Auto Escape has "ebbed and flowed" on the stock market

French mid-market buyout firm Montefiore Investment may well have reason
to pop the champagne corks. It has recently reached its €180m target on Montefiore Investment III and is keeping the fund open to further commitments as it seeks to hit its hard cap – rumoured to be in the region of €240m.

Of course, other French firms have been successful in their fundraising efforts – earlier this year, Siparex raised its MidCap II fund with a close at €130m and L Capital reached €400m for its third fund. Yet the market has been relatively quiet, even with the launch of new firms such as AtriA Capital Partenaires spin-out Atlon Capital Partners – we still have no news of a first close on its €200m maiden fund – and as larger houses such as LBO France opt to delay fundraising efforts.

So, it’s clear that for a relative newcomer – Montefiore was established in 2005 – raising a fund at or above target in the current market is worth celebrating.

Strategic difference

So what is Montefiore doing right? Market participants point in particular to the firm’s well-defined, if unusual, investment strategy. The firm invests in l’économie présentielle (roughly translated as “locally supplied services” – those that require a physical presence, such as hotels and leisure, retailing, and education). It’s a smart strategy, according to a competitor, enabling the firm to focus on growing areas of the French economy while also offering latitude for opportunistic deals – B&B Hotels is largely viewed to fall into the latter category. “It’s a large deal, so would normally be outside their investment scope,” says a GP. “But they opted to reinvest when Eurazeo sold to take a minority stake alongside the Carlyle Group – something many other firms wouldn’t have done.”

“It’s been a difficult year to 18 months for European private equity, and France in particular. The area that Montefiore focuses on – somewhere between a mid-market player and a sector specialist – has served the firm well,” says a French adviser.

“It’s an interesting space to occupy,” adds an observer. “They cover areas that aren’t covered by many mainstream private equity houses here in France. They also tend to do different deals, such as public to privates or taking stakes in publicly quoted companies.”

This latter strategy clearly exposes Montefiore to the vagaries of the public markets. Auto Escape, a car hire broker, is one such example. Listed on Alternext, the company’s share price has ebbed and flowed, with a low in November last year of €1.5 per share to a high of around €3.1 in May. At the time of writing, it stood at €2.7. A minority stake limits the influence the firm is able to bring to bear on improving investments: “Accounts receivable are among the industry’s worst, and weakening, with 16.81 days of sales outstanding. This implies that revenues are not being collected in an efficient manner,” according to Bloomberg’s analysis.

Auto Escape also acquired Hamburg-headquartered Car Del Mar in late 2011, which doubled the company’s volume of business. “Montefiore spent considerable time and effort doing this deal – it’s not clear yet whether that was worth it,” says the adviser.

In addition to providing some kind of differentiation in arguably one of Europe’s most crowded private equity markets, the firm’s investment strategy may have helped it attract a loyal band of investors. “It has historically been able to raise capital from French family offices – in part because of its focus on proximity,” says a GP. That said, the firm’s latest fund also brought in European banks, plus French, European and US funds of funds, according to Montefiore.

Leading light

The firm is led by founder Eric Bismuth, a former Boston Consulting Group partner who headed the hotels and leisure practice worldwide. “He’s viewed as a smart guy who has made the conversion from consulting to private equity well,” says a market participant. “People are respectful of what he has done with the firm.”

Montefiore is very much seen as Bismuth’s, which is possibly less of an issue than with other GPs given the small size of the team, comprising 11 people. The team also includes co-founders Daniel Elalouf, formerly of Permira, and Thierry Sonalier, the firm’s operating partner whose previous experience includes senior board-level positions at French retailers. Then there is newbie Jean-Marc Espalioux, who joined last year as executive chairman and was previously chief executive of hotel chain Groupe Accor.

So despite Bismuth’s prominence, he appears to be supported by an experienced group of people with private equity and – importantly in today’s market – operating experience. Overall the team is seen as “clever, although perhaps a bit tough for the French market, where people tend to be a bit less direct”, according to the adviser. He does, however, suggest that on occasion, the team’s lack of experience can show through compared with other firms. “They are generally successful and credible, but they don’t have the 20-year track record of an Astorg,” he says.

Montefiore has so far made one complete exit – Color’i, an arts and craft supply retailer – although it has made some partial realisations, including the sale of part of its stake in Homair Vacances earlier this year to Naxicap. Montefiore claims its average gross IRR is around 30 per cent on its portfolio, although this includes unrealised investments.

Ultimately, the market feeling is that while the firm will continue to raise capital, the jury is still out as to whether Montefiore will reach the echelons of top-tier French firms, largely because of its lack of exit track record and short life so far. But it’s not made a bad start on that journey.