management teams that have specialist assets with both debt and equity capital.


The ESO Real Estate team incorporates extensive investment capabilities that leverage ESO Capital’s experienced finance, asset management and business development teams.

www.esocapital.com

ESO Capital

Speculation is rife about the ending of the cycle and what political developments may be coming round the corner. Alex Schmid of ESO Capital is staying focused on doing deals others overlook.

Read More ...

 

 

ESO Capital

ESO Real Estate, an investment manager focused on European asset-backed special opportunities, announces that it has increased its capital commitment to Placefirst, a specialist developer of homes for rent in the UK, with a further £29 million to support its ambitious and accelerating growth plans.

Placefirst works with local authorities and other organisations on the wholesale planning and transformation of neighbourhoods through both new build and conversion, with a focus on creating high quality, distinctive rental homes for working families.

Today’s increased investment from ESO will support the next phase of Placefirst’s growth, with the Manchester-based team expanding to develop projects across the North of England, Scotland and the Midlands.

ESO first invested in the business in 2016, acquiring a major stake and providing £25 million of capital to finance the development a 1,000 unit portfolio. With a guaranteed source of financing to draw on, the Placefirst management team has been fully focused on developing its real estate investments and its deep relationships with UK local authorities, accelerating the growth of its pipeline of opportunities. The team is now on-track to deliver the initial 1,000 unit portfolio well ahead of plan and has a nationwide development pipeline in excess of 4,000 units

ESO has been integral in supporting Placefirst to build its organisational infrastructure and expand its team, notably the development of Placefirst Construction, which acts as the principal contractor for all of the company’s developments.

David Christie, Head of ESO Real Estate, commented: “We are delighted to be increasing our investment in Placefirst today, underpinning its next phase of growth towards becoming a national leader in UK build-to-rent housing. There is a real need for developers to work with local authorities in the UK to address the acute shortage of housing for families.

“During the course of our partnership, Placefirst has enhanced its operational capabilities and, as importantly, with the support of a committed capital facility from long-term partner, Placefirst has been able to access more deals and execute its business plan more effectively, delivering more value and more homes.”

David Smith-Milne, Managing Director of Placefirst, said: “More and more families find themselves reliant on the private rented sector for their housing need.  The success of our major PRS developments in the North West and North East, where we have transformed run down neighbourhoods into high quality, expertly managed Private Rental communities shows the potential our model has to help address he Country’s housing challenges.  We are pleased to be expanding our development facility with ESO to continue the Company’s growth.”     

 

- Ends -

For further information

 

ESO Capital Partners

Tingting Peng

+44 203 642 2600

 

Kepler Communications

Charlotte Balbirnie

+44 7989 528421

 

 

Notes to Editors

 

About ESO Real Estate:

ESO Real Estate is an investment manager focused on asset-backed opportunities throughout Europe. It supports strong management teams that have specialist assets with both debt and equity capital.

The ESO Real Estate team incorporates extensive investment capabilities that leverage ESO Capital’s experienced finance, asset management and business development teams.

www.esocapital.com

ESO Capital

ESO Real Estate, an investment manager focused on European asset-backed special opportunities, announces that it has strengthened its team with the appointment of Zena Namih as a Director, who will lead real estate asset management, and Sunny Sanghera as an Associate, who joins the investment team.

The team has decades of experience in real estate investment, development, asset management, and risk management, working across multiple economic cycles. ESO Real Estate is part of ESO Capital, an investment firm providing private capital solutions for smaller scale European companies. With a wealth of transactional expertise across its core investment markets – the UK, Ireland, the Nordics, Germany and Benelux – the firm’s complementary combination of real estate and corporate skillsets strengthens the underwriting of investments into real estate operating businesses.

In her role, Zena will have responsibility for the monitoring and management of assets within the ESO Real Estate funds across multiple jurisdictions. Prior to joining ESO, Zena was a Director at Spring11 Advisory Services, a firm which advises large-cap private equity firms on portfolio acquisitions. Whilst at Spring11, she advised on over €50bn acquisitions across multiple jurisdictions.

As an Associate, Sunny will be an integral part of the investment team, with a focus on sourcing and executing new real estate transactions. Prior to joining ESO Real Estate, Sunny was an Analyst in the M&G Real Estate Finance team, responsible for the origination and execution of whole loans throughout Europe. He originated over £250m of loans across real estate sectors for both development and investment transactions.

David Christie, Head of ESO Real Estate, commented: “I am delighted to welcome both Zena and Sunny to the team. They bring valuable diversity of expertise across real estate, credit and structuring, which will be of strategic importance to the growth of ESO Real Estate as we look to deploy more capital.

“At ESO Real Estate, we provide flexible capital solutions to growing asset-backed real estate companies. We are working through a strong pipeline of opportunities across our core geographies, notably the UK, Ireland, DACH regions and Northern Europe.”

 

- Ends -

For further information

 

ESO Capital Partners

Tingting Peng

+44 203 642 2600

 

Kepler Communications

Charlotte Balbirnie

+44 7989 528421

  

Notes to Editors

About ESO Real Estate:

ESO Real Estate is an investment manager focused on asset-backed opportunities throughout Europe. It supports strong management teams that have specialist assets with both debt and equity capital.

The ESO Real Estate team incorporates extensive investment capabilities that leverage ESO Capital’s experienced finance, asset management and business development teams.

www.esocapital.com

 

 

 

 

 

 

 

ESO Capital

Turbine Efficiency Group is delighted to announce the acquisition of Gas Turbine Applications Inc (“GTA”). Turbine Efficiency, backed by Core Capital Partners LLP which was acquired by ESO Capital in May 2018, is a leading independent service provider for industrial gas turbines.

GTA is a highly-respected after-market services provider for Solar® Turbines products, specialising in the Saturn and Centaur engines. The business serves a longstanding customer base operating from facilities strategically located in Oklahoma, USA.

The enlarged group will leverage its combined capabilities to service new and existing customers from overhaul facilities in the UK and US, and regional offices in Aberdeen and Dubai.

Chris Turner, CEO of Turbine Efficiency, commented: “The acquisition of GTA represents a key strategic development in the ambitious expansion plans for Turbine Efficiency, bringing with it the extension of our global footprint and the Turbine Efficiency brand into the vast Americas market. We welcome our new colleagues at GTA into the Turbine Efficiency family and look forward to working with them as we take both companies forward together”

Matthew Hewlett, ESO Capital, added “Since our investment in 2016, Turbine Efficiency has more than doubled revenue organically and expanded into new strategic territories. This acquisition further enhances the geographical reach and broadens service capabilities, which will enable the Group to accelerate growth and serve our customers even better.”

 

- Ends -

 

For further information, please contact:
ESO Capital Partners

All media enquires:
Tingting Peng
tp@esocapital.com
D: +44 203 642 2600

For more information on TEG:
Matthew Hewlett
mh@esocapital.com
M: +44 (0)770 9197 397

ESO are actively seeking new investment opportunities. If you would like a meeting to discuss our approach or a specific opportunity:
James Smallridge
jms@esocapital.com
M: +44 (0)7971 475 582

 

Notes for Editors
About Turbine Efficiency
Founded in 2001 as an Independent Service Provider on the full range of Siemens industrial gas turbines from 1 – 15MW. Turbine Efficiency provides a world-class service for all maintenance, repair, overhaul and testing of your gas turbine and package. The group operates from a state-of-the-art overhaul facility in Lincoln, UK with offices in Aberdeen, Dubai & Houston, and resident Field Service Engineers in several key European locations. In 2016 TEL was acquired by Core Capital Partners, a mid-market private equity investor supporting high-growth UK companies.

About Gas Turbine Applications (“GTA”)
Founded in 1984, GTA is an independent service provider specialising in the Saturn and Centaur industrial gas turbines (Solar® Turbines products). GTA provides overhaul, repair and testing services for a longstanding customer base, primarily operating within the upstream and midstream sector, from its facility in Calera, OK.


About ESO Capital
ESO Capital is a London-based investment firm providing hybrid private-capital solutions to European small and medium-sized enterprises (SMEs). ESO’s acquisition of Core Capital is subject to regulatory approval and will combine its debt capabilities with Core Capital’s equity expertise.
www.esocapital.com

ESO Capital

Has the European private debt market had it too good for too long? There are no signs of panic, but nerves are jangling a little as loose structuring, leverage, competition and political volatility compete to be the asset class’s chief bogeyman. Andy Thomson reports.

Read more ...

 

ESO Capital

Private debt managers need to accelerate their take-up of new technologies to avoid becoming yesterday’s news.

Behind the curve is not a place you want to be. And yet Matthias Kirchgaessner of Plexus Investments – an adviser to family offices – is convinced that’s where most private debt managers sit when it comes to use of the latest technology.

At our Germany Forum in Munich earlier this year, he asked representatives of general partners in the audience how many were using data scientists to assist their underwriting processes. Only one delegate put up their hand, and he came from an online lending platform where – because of the sheer volume of loans being processed – technology is essential to keep the wheels turning.

For mainstream private debt managers, the suspicion is that cutting-edge technology is rather less of a priority. In a new PDI podcast, Kirchgaessner said he thought managers should be making better use of Big Data to help them assess not just the current shape of companies, but the kind of shape they are likely to be in three to five years down the line, when the loan matures. He thinks sector-focused analysis – developing a granular picture of what is, and is likely to, affect given industries – could be improved significantly by a more open-minded approach that embraces the latest technological innovations.

And yet, rather like those tales from the folklore of alternative assets when GPs would issue their quarterly reporting to limited partners in the form of Excel spreadsheets only, old habits die hard. Of course, in a digital age where humans may feel increasingly marginalised by the advance of robots and artificial intelligence, there’s something reassuring about people retaining control. But when it comes to analysing reams of data, they can miss things – especially if they are relatively inexperienced. The importance of the broader industry context – the ecosystem within which a given company operates – may also be overlooked by a human more easily than by a machine.

Alex Schmid of fund manager ESO Capital participated in the podcast alongside Kirchgaessner and it was clear that his own firm took the issue seriously, with an emphasis on how technology can be used to trawl data to free up team members to focus on other areas. By deploying a proprietary algorithm which sucks in company information from public sources, Schmid said his firm is able to target firms that may be interested in working with ESO with far greater precision – producing a 20 times better response rate than the firm would get by cold calling, he claimed.

Schmid referred to a theme which crops up in so many conversations these days, and not just in a private debt context – the increasing sophistication and demands of LPs. When it comes to use of technology to assist in many operational aspects – as well as in the reports they receive – the bar is set very high. “Even if you are a small manager, they don’t draw a distinction between you and Blackstone,” Schmid noted. Better get moving up that curve.

ESO Capital

ESO Capital Partners UK LLP (“ESO”), the provider of flexible capital solutions to small and medium-sized companies, announces today that it has supported the financing of a management buyout of north-west England headquartered Pyroguard.

Over the last four years, Pyroguard, a market leading manufacturer of fire-resistant architectural glass, has experienced significant organic growth, which is expected to continue. This new investment will allow the management team of Pyroguard to accelerate their expansion plans in the UK and Europe.

The existing Pyroguard management team will become majority equity shareholders, led by CEO Neil Tilsley with Nick Brayshaw continuing in his role as Chairman. David Steel, Director at ESO, joins the Pyroguard Board.


This is the first transaction completed by ESO since acquiring Core Capital in May 2018, and is structured as a senior-secured loan note with additional equity participation. The deal structure is typical of the highly flexible deals that ESO focuses on. By combining ESO’s credit expertise with Core Capital’s extensive sourcing capabilities, the enlarged ESO team offers bespoke capital structure solutions for European SMEs, with enhanced portfolio company support, solving a financing gap in the market.


Pyroguard’s prior backers were Dunedin and NVM.


Neil Tilsley, CEO of Pyroguard, commented: “I am delighted that a forward thinking and proactive investor such as ESO has seen the potential of investing in the future success of Pyroguard. Dunedin and NVM have been highly supportive investors for several years and have played a significant role in making Pyroguard the successful high growth business it is today. Bringing in a new external institutional investor like ESO, who has supported rapid growth across a range of businesses before, will bring not only a fresh perspective but also help us to accelerate our ambitious growth plans. Pyroguard has an exciting future ahead as a result of this new partnership.”


David Steel, Director, ESO: “Pyroguard is already a very successful business, with an experienced management team, a strong presence in a highly technical sector with significant barriers to entry. Given our experience in working with high-growth companies, we see considerable opportunity for ESO Capital to support the management team of Pyroguard as it looks to build its market share in this very interesting sector.”


Walid Fakhry, Founding Partner, ESO: “We are pleased to be announcing our first deal since ESO acquired Core Capital earlier this year. Our investment in Pyroguard, which sits senior in the capital structure, perfectly demonstrates our strong, flexible financing capabilities and support for ambitious growth companies.”


ESO was advised by K&L Gates. Pyroguard and its shareholders were advised by Clearwater International. Financial due diligence was conducted by PwC and Sentio Insight with tax advice provided by BDO, and commercial due diligence completed by PMSI.


- Ends -

For further information


ESO Capital Partners
Tingting Peng
+44 203 642 2600


Notes to Editors

About Pyroguard:
Based in the UK, with locations in France, Netherlands and Spain, Pyroguard is one of the world’s leading independent producers of fire safety glass.

Supporting architects, specifiers and contractors to meet all of their fire safety glazing requirements from a single source, the company offers one of the widest product ranges available. With high-performance products tailored to customers’ precise specifications, beautiful spaces for work and leisure can be created, combining safety and aesthetics without the need for compromise.
To discover more, visit www.pyroguard.eu

 

About ESO Capital:
ESO Capital is a London-based investment firm providing hybrid private-capital solutions to European small and medium-sized enterprises (SMEs). ESO’s acquisition of Core Capital is subject to regulatory approval and will combine its debt capabilities with Core Capital’s equity expertise.

With over 75 deals completed and more than €1.1 billion of funds raised to date, the enlarged ESO team has the expertise and flexibility to invest up to €40 million in any given transaction, across the capital structure, from senior debt to equity. The team works closely with business owners and management teams to structure innovative, bespoke financing solutions and offer enhanced portfolio company support.
www.esocapital.com

ESO Capital

As the European private equity landscape matures, a shifting of the sands in GP shareholding structures is emerging, with a growing number of M&A transactions and minority stake sales. Nicole Tovstiga reports

Until recently, merger activity between private equity firms still bore undertones of the financial crisis, when the market saw a flurry of mergers between troubled private equity firms.

However, private equity is maturing as an asset class and thus the shareholding structures of private equity firms are being reshaped. Not all change is driven by firm-specific events such as generational transition; GPs are also beginning to see strategic advantages both in merging with counterparts and selling minority stakes to other investors.

Indeed, a recent report by Triago highlights the growing trend of mergers among GPs. According to a white paper published by the private equity service provider, more than 150 M&A transactions involving private equity firms have taken place since 2005, with 65% inked across the past five years. Breaking this figure down, Triago data indicates that 15 deals have been completed annually since 2010, with an all-time high of 25 deals recorded last year.


Show of strength

The figures quite clearly indicate a change in industry perception towards GP mergers. Following the financial crisis of 2007-2008, mergers were not so much a strategic option, but a defensive response, and GP consolidation was usually undertaken from a position of weakness rather than strength. But as the industry evolves, private equity firms appear to be drawing inspiration from the strategies of portfolio companies and are altering their behaviour.

"GPs are a very proud, idiosyncratic lot that have historically based their identity on their unique ability to identify and invest on insider information," says Virginie Bourel, partner at Triago. "They've seen these abilities as a barrier to merging and have instead seen it a sign of weakness to sell out."

But having weathered the financial crisis and finding themselves positioned in more favourable investing climes – with markets across sectors largely having rebounded – a handful of GPs have completed landmark deals that have contributed to shifting acceptance and interest in M&A activity. It also means GPs have been able to increase resilience and diversification, merging with counterparts to improve strategic opportunity and develop products in new asset classes or geographies.

 

"GPs are a very proud, idiosyncratic lot that have historically based their identity on their unique ability to identify and invest on insider information" - Virginie Bourel, Triago

 

"When LVMH's private equity arm merged with consumer-focused private equity firm Catterton in January 2016, the firms did this from positions of strength for strategic advantage in geographies," says Bourel. "Deals like this have removed the stigma surrounding mergers."

US-headquartered GP Catterton, LVMH and Groupe Arnault Holding merged their private equity and real estate operations into a new global consumer investor, L Catterton. The new private equity house incorporated Catterton's $5.5bn in managed assets and the respective €1bn and $500m managed by LVMH's private equity and real estate arms, L Capital and L Real Estate. With LVMH especially strong in Europe, the GP said it was seeking to strengthen its buyout and growth position within the consumer space across Europe, North America, Asia and Latin America.

Meanwhile, the €310m merger of Eurazeo and Idinvest Partners in February this year created a new force in the GP world with €15bn in assets under management and showcases some positive outcomes from manager pair-ups. The deal was completed on the premise that a strong capital base and diversified LP base are key for growth, and with internationalisation as an over-arching theme associated with the merger. Historically, Idinvest's LP base has been predominantly French, with some European and a few international investors.
With the backing of Eurazeo, Idinvest strategically hoped to gain credibility through getting a more diversified LP base on board.


Gaining traction

The slew of activity among GPs in recent months gained traction late last year. In November 2017, investment firm Green Arrow Capital wholly acquired Italian GP Quadrivio Capital. The investment formed part of Green Arrow Capital's plan to diversify its portfolio of alternative assets across Europe.

Most recently, French asset manager Natixis Investment Managers acquired European private credit specialist MV Credit Partners in June. A month earlier, in a deal with similar strategic rationale, hybrid equity and debt fund manager ESO Capital bought lower-mid-market growth capital investor Core Capital. The consolidated group, which had previously worked on deals together, intended to offer a broader range of hybrid capital products ranging from senior debt to equity.

"The merger was driven by a motivation to achieve scale by investing across the capital structure, ranging from senior debt to senior equity," says ESO founding partner Stephen Edwards.

"LPs are looking for fund management businesses that can scale in an increasingly sophisticated market. Those who can play the risk scale want to see proof of ability to deliver across strategies and, through the natural evolution of the private equity industry beginning in the early 1990s, there is now enough data to separate the profitable players from the pack," says ESO founding partner Alex Schmid.

Satellite strategies such as ESO's do not shy away from offering a range of products and services including distressed deal packages. An underlying demand for capital continues to fuel the private equity industry, and there is appetite for flexible approaches that can offer both equity and debt funding.

While merger activity among GPs has spiked, data by Triago also indicates a hike in GPs selling minority stakes. One third of all deals since 2005 have been minority transactions, and more than 90% of these have been motivated by strategic and business development goals, according to Triago's white paper. A first wave of minority stake transactions arose in 2007-2008 and was spearheaded by Asian and Middle Eastern sovereign wealth funds, such as CIC and ADIA, but also large family offices. These buyers acquired strategic minority interests from flagship managers such as Carlyle, Blackstone and Apollo.

 

"LPs are looking for fund management businesses that can scale in an increasingly sophisticated market" - Alex Schmid, ESO Capital

 

More recently, other institutions have also sought to invest, which has prompted major players, including Goldman Sachs, Blackstone, Neuberger Berman and AlpInvest, to raise minority stake funds to tap a new market. These specialised GP stake vehicles have been actively seeking to invest in a maturing market – and offer innovative investment opportunities for LPs. Originally conceived in the hedge fund world, the minority stake funds have trickled into the private equity sphere and, by Triago's account, GP stake funds have contributed around 70% of all minority transactions since 2015.

Says Bourel: "While GP majority stake transactions are led for business and strategic reasons, minority transactions more often than not stem from the needs of founders to transition." Founding partners can be reluctant to relinquish control of their firms, but often are open to third-party shareholders. By retiring or cashing out, they have found a way to bring capital into the business, and to keep talent in house.

"With a high level of assets under management, the fees will be high, and third- party capital can be used to pay out younger partners and keep talent within the GP management team," says Goodwin Procter partner Ajay Pathak. More established GPs are looking to add capital into the fund as high-profile founders that led the business will command an equally notable capital allocation for their stake. It also demonstrates a maturing asset class.

"Institutional funds management is now an asset class in and of itself. Minority stake investments signal that it is much more the norm to be able to put a value on this asset class," says ESO's Schmid.

"GPs are faced with the question of whether their business has value beyond one or two leaders'" says Edwards. "They need to transition and create permanent value."

There are also other reasons driving GPs to sell stakes. Private equity can potentially attract more capital than some other asset classes, but private equity houses also need to ensure what is operationally required to attract big tickets.

For example, newly established French GP Ring Capital held a first close on €140m, with Tikehau Capital investing for a 25% minority stake in the firm in January 2018. The move was operationally positive for both investors. Ring Capital won credibility among other LPs and benefited from Tikehau's experience, as well as its established network and existing investors. Tikehau said it would also tap Ring Capital's research and development capabilities in the technology sector, the only market it invests in, when acquiring companies and managing its growth capital. Additionally, Tikehau offered an exit route for portfolio companies of Ring Capital. Indeed, according to Ring Capital, Tikehau was initially considered an LP before the decision was made to bring the investor on board as a 25% owner.

 

LPs on board

Indeed, LPs are a driving force in the changing private equity landscape.

According to Coller Capital's recentGlobalPrivateEquityBarometer, 40% of LPs have invested or have considered investing in funds that take stakes in GPs. The trend is still more pronounced in the US, although there has been some recent discussion about it in Europe, with LPs attracted to returns and features offered by these funds.

The specialised GP stake vehicles raised by Goldman Sachs, Blackstone, Neuberger Berman and AlpInvest have been designed in a way to provide significant external capital to management companies. More specifically, GP stake funds have access to management company dividends and can collect potential revenue from carried interest, as well as further AUM growth. GP stake funds generally preserve the independence of the management team and its investment process, as they usually adopt a passive role through non-voting rights.

 

"GPs are faced with the question of whether their business has value beyond one or two leaders. They to transition and create permanent value" - Alex Schmid, ESO Capital

 

At the same time, GP stake funds also offer a range of services to support managers. For example, they offer access to their own LP base to help their managers fundraise. This could be a potentially valuable service for first-time strategies or emerging managers. Theoretically, GP stake funds can also support product development and planning – such as operational assistance, talent management and training, or sharing support functions; for example, risk, compliance and accounting.

In reality, the effectiveness of these potential services has yet to be tested. But the popularity of the fundraising is significant. Part of Neuberger Berman, the Dyal Capital team closed its Dyal Capital Partners III on $5.3bn in February 2017, almost triple the size of its initial fund. Triago estimates that given their size, these vehicles could enable tickets between $100-600m to medium and large-cap managers.

It remains to be seen whether the minority stake fund vehicles, which have built their structures in a similar vein to traditional private equity closed-ended funds – with four- to five-year investment periods – will complement the asset class. Minority stake funds are yet to deliver exits. Additionally, a long-term and traditionally illiquid private equity market poses many questions when it comes to exit scenarios for GP stakes. Market observers say some GPs may buy back stakes, or the stakes could be sold on the public market – although for now, the US is more likely to see sales on the stock exchange than Europe.

ESO Capital

London and Frankfurt: ESO Capital Partners UK LLP, (“ESO Capital” or “ESO”), the provider of hybrid capital solutions to small and medium-sized companies (SMEs), announces today the opening of a Frankfurt office, signalling its commitment to German-speaking Europe.

ESO will be able to better serve SMEs across continental Europe from its new base, with a particular focus on Germany, Austria and Switzerland. The office will be led by Christian Fritsch, partner at ESO Capital, and will initially comprise a team of four investment professionals.

The expansion into Germany follows the recent acquisition by ESO of Core Capital, the UK lower mid-market private equity fund. The enlarged firm invests up to €40mn at a time in complex transactions. It deploys funds across the capital structure, providing hybrid capital solutions ranging from senior debt to equity. The team works closely with business owners and management teams to structure innovative, bespoke financing solutions and offer enhanced portfolio company support.

There are estimated to be more than 3.7 million SME businesses (defined as those with annual turnover below €500m) in Germany, representing the vast majority of all enterprises in the country, and underpinning the region’s strong economic performance. Demand among German SMEs for debt has grown every year since 2011 and is expected to continue.

ESO has extensive experience of investing in Germany. Its current investments include 21Sportsgroup, a sport-related e-commerce business, and Loancos, the largest independent loan servicer for performing and non-performing loans in Germany.

Christian Fritsch, Partner at ESO Capital and head of the Frankfurt office, said:
“I am delighted to announce the opening of ESO’s first office outside the UK in Frankfurt. Germany has a rich heritage of privately-owned small and medium-sized companies; by building a base in Frankfurt we will be well placed to support them and meet their growing appetite for credit, particularly given the changing shape of the local traditional lending market.”

Alex Schmid, CEO of ESO Capital, said:
“The opening of our new office is another significant milestone for the firm, following the acquisition of Core Capital this month. I am confident that our innovative approach to delivering financing solutions for European SMEs will prove equally attractive in Germany and German-speaking Europe and we look forward to continuing to serve this market through our new presence on the ground.”


- Ends -


For further information:


Greenbrook Communications
Matthieu Roussellier, Matthew Goodman, Clare Glynn
P: +44 207 952 2000
E: eso@greenbrookpr.com


About ESO Capital
ESO Capital is a London-based investment firm providing hybrid private-capital solutions to European small and medium-sized enterprises (SMEs). ESO Capital’s acquisition of Core Capital is subject to regulatory approval and will combine its debt capabilities with Core Capital’s equity expertise. With over 75 deals completed and more than €1.1 billion of funds raised to date, the enlarged ESO Capital team will have the expertise and flexibility to invest up to €40 million in any given transaction, across the capital structure, from senior debt to equity. The team works closely with business owners and management teams to structure innovative, bespoke financing solutions and offer enhanced portfolio company support.

15 May 2018: Core Capital Partners LLP (“Core”), the UK lower mid-market private equity fund, announces today that it has become the first institutional investor in Alpine Fire Engineers (“Alpine”). Alpine is a market leading designer, project manager, service and maintenance provider of active fire suppression systems. This new investment will allow Alpine to accelerate its expansion plans.

Alpine has experienced significant growth over the last five years, which is expected to continue both organically, as well as through select bolt-on acquisitions. The investment from Core will support the development of Alpine’s service and maintenance offering in addition to investment in IT systems.

The existing Alpine management team will remain significant shareholders, along with new CEO Steven Nanda, who joins after seven years as Managing Director of Industrial Services at SPIE UK where he held responsibility for their UK M&A strategy.  David Steel, Partner at Core, also joins the Alpine Board.

Last week, ESO Capital, the specialist investment firm that provides hybrid capital solutions to European SME’s, announced its acquisition of Core Capital. By combining ESO Capital’s deep debt capabilities with Core Capital’s extensive equity expertise, the enlarged business will offer even more flexible capital structure solutions for lower and middle market European companies, with enhanced portfolio support.

Steven Nanda, CEO of Alpine Fire, commented: “I am delighted to have joined Alpine as CEO. The employees, customers and sector expertise have built a fantastic platform for the business to continue to succeed. Bringing in an external institutional investor who has supported rapid growth across a range of businesses will bring a new perspective and help to accelerate our development.”

David Steel, Partner, Core Capital: Alpine is already a very successful business, with a high-quality management team and a strong presence with its loyal customer base. Given our experience in supporting high-growth companies, we see considerable opportunity for Core Capital to work with Alpine as it looks to build its market share in this very interesting sector. Our investment in Alpine, which is at the top of the capital structure, is typical of the type of investment that the enlarged ESO Capital group will be pursuing in the future.”

Core’s legal advisor was Andrew Masraf at Pinsent Masons, with Management advised by JMW and Paul Hastings.  Hurst Corporate Finance advised Alpine on the transaction. Financial due diligence was conducted by Grant Thornton and commercial due diligence was completed by Teneo (previously Credo Consulting). 

 

- Ends -

 

For investment enquires

David Steel (Core Capital)

+44 203 7949 750

 

For further information

Greenbrook Communications

+44 207 952 2000

Matthieu Roussellier, Matthew Goodman, Clare Glynn

 

Notes to Editors

 

About Alpine Fire Engineers:

Alpine Fire Engineers Ltd were established in 1992 and are a 1048 – 1 Level 4 Loss Prevention Standard approved contractor, the highest level attainable from the Loss Prevention Certification Board. Alpine operate nationally and specialise in the mitigation of client risk through the design, project management and maintenance of fire suppression systems.

 

About ESO Capital:

ESO Capital is a London-based investment firm providing hybrid private-capital solutions to European small and medium-sized enterprises (SMEs). ESO Capital’s acquisition of Core Capital is subject to regulatory approval and will combine its debt capabilities with Core Capital’s equity expertise. With over 75 deals completed and more than €1.1 billion of funds raised to date, the enlarged ESO Capital team will have the expertise and flexibility to invest up to €40 million in any given transaction, across the capital structure, from senior debt to equity. The team works closely with business owners and management teams to structure innovative, bespoke financing solutions and offer enhanced portfolio company support.

Enlarged firm to invest across capital structure, providing hybrid capital solutions, ranging from senior debt to equity

9 May 2018: ESO Capital Partners UK LLP (“ESO Capital”), the provider of hybrid capital solutions to small and medium-sized companies, announces today that it is acquiring Core Capital Partners LLP (“Core Capital”), the UK lower mid-market private equity fund, for an undisclosed amount.

The combined business will continue its focus on supporting SMEs across northern Europe, investing up to €40 million in complex transactions. The firm will invest across the capital structure, providing hybrid capital solutions, ranging from senior debt to equity.

Following the acquisition, Core Capital’s founders, Walid Fakhry and Stephen Edwards, will join the ESO Capital management board, alongside ESO Capital founder Alex Schmid and partners Richard Butler and Christian Fritsch. Alex Schmid will remain as CEO of the enlarged firm.

The acquisition of Core Capital by ESO Capital is a natural extension of the firms’ long-standing relationship. The firms have a proven track record of working together over recent years, most notably through their joint backing of Brasserie Bar Co, the restaurant operator. Between them, ESO Capital and Core Capital have completed more than 75 deals to date and raised funds of more than €1.1 billion.

Alex Schmid, CEO of ESO Capital, commented:

“We are delighted to be acquiring Core Capital, having developed a strong working relationship through our mutual backing of businesses. Core Capital’s expertise in the lower mid-market private equity arena will prove invaluable as we continue to grow and provide bespoke capital solutions to the SME market, which is highly fragmented and underserved. We very much welcome Walid, Stephen and their team.”

Walid Fakhry, Managing Partner of ESO Capital, added:

ESO Capital is a very successful business with a great reputation. Having got to know Alex and the team well over a number of years, we are excited to formalise our partnership and become part of the ESO team. Together, we will be able to better support small and medium-sized businesses across German-speaking Europe, the Benelux region and the Nordics, as well as the UK.”

For further information

Matthieu Roussellier, Matthew Goodman, Clare Glynn
Greenbrook Communications
+44 207 952 2000

About ESO Capital

ESO Capital is a London-based investment firm providing hybrid private-capital solutions to European small and medium-sized enterprises (SMEs). ESO Capital’s acquisition of Core Capital is subject to regulatory approval and will combine its debt capabilities with Core Capital’s equity expertise. With over 75 deals completed and more than €1.1 billion of funds raised to date, the enlarged ESO Capital team will have the expertise and flexibility to invest up to €40 million in any given transaction, across the capital structure, from senior debt to equity. The team works closely with business owners and management teams to structure innovative, bespoke financing solutions and offer enhanced portfolio company support.

ESO Capital

The SME lender sees a pick-up in its special situations deal pipeline amid mounting dry powder in the European private debt market.

European Special Opportunities (ESO) Capital, a London-headquartered European special situations investment firm, is to fully deploy its latest special situations fund by the year end, Tingting Peng, head of investor relations and fundraising at ESO Capital told Private Debt Investor.

The manager’s latest flagship fund, the 2015 vintage European Special Opportunities Fund VI has deployed 80 percent of its $250 million capital, 35 percent of which has gone into real estate debt opportunities. 

The firm is looking to deploy the rest of its capital into special situations lending to European corporates.

ESO Capital raised its capital from at least 17 investors based in the US, according to an SEC filing disclosed in February 2017.

PDI understands that Fund VI has an anchor investor based in the UK, while the remaining commitments come from state-backed pensions and corporate pension funds in the US.

The firm typically invests €10 million to €30 million apiece in lower midmarket SMEs with a focus on the UK, Northern Europe, and Germanspeaking European countries, according to Peng.

The 2013-vintage predecessor vehicle, European Special Opportunities Master Fund V, targeted $230 million, according to PDI data.

ESO Capital also has exposure to European non-performing loans via one of its German portfolio companies in fund VI, LOANCOS Group, as per PDI reporting.

The firm’s investment strategy mainly focuses on a combination of cash and payment-in-kind (PIK) – for which the firm realises its return at the maturity of debt instruments, rather than on a quarterly basis – depending on the type of business and deal.

Asked if the capital will be fully deployed within the target timeline, this year, Peng said: “Market observers say there is $80 billion dry powder in the European private debt market, but as a flexible capital solutions provider, we continue to see interesting deals in our pipeline.”

ESO Capital is not the only SME lender to point out the growing dry powder mountain in the European private debt market.

“People will have to work hard, and there will be some players out there, the weaker funds, who will struggle to deploy capital on returns acceptable to the LPs,” Jon Herbert, a managing director of the UK SME fund at Beechbrook Capital told PDI during an interview recorded last week.

PDI understands that the ESO fund has a six-year life with a target gross internal rate of return of 16 to 18 percent per annum across both debt and equity on an unlevered basis. For debt instruments, the firm targets an internal rate of return ranging from 12 to 14 percent per annum.

The firm has €550 million in capital under management and invests across the full capital structure, providing bespoke solutions, according to a member list provided by the Swiss Private Equity and Corporate Finance Association.

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