Permira fifth fund closes on €2.2bn

June 2013 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

UK private equity firm Permira illustrated the struggles facing the wider industry in April when it announced that it had raised commitments of only €2.2bn in the first tranche of its fifth fund, Permira V.

Permira V, launched in September 2011 originally targeted €6.5bn before the firm was forced to revise that target by almost a quarter to €4-5bn in March. Kurt Björklund and Tom Lister, co-managing partners of Permira, told investors in a letter “We are happy with the strong backing we have received from existing and new investors in the Permira V first closing, giving us a good platform for the rest of the fundraising...the new fund will start sourcing opportunities immediately.”

Permira, whose investments include Hugo Boss and Danish telecoms group TDC, amongst others, completed the first close of its fifth fund having spent around 19 months attempting to drum up commitments. Permira expects to cease its marketing effort for the fund completely by April 2014.

Fund V, which has a 10 year lifetime, will begin to operate in what the firm calls “a highly interesting environment with a declining supply of capital in an increasingly target-rich marketplace”. Thus far, the fund has received commitments from 30 limited partners as well as €200m of personal capital invested by Permira’s own partners. Commitments of €200m have also been made to the fund under the condition that additional funds are raised within the 12 month deadline for the final close.

Fund of funds manager SVG Capital, which was one of the key investors in Permira IV has committed €100m to the new fund. Analysts believe that fund V will focus primarily on the large-cap market, investing in companies with an enterprise value of €500m to €3bn.

In comparison with the firm’s previous funds, Permira V saw increased commitments from Asian investors. As such, there is a fairly even spread of investors from the US, Europe, Asia and the Middle East.

Previous funds raised by Permira dwarf this latest effort. Permira IV, which was launched in 2006 at the height of the buyout boom, saw the firm raise €11.6bn, beating its target of €8.5bn. At the time Permira IV was Europe’s largest ever buyout fund and was 40 percent larger than the originally envisaged fund V. However, in 2008, the financial crisis forced SVG to scale back its commitments. As a result, Permira was forced to reduce the fund size to €9.6bn.

The challenges faced by Permira in raising its fifth fund are, however, not unique to the firm; fundraising in the PE sector on the whole has struggled to generate commitments from investors since the financial crisis shook the global economy. As a result of the contraction of the PE industry, investors have found themselves with considerably less fresh capital to commit to funds.

Like Permira, American firms Apax Partners and Providence Equity Partners have both seen their most recent fundraising efforts greatly impacted by the wider struggles of the industry. Apax cancelled a fund targeting €9bn in December; Providence was forced to lower its target from $6bn to $5bn in October.

According to data held by research firm Preqin, global buyout funds in 2012 garnered £91bn, a significant drop compared with the peak of the buyout market in 2007, which saw $243bn committed. Furthermore, investors are becoming much more selective about the types of funds they invest in. Smaller funds, particularly in emerging markets, are currently en vogue. According to Preqin, in general funds are also taking longer to close; the average fund now takes more than 17 months – up five months from the average in 2006.

Richard Summerfield