Interview with François Aguerre, Partner, Co-Head of Origination, Coller Capital
M&A REVIEW EUROPE: Can you give our readers a brief presentation of Coller Capital?
François Aguerre: Coller Capital is a global fund manager founded 30 years ago. Coller is dedicated to Private Equity secondary investments, focuses on a single strategy and a single fund. We have offices in London (HQ), New York and Hong Kong, we manage over USD17bn of assets with c.220 employees.
M&A REVIEW EUROPE: What type of deals do you typically do?
François Aguerre: We look at any type of investment in the secondary market, LP fund portfolios, GP-leds as well as other types of secondary market opportunities. One transaction in the public domain was the GP-led secondary transaction involving Permira IV completed earlier this year, for a total size of c. EUR 1bn. We also led the restructuring of Nordic Capital VII. That was a €2bn+ investment. An example of LP portfolio acquisition was the Aberdeen Standard investment that we completed for c.USD 500m, including over 140 underlying funds.
M&A REVIEW EUROPE: What is the geographical footprint, scale and sector mix of your deals?
François Aguerre: The bulk of our underlying exposures is in North America and Europe, which are the two largest PE markets.
In terms of sectors, by nature of the business, we typically acquire diversified portfolios. As for exclusions, we have a stringent ESG policy. We avoid not only the arms sector but any investment related to intensive farming. This differentiates us from some other market participants.
M&A REVIEW EUROPE: How does your ESG strategy work day-to-day?
François Aguerre: Coller Capital was one of the first GP to hire a dedicated ESG professional, Adam Black, a leading specialist, who joined Coller Capital nearly 5 years ago. As a secondary fund, we have less influence than some other firms investing directly in companies. Nonetheless, we are committed to maximise our impact. Adam works alongside our GPs and with some of their portfolio companies. The work of Adam and his team supports our GPs in their ESG efforts – for us, as for many investors, good ESG is paramount.
M&A REVIEW EUROPE: How has Covid impacted your business?
François Aguerre: The secondary market is linked to the primary market’s evolution … The initial impact of Covid on markets was short-lived as governments and banks were much quicker to act than during the GFC … In the spring, industrial activity stalled, nearly to a dead stop. All GPs looked at their portfolios to make sure there were no cash-flow issues. LPs adopted a ‘wait-and-see’ approach. For nearly three months activity in the secondary market slowed to a crawl. But from June, it bounced back vigorously. Today, deal flow is broadly in line with 2019. The rebound came in two phases. The first centred on GP-led opportunities. The second saw LPs coming back to the market, when the Fed announced it would be keeping rates low. This announcement had a massive impact as it helped stabilise valuations. From then on, many LPs had enough visibility to reconsider portfolio sales. Not long after this announcement, we saw some large portfolios coming back in the market.
M&A REVIEW EUROPE: What is your outlook for 2021?
François Aguerre: We are currently seeing record-breaking investments size-wise in the GP-led segment, including a number of billion-dollar plus opportunities. We see some large LP fund portfolios, too. Looking further ahead, we are expecting very strong levels of activity throughout 2021.
Overall, the secondary market should continue to grow extremely strongly over the next decade.
Last year, the market recorded USD 85bn of investments. At Coller, we believe that in the next 5-7 years this could rise to USD 300-500bn annually. There may be ups and downs on the way, but these projections are broadly in-line with the market’s historic growth trend.
M&A REVIEW EUROPE: How much do you invest?
François Aguerre: In terms of capital deployment, we invest USD 3-4bn annually across all geographies and all investment types.
M&A REVIEW EUROPE: Do you consider current prices as expensive?
François Aguerre: The challenge with this question is finding the relevant benchmark. If we compare today‘s valuation multiples to historical averages, all markets look expensive. Some economists say they are overpriced. Others place them in the context of the interest rate environment and argue that multiples are in line with what we have seen in the past. Twenty years ago, valuations of 7-9x EBITDA seemed high. Today, when we are buying at 15-17x EBITDA, this looks extremely expensive. But given current level of interest rates, it is hard to draw a direct comparison between the two. In this environment, I think the risk of a PE-specific bubble remains low.
M&A REVIEW EUROPE: Which sectors do you see as the most sought-after by investors?
François Aguerre: Tech is the sector getting the most attention at the moment. Technology is now embedded in all traditional sectors and attracting capital, it is different to historic TMT sector. Tech companies are posting the highest valuations and strongest growth rates.
M&A REVIEW EUROPE: How does the current crisis differ from 2008?
François Aguerre: The 2008 crisis essentially stemmed from the explosion of a real estate bubble. Governments and central banks were taken by surprise and slow to respond.
Before Covid, the global economy was in pretty good shape. The crisis is not endogenous to the system. It was triggered by a set of political decisions taken to manage a health crisis. The causes and management of the two crises are totally different. In 2020, governments reacted much faster and more strongly than in 2008. As a result, equity markets were quickly back on their feet. Today, the big uncertainty is how the public debt will impact the system over time and who will bear its burden. The crisis has accelerated many transformations in the economy. Sectors already growing in 2019 are continuing to expand and those in decline have seen business fall off further.
M&A REVIEW EUROPE: How do you view the distressed debt opportunity?
François Aguerre: Many sectors have been hard hit leading to many distressed situations. Sectors where companies are heading for extinction are of little interest to distressed investors, however cheap the cost of entry. The distressed opportunity is rather to be found where public sector’s support falls short … but, for now, the support plans remain relatively strong. As long as this support holds up there will be no significant opportunities.
M&A REVIEW EUROPE: What makes Coller Capital different from other players in the secondary market?
François Aguerre: The secondary market has grown tremendously and reached a scale that allows managers to focus on sub-strategies and specific market segments. Coller truly plays across the secondary deal spectrum, and is the only firm dedicated to secondaries with a single fund strategy. Most of our competitors are big alternative asset management platforms. The secondary market is only one of the many products their platform offers.
M&A REVIEW EUROPE: What future do you see for industry events like IPEM?
François Aguerre: Technology means we can adapt to the current situation. But we are in a business where human relations matter. There are many benefits from the tech revolution in our industry but it will never do away with the benefits of face-to-face interactions.
M&A REVIEW EUROPE: Overall, are you optimistic about PE in the next few years?
François Aguerre: I think that in the next few years alternatives in general and PE in particular will deliver excellent returns. PE is excellently positioned to generate strong performance in growing sectors.