Netherlands-based Main Capital Partners has defied the dealmaking slowdown this year. 

On average, the software-focused sponsor has completed one platform transaction a month in 2023 and has emerged as one of the most active midmarket GPs in Europe.

Main Capital’s tally this year includes 15 platform acquisitions, more than 20 add-ons and five exits.

Though it has been a tougher-than-usual market for those looking to sell their assets, the Dutch GP believes it will be able to continue its momentum from last year – when it exited five companies – and it is on track to complete a sixth exit by the year-end. 

For the most part, Main Capital has made a money multiple of about 4.5x on its exits, founder and chief investment officer Charly Zwemstra tells Real Deals.

Main Capital’s tally this year includes 15 platform acquisitions, more than 20 add-ons and five exits

Software and success 

While private equity is often characterised by firms specialising in multiple sectors, Main Capital, in contrast, has maintained tunnel vision by only focusing on the B2B software sector since its inception. 

Zwemstra observes that investing in enterprise software has helped “enormously” in this downturn and enabled the firm to defy the dealmaking slowdown that most of its peers have faced.

The founder explains: “Within the B2B software industry, enterprise software has emerged as very resilient, attractive and profitable. Our peers in the venture and growth equity space have been punished very heavily for the risks they have taken in financing loss-making unicorns, which we have always steered clear of. We invest in growing and profitable buyouts for which strong exit opportunities exist even in a downturn.”

Within the B2B software space, the buyout firm is bullish on security software, HR and healthcare technology. The firm has its biggest exposure in the healthcare software industry (30%) because the GP believes it represents a solid, sizeable and resilient vertical.

Within the B2B software industry, enterprise software has emerged as very resilient, attractive and profitable

Zwemstra, who established the firm 20 years ago, reflects on his journey and points out that the software industry has grown threefold in the past two decades alone. “It's eating into all industries now and artificial intelligence is set to drive the growth in this space in the coming 10-20 years,” he says.

The chief executive gained his first experience of investing in technology at AlpInvest Partners and used ingredients from his experience there to formulate a strategy for Main Capital Partners. 

Main Capital’s playbook sees the firm picking up companies when they are relatively small (about €10m in revenues), growing their top-line organically then fuelling the growth with add-on acquisitions. 

In Zwemstra’s view, “this creates a broader offering and more customers, which drives organic growth of the main company, making it more valuable”.

Looking back, moving forward 

The founder highlights that Main Capital has established relationships with close to 15,000 software companies in the last two decades and sees a lot of consolidation taking place in the coming years. He elaborates: “We want to be a consolidator ourselves, which is why we have been actively acquiring companies to add on to our platform firms. We expect to end this year with roughly 50 acquisitions (platform and bolt-ons).”

In total, the PE firm has completed close to 30 exits in the past 20 years and reckons the appetite from institutional investors is “very high”. 

As a consequence, Main Capital hopes to harness its track record and LP relationships to achieve success in the fundraising arena. Zwemstra emphasises that in all these years, Main Capital’s average loss rate has been less than 0.5%, which naturally makes the team proud of its track record.

The team is currently gearing up to announce the first close of two of its vehicles – Main Capital VIII and Main Foundation II in February.

Main Capital Partners has completed close to 30 exits in the past 20 years and reckons the appetite from institutional investors is “very high”

The GP at present is investing from Main VII (a €1bn fund) and Main Foundation I (a €210m fund).

Main VIII will look to raise €1.6bn in the new year, while Main Foundation II will target €400m. Zwemstra shares with Real Deals that the firm has received the “first couple of hundreds of millions” in commitments already.

The founder outlines the difference in strategies between the two funds and says: “Through our Main Foundation funds, we put more emphasis on organic growth. The majority of the investments also include smaller tickets at entry, say below €15m.”

The firm is also making steady progress to branch out of its homeland. 

Earlier this year, Main Capital ushered in its 20th anniversary by opening its first non-European office, in Boston.

In the firm’s view, the move has panned out “really well”. Zwemstra elaborates on the motivation behind the GP’s decision to expand in the Americas. He says: “We opened the US office to support the M&A ambitions of our European portfolio companies. Having a team in the eastern part of the US has accelerated our search for opportunities. Within that market, we are seeing interesting opportunities, especially in the project automation software space.”

Besides hunting for add-on opportunities, the firm has also completed two platform acquisitions in the US since February – LuxSci, a healthcare-focused software for secure communication; and Cloud Coach, an enterprise-grade project management, professional services automation and customer onboarding software.

Going forward, the PE firm will look at partnerships between European companies in security technology and US companies in security software, to build transatlantic groups.

The GP’s to-do list for 2024 also includes going deeper into the existing markets. Besides its headquarters in the Netherlands, Main Capital currently has a presence in Germany, Sweden and Belgium. 

Zwemstra notes: “The US is still quite fresh but we want to expand in the DACH region. In fact, our fourth and fifth exits this year were in DACH, so in the coming months, we want to increase the staff and maybe also open another office apart from the one in Duesseldorf.” 

Team expansion in the Nordics, Benelux and the US is also on the cards, as well as possibly the opening of a new office in France in 2024, Zwemstra concludes.