April 6, 2015
Interviewed by: David Snow
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“Positive Territory” for PE in Europe

Across Europe, pockets of growth are opening up for private equity investors with the right resources, says a managing partner of one of Europe’s longest-tenured pan-European private equity firms. Nikos Stathopoulos explains why the Greek economic crisis has been “overblown” and how deals born of family business transitions are increasing.

Across Europe, pockets of growth are opening up for private equity investors with the right resources, says a managing partner of one of Europe’s longest-tenured pan-European private equity firms. Nikos Stathopoulos explains why the Greek economic crisis has been “overblown” and how deals born of family business transitions are increasing.

“Positive Territory” for PE in Europe
With Nikos Stathopoulos of BC Partners

David Snow, Privcap: We are joined today by Nikos Stathopoulos from BC Partners. Nikos, welcome to Privcap. Thanks for being here today.

Nikos Stathopoulos, BC Partners: Pleasure.

Snow: I have a lot to ask you about. There’s a lot going on in European private equity and you guys invest across Europe, so I’m fascinated to hear your commentary on what’s really going on. But why don’t start with a bit about yourself? What role do you play at BC Partners?

Stathopoulos: I’m one of the managing partners of the firm, based in London. I have been with BC for about 10 years. Before that, I was with another private equity fund, Apex Partners, for a period of time. My main role is looking after Europe. My investments span in various countries like Sweden or Turkey or the UK, or even Italy, mainly focusing on large buyout, which is the focus of BC.

Snow: Clearly, what’s going on in Europe is a large and complex topic, but I bet you’re visiting the U.S. now and you’re getting questions about Greece and the extent to which that is challenging the private equity opportunity across Europe. What do you say when you get the Greece question?

Stathopoulos: I do get it occasionally, given that I cannot deny my passport or nationality. I would say, in most cases, it has been blown over proportions. The main issue that people are concerned about is whether the Greek situation/negotiation is going to have an impact on the Euro. And the agreement that was made a couple of weeks ago in the Euro Group has actually diminished that risk, in my view, materially. So that risk is probably eliminated, or not as close to eliminated, but it’s certainly been very low.

We have done deals in Greece. Both at the time when the economy was flourishing. It was growing at substantial rates in the mid2000s. I would say Greece still has potential opportunities there. Naturally, the risk/reward has to be very carefully assessed, but there are very healthy Greek companies or Greek-based companies. Especially ones that happened to be based in Greece but export most of their investments and revenues.

Snow: As you look across Europe today as a private equity investor, where are you most excited? Where do you see the most interesting opportunities?

Stathopoulos: We still see opportunities in Western Europein the healthier parts of Western Europe, like Germany or the Nordics; however, we increasingly see opportunities now in Southern Europe, where after a period of slow or decline growth, you’ve had countries like Italy or Spain or even Greece who are coming back into the positive territory. When you see consumer confidence going up, when you see GDP potentially coming into positive areas and you have a lot of businesses in these countries—a lot of mid-sized and family owned businesses—who potentially might be in a stage of changing hands. And private equity, historically, has proven to be a natural owner in that transition between family and more professional ownership.

Snow: BC Partners is one of several large, Pan-European private equity firms. Does a Pan-European strategy still make sense? Europe is a very large place. Why not focus your energies on some of these already very large economies like just France or Germany? What advantages do you have as a Pan-European investor?

Stathopoulos: As a Pan-European investor, first of all, we’ve been around in the biggest economies in these countries for more than 25 years. So my definition of “Pan-European” is if you have boots on the ground and you’ve had fullystaffed offices for a long period of time and know the major European economies. BC Partners had had so for many years. We have found that the network you can build through a local presence—the type of meetings and conversations you can have with people over the years—can help you assess businesses better, be better prepared when they come for sale, create proprietary deal flow in many cases and, therefore, hopefully make better investment decisions.

Snow: Is it generally a theme that, in Western Europe, these tend to be more mature businesses you’re coming across and, in Eastern Europe, it tends to be more of a growth story? Or again, is it more complicated than that?

Stathopoulos: The simple view is the way you present it; however, Western Europe has still some very nice pockets of growth, depending again on the various economies you look at. Eastern Europe is, indeed, sometimes showing more growth in certain industries. It’s less mature. At the same time, you need to adjust the risk/reward for that curve in maturity that you are in these markets. But it’s true. Western Europe is a bit more mature. You see from the GDP growth that you see in the bigger economies, with the exception of Germany, which is having a very healthy growth at the moment, and some of the Nordic countries. The rest are having a bit more of an anemic growth.

Snow: Over the life of BC Partners, where would you say most of your capital has gone? Or rather, how has the capital been split by country and by region?

Stathopoulos: Ironically, over the last 25 years, it has been relatively equally split, I would say, between the three biggest economies—as in Germany, France and the UK.

Snow: Okay.

Stathopoulos: We’ve had a lot of activity in other European markets like Italy, which has been probably our fourth largest country in terms of investing. And then, other markets like the Nordics or even countries like Turkey.

Snow: A big percentage of your limited partners are U.S. based, so I’m interested in the kinds of questions that American investors have for you, given what’s been going on in Europe. Is there a recurring theme in the kinds of questions they have for you?

Stathopoulos: The main question is really in terms of the growth of the EU and the EU countries. And the fact that the U.S. is growing faster than Europe—are there investment opportunities in Europe that can justify a resource allocation into that region? The short answer is absolutely “Yes.” There are pockets of countries where you can see growth in certain sectors, in certain companies.

Snow: Finally, I’d like to ask you about the exit markets across Europe. I guess you have a number of different exit routes you could take for your various companies. What does it look like right now and what experiences have you had recently?

Stathopoulos: We think, actually, the IPO markets are open. We have been fortunate to IPO two of our investments in both the Stockholm Stock Exchange and the Milan Stock Exchange in the past seven or eight months, which shows that there is substantial demand for European assets from international investors, particularly U.S. investors, at the moment. The strong dollar is also helping investing in Europeanbased businesses and we think that’s a natural exit route at the moment. Valuations are relatively high. If you look at five or 10 or 15-year averages of several sectors, the comparable companies are trading at 10 or 15-year highs at the moment. So, in terms of an exit timing, it feels like it’s a good time to try to sell.

Snow: Your firm has had two portfolio company IPOs recently? Can you walk us through where and what kinds of companies they were?

Stathopoulos: There was one in June last year. We IPO’d the largest cable TV business in Sweden called Com Hem in the Stockholm Stock Exchange. It was one of the largest IPOs done in the last 10 years in the country. We raised close to $900 million of primary capital for that company. The second one was actually as recently as this week. On Monday, we IPO’d the largest value-fashion retailer in Italy called Oviessa. We raised close to $600 million for it with substantial demand, which links to my previous point that there is still demand to invest—even in Southern European markets—at the moment.

Snow: How bullish are you about investing in Europe, having been doing this for a while now? Do you feel you’re coming into a good cycle and now’s a good time to be a private equity investor?

Stathopoulos: I think it’s an interesting time to be a private equity investor. As I mentioned, valuations tend to be at high levels at the moment. But there are still areas and potential countries that could provide opportunities. I believe we will see more deal flow now coming from countries like Southern European markets where, in the last few years, because of the slowdown in economy, they’ve been a bit absent in deal flow. But I think we’ll see more coming from countries like Italy and Spain, and even Greece or Turkey, for that matter.

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