PPM Ventures Establishes Continental Presence

By the beginning of March, PPM Ventures will be open for business at 95, Champs-Elysees. Although Prudential’s private equity arm has already completed a number of Continental deals, including Finnish Chemicals, Roventa-Hentex in Switzerland, Suspa Compart in Germany and, most recently, Orefi in France, the new Paris office represents its first direct presence in mainland Europe.

While UK private equity firms have typically set up shop on the Continent before venturing further afield – if at all – PPM Ventures already operates out of Hong Kong as joint manager of the Prudential Invest Direct Asia fund, and Australia, where it acquired the buyout specialist Catalyst Investment Managers in March 1998.

PPM Ventures in early 1998 recruited Marc Demicheli, a veteran of JP Morgan, LBO France and Charterhouse, to develop its business in France. He will head the new office, supported by Jean-Lou Rihon, who will divide his time between Paris and London.

Managing director Jonathan Morgan said that PPM Ventures is aiming to build deal flow throughout the whole of northern Europe, with a primary focus on France in the short and medium term. Germany is the group’s next priority but, although PPM Ventures recently strengthened its European team through the recruitment of German national Thomas Guntzer from Ermgassen & Co, it will not open a German office “for some time”, Jonathan Morgan said.

France at present is widely acknowledged to offer better value than the UK, particularly in the mid-market, although Jonathan Morgan predicts that the pricing differential will continue to narrow in the face of increasing competition.

Marc Demicheli said “France, which has lagged behind the rest of Europe in terms of consolidation, is now catching up, and we are seeing a steady flow of new opportunities at present resulting from mergers and restructurings among larger domestic groups”.

Marc Demicheli said that a local presence will make it easier for PPM Ventures to source mid-market French deals -“Sometimes you don’t even see deals in the euro 100 million to euro 200 million band from London, but those transactions can produce serious IRRs”. He added that in France, it is still possible to source transactions off-market and to benefit from a divestment process that is less sophisticated than in the UK.

Most major UK private equity houses have a foothold in France, and many of the US buyout houses that have entered Europe are also eyeing the market. In combination with the mature indigenous private equity industry, these factors contribute to a highly competitive environment. However, Marc Demicheli said that PPM Ventures’ status as a permanent fund could prove to be a distinct competitive advantage in dealing with managers and vendors who are seeking an investor that can take a longer-term view. Jonathan Morgan added that many Continental businesses seem to be more comfortable dealing with an investor that is part of a major organisation, such as the Prudential Group, than with smaller independent funds: “Having a substantial life fund providing equity finance is seen by the market as a positive factor”.

During 1998, PPM Ventures invested GBP91 million (euro 133 million) in five European deals with a combined transaction value of GBP800 million and enjoyed a record year in terms of realised profits, returning GBP142 million to clients from 13 exited investments.