UNLISTED INVESTMENT: INVESTING IN PRIVATE EQUITY

There are 3 million very small businesses in France (companies with less than 10 employees) as well as 140,000 SMEs (companies with less than 250 employees), while the number of companies listed on the stock exchange on Euronext Paris is around 750, mainly corresponding to ETI (Intermediate Size Companies) and large groups.

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The differential is therefore very important.Just by relying on SMEs, more than 139,000 of them are not listed on the stock market.The unlisted universe is therefore very vast.The selection of promising company profiles from this vast universe of unlisted companies is the Private Equity activity, also called Private Equity (PE).

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Within this dossier, we will present Private Equity, how it works and its characteristics, as well as its advantages and its limits / risks.Also discover in this article the different ways to invest in private equity, complemented by our advice.Finally, find our study of 3 large French companies specializing in Private Equity and listed on the Stock Exchange.

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WHAT IS PRIVATE EQUITY OR PRIVATE EQUITY?
private-equity-non-cote-bourse
If you were a Private Equity manager, your job would be to analyze, meet, and support SMEs or mid-caps looking for funding sources to help them in their growth processes, other than those offered by bank indebtedness or even l introduction and listing on the stock market.

Who knows, maybe the company of 200 employees located in the industrial zone of your city is booming thanks to its innovative activity? It might be wise to invest in it and thus support its future growth!

At first glance, this is not an easy task... First of all, you need to have the expertise to target the right company profiles among those looking for financing.It is then necessary to have skills of analyst within the framework of the study of the "files" (growth, dynamism of the sector, company policy, are some examples of it).

And above all, you must have a substantial capital to finance these companies, while knowing that it is better to be diversified.

All of these elements present a priori many barriers for the individual investor.However, investment in Private Equity is possible thanks to Private Equity companies listed on the stock exchange and Private Equity funds such as FIP, FCPI and FCPR.

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UNLISTED INVESTMENT: OPERATION AND CHARACTERISTICS OF PRIVATE EQUITY

In general, Private Equity companies tend to opt for sector specializations such as health, technology, telecommunications or even consumption.

Their role is to support the growth of SMEs over the long term, by creating a relationship of partnership and trust, as well as the alignment of common interests. Improving the performance of SMEs can also be one of the objectives.

The common objective is the creation of long-term value for the financed company and attractive returns on investments for the Private Equity company.

In general, the majority of a Private Equity company's portfolio is made up of SMEs and mid-caps. These companies can also arbitrate a share of their investments in listed companies, if they find potential there.

The teams of managers of Private Equity companies have good levels of expertise. Their main role is to target private companies (not listed on the stock market) with high potential and seeking funding. They also have the role of calculating the rates of return.

Thus, these teams carry out real “field surveys” by meeting with managers, visiting the premises, providing legal support, etc.

The “entry tickets” of Private Equity companies can be low as high. Indeed, they can be from a few million euros for a small SME, to more than 500 million euros for profiles of larger companies.

In France, the BPI is a major player in Private Equity, with € 2.5 billion allocated to development capital for the year 2019.

In the private equity sector, there are two main categories.The first is development capital, which consists in supporting the growth of a private enterprise; the second is venture capital, which consists of financing a company when it is launched.

It should also be noted that Private Equity is not only reserved for investment companies. Individual investors can also take part.In Anglo-Saxon terms, large private investors in Private Equity are called Business Angels. One of the most active in France is Xavier Niel (CEO and founder of Iliad / Free) through his school 42 and Station F, one of the largest startup incubators in the world.

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WHAT ARE THE ADVANTAGES OF INVESTING IN PRIVATE EQUITY?
The main advantage of Private Equity financing is a long-term support vision.The constraints of this method of financing are often more flexible than those from bank, bond or IPO (Initial Public Offering or IPO) financing.

Indeed, creditors or stakeholders can sometimes put some form of "pressure" with regard to profitability and deadlines for achieving objectives, while funding support through a Private Equity company is generally more flexible and focused on "long time".

For example, if the SME must invest massively in a year N to develop its growth, it will undoubtedly be simpler if it is financed in Private Equity than if it had earned in search of dividend yields. The principle is the same for bonded creditors also wishing to benefit from yields on their bonds (debt securities).

Another advantage of Private Equity companies is the diversification of their portfolios through multiple investments.It is not uncommon to find more than 50 equity stakes in the portfolios of Private Equity companies.In this respect, the risk is controlled thanks to diversification.

We should also note the intangible experience of the teams of managers of Private Equity companies.Supporting growth is part of their job and they generally have cutting-edge sector expertise.

In addition, investing in the unlisted via funds allows you to benefit from tax advantages.

The 31st edition of the Franceinvest study on the development of the activity of French Private Equity players indicates that this sector has been experiencing sustained growth since 2009.

Fundraising by French Private Equity players
fundraising-french-companies-private-equity
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WHAT ARE THE RISKS OF INVESTING IN PRIVATE EQUITY?
The risk of investing in Private Equity can come from potential errors of assessment in the choice of companies, made by managers in Private Equity.

These errors of appreciation come, for example, from investments made in young companies or in sectors or companies in a downturn, which fail to achieve their objectives.There are many reasons, such as the arrival of competition, poor management or other macro or microeconomic risks.

It should also be noted that the companies targeted within Private Equity activities are often SMEs which represent a potentially riskier universe than that of large companies. Indeed, due to their small sizes, SMEs are also more risky.

Investment in Private Equity also presents a liquidity risk.In other words, the investor takes a higher risk of not finding a counterparty to sell his holdings in companies not listed on the stock exchange.

Given the real risks of Private Equity, it is recommended to limit the share of its assets invested in this asset class.

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SUBSCRIBING TO PRIVATE EQUITY: THE DIFFERENT WAYS OF PROCEEDING

Invest in Private Equity by buying shares of Private Equity companies listed on the stock exchange
A simple solution for subscribing in the Private Equity universe is the acquisition of listed shares of Private Equity companies.

These shares of Private Equity companies are accessible via a securities account, a PEA or even an SME PEA if these companies are SMEs and are from the European Union.

Here are examples of large global companies including Private Equity investment among their activities, classified according to their asset management levels (AUM, Assets Under Management).

TOP 10 of the world's leading Private Equity companies
Blackstone Group (United States) with $571 billion.
Brookfield investments (Canada) with $515
billion.Schroders (UK) with £444
billion.Carlyle Group (United States) with $201 billion.
Kohlberg Kravis Roberts é Co. (United States) with $ 148.5 billion.
Partners Group (Switzerland) with $ 94 billion.Onex
Corporation (Canada) with $ 38
billion.Tikehau Capital (France) with 25.4 billion €.
Eurazeo (France) with € 17.7 billion.3i
Group (UK) with £8.8 billion.
Investing in shares in a listed Private Equity company allows you to benefit directly from the unlisted universe (private companies), which is generally difficult for “general public” investors to access.

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Invest in Private Equity via FIP, FCPI and FCPR
There are also other possibilities for investing in Private Equity, in particular within certain types of funds focused on three categories.

FIP (Proximity Investment Fund) composed of SMEs with less than 250 employees and less than € 50 million in turnover.These funds must include investments concentrated on a specific region with the possibility of extending its selections to four neighboring regions. to 70% minimum in PME.

FCPI (Mutual Funds for Investment in Innovation) composed of so-called innovative companies with less than 2,000 employees.These types of companies are characterized by a necessary threshold of investment in Research & Development (R & D) of at least 15% of their overall expenses.

FCPR (Mutual Risk Funds) composed of recent companies.This type of fund is high risk and the investor can potentially lose all of his capital, or realize significant capital gains.This type of fund is forced to hold 50% of its assets in " young" unlisted companies.

Large banks and wealth management advisers offer this type of fund, as well as investment companies specializing in these sectors.

Investing in this type of fund also allows you to benefit from tax advantages.

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OUR ADVICE FOR INVESTING IN PRIVATE EQUITY
Private Equity companies are transparent about their various management models and strategies.The investor can therefore turn to those he likes.These companies are specialized in certain sectors or are rather large private equity companies, with funds of different types, etc. There are many variations within this universe.

For example, the French listed company Altamir has decided to specialize in specific sectors, namely TMT (Technologies, Media and Telecom), digital, services, consumption and health.

Tikehau Capital favors entry tickets of between 10 and 70 million euros as an investment limit per private company, without sectoral limits.

Investors therefore have various choices within a global universe of several hundred listed companies specializing in private equity capital as well as among FCPI / FIP / FCPR funds. He can therefore study their strategies in detail.

The objective of Private Equity is the long-term support of private companies.

Short-term trading arbitrations or short selling strategies are excluded from the business model and diversification of investments must be one of the risk management criteria.

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STUDY OF 3 FRENCH PRIVATE EQUITY COMPANIES LISTED ON THE STOCK EXCHANGE

EURAZEO: LARGE PRIVATE EQUITY GROUP FOUNDED IN 2001
With its 300 employees and 18.8 billion euros in management, the Eurazeo group is one of the largest players in the Private Equity sector. Its large investment portfolio is made up of 430 companies selected from those with strong growth potential over a time horizon of 5 to 7 years.

Eurazeo's businesses are categorized into 7 branches:

Eurazeo Capital
Eurazeo PME
Eurazeo Growth
Idinvest Partners
Eurazeo Brands
Eurazeo Patrimoine
Eurazeo Development
Eurazeo also has activities in real estate, private debt (Private Debt), mandates and dedicated funds (Private Funds).

Examples of Eurazeo holdings:

77.1% of the capital of DORC, a Dutch company specializing in medical technologies.

57.9% of the capital of Dessange International, a group of beauty salon franchisees.

53.3% of the capital of Albingia, a German company specializing in hedging corporate risks.

51.9% of the capital of Carambar & Co, a French company specializing in confectionery.

37.1% of the capital of Efeso Consulting, a consulting firm for industrial companies.

Evolution of the Eurazeo share price since 2003

eurazeo share-price
Source: Tradingview (excluding plots)

The evolution of the Eurazeo share price can be divided into four main phases:

an increase of + 251% between September 30, 2012 and May 21, 2007;
a sharp drop of-82% between May 21, 2007 and February 23, 2009;
a marked increase of + 572% between February 23, 2009 and January 15 , 2018;
a decrease of-35% between January 15, 2018 and June 5, 2020.
Figures-Key Eurazeo:

Market capitalization on June 5, 2020: € 3.96 billion
Equity: € 6.6 billion
2019 net profit: € 133 million
ALTAMIR SUPPORTS THE GROWTH OF COMPANIES SINCE 1995
Altamir is a French Private Equity group specializing in acquiring companies from the TMT (technology, media and and telecoms) and digital sectors (47% of the overall value of its portfolio).

The services (26%), consumer (21%), and health (6%) sectors are also part of Altamir's areas of investment.

The group manages a portfolio of 51 companies whose fair value per revalued net asset was € 1,013 million at December 31, 2019.

At the end of 2019, 82% of them are in Europe, 12% in the United States and 6% in the rest of the world.

Examples of Altamir's holdings:

27.52% of the capital of Marlink, a French satellite telecommunications services company intended for maritime environments and environments with little coverage.

24.4% of the capital of AEB, an Italian company specializing in biotechnological ingredients.

24.22% of the capital of Snacks Développement, a French company among the leaders in the production and marketing of savory aperitif products.

22.44% of the capital of InfoVista, a French company among the leaders in publishing software for network management.

13.17% of the capital of Amplitude Surgical, a French group among the leaders in orthopedic surgical technologies.

5.85% of the capital of Alain Afflelou, a French company distributing glasses.

Altamir share price evolution since 2003

course-action-altamir
Source: Tradingview (excluding plots)

The evolution of the Altamir share price was volatile between 2003 and 2009, before initiating sustained growth since 2009. Its share price can be split into three main phases:

an increase of + 496% between May 5, 2003 and June 11, 2007;
a sharp drop of-91% between June 11, 2007 and March 9, 2009;
a notable increase since March 9, 2009 of + 1,294%.
Altamir key figures:

Market capitalization on June 5, 2020: € 581 million
Equity: € 1.01 billion
2019 net profit: 245 million €.
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TIKEHAU CAPITAL: € 25.4 BILLION UNDER MANAGEMENT FOR THIS GROUP CREATED IN 2004
Tikehau Capital is a French investment group in four asset categories: private debt, real estate, Private Equity and Capital Markets Strategies. The group also offers access to funds.

The four main values ​​of Tikehau Capital are proximity, sustainability, diversity, and independence.

Regarding its private debt division, the group finances private companies for between 10 and 300 million euros.Tikehau Capital manages € 8.3 billion in assets for this branch.

The real estate division of Tikehau Capital is mainly focused on commercial real estate (retail), hotels, offices, logistics parks and factories.The group manages 9.5 billion euros in assets for this branch.

Within the framework of its Private Equity division, the group operates through entry tickets ranging from 10 to 70 million €.Typical profiles are private companies with strong potential for organic or external growth.Tikehau Capital manages 4.1 billion euros in Private Equity assets.

For its Capital Markets Strategies division, which specializes in high-yield corporate bonds and subordinated bonds, the target group is debt for pan-European, Chinese, Indian and Indonesian companies.Tikehau Capital manages 2.5 billion euros in assets within its Capital Markets Strategies division .

The group benefits from a strong expansion of its assets under management from € 1 billion in 2011 to € 25.8 billion in 2019.

tikehau-capital-evolution-active
Source: Universal Registration Document 2020

Examples of Tikehau Capital (Private Equity Pole) holdings:

Crowley Carbon, an Irish energy efficiency services company.

Assiteca, leader in independent insurance brokerage in Italy.

Dove Vivo, one of the leaders of co-living in Italy.

Rougnon Group, specialized in technical building trades in the Paris region.

Medtrade, a British company in the medical device sector.

Addev Materials, a French group specializing in the transformation of high performance packaging-type materials.

Evolution of the Tikehau Capital share price since its IPO in 2017

cours-action-tikehau-capital
Source: Tradingview (excluding plots)

The evolution of the Tikehau Capital share price can be divided into four main phases:

a decrease of-17% between March 27, 2017 and January 3, 2018;
an increase of + 35% between January 3, 2018 and August 31, 2018;
a decrease of-41% between August 31, 2018 and August 29, 2019 ;
An Increase Of Tasu 45 Pasento Since August 29, 2019.
Tikehau Capital Key Figures:

Market capitalization at June 5, 2020: € 3.4 billion
Equity: € 3.15 billion
2019 net profit: € 179 million

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