“The small-cap segment offers attractive entry prices into sectors that are highly valued by private equity firms.”
Access Capital Partners has become the market leader in the European small-cap buyout segment, thanks to 26 years of exhaustive market coverage and relationships with over 130 fund managers. Its position as an influential investor, committing on average a third of the capital raised by selected funds, implies a genuine leadership role and the ability to guide and support fund managers. Managing partners Agnès Nahum and Philippe Poggioli review this methodology.
How would you describe Access Capital Partners’ business?
We’ve been investing in small-cap buyouts since the company was founded in 1998. Since then, we have become the largest investor in small-cap funds, with a truly leading position among established and emerging managers. The company has consistently maintained a significant investment capacity in this market.
Another specific feature of our strategy is our European focus. With 20 nationalities represented in our team and offices in six countries, we have developed in-depth knowledge of the characteristics of this highly dynamic and diversified market segment. Our investors trust us to navigate a more complex and potentially more rewarding investment universe than the mid- and large-cap segments.
What types of funds do you invest in?
We invest mainly in funds of less than 500 million euros, aiming to build concentrated portfolios of five to ten underlying companies generally valued at less than 100 million euros. In this way, selected fund managers are more efficient in deploying capital, resulting in attractive cash flow profiles and superior performance. As part of our fund portfolio construction, we seek visibility on assets and therefore tend to invest in funds that have already begun their deployment, particularly in the case of emerging managers.
Access has historically supported emerging managers. What are the advantages of such an approach?
Access believes that emerging managers often demonstrate a truly differentiated offering to stand out in a crowded and highly competitive landscape. They offer strong relative performance potential in addition to other key investment advantages. These include access to underserved parts of the market, sector expertise, off-market sourcing, a proven approach to practical value creation, and even a stronger alignment of interests.
While on average we own 30% of the underlying funds in which we invest, this figure rises to 50% in the case of emerging funds. By subscribing to large investment tickets, we promote stronger governance and benefit from favorable terms and conditions. Our position as a reference investor enables us to provide real support to fund managers in designing the key parameters of their funds. It also brings strong synergies with our secondary and co-investment activities.
In the world of small-cap buyouts, how do you select funds? And what is your value creation strategy?
Identifying the best performers in the European small-cap buyout market is at the heart of Access’ DNA. Fund managers are selected on their ability to source off-market investment opportunities in companies with strong profit margins, structural growth potential and solid sustainability profiles, operating in fast-growing and resilient sectors such as core business services, IT & digitalization, and healthcare. The other key outperformance factor is the ability to acquire companies at conservative entry-level valuations and with low levels of debt, a natural hedge against the current headwinds. These companies typically double their EBITDA over four years on average, and attract strong interest from strategic buyers and financial sponsors, ensuring continued liquidity for our investors.
Historically, Access’ small-cap portfolio was acquired at around 8x EBITDA and, following significant operational value creation combining organic growth and strategic acquisitions, commanded higher valuation multiples on exit, averaging 12x to 13x EBITDA.
The European M&A market has been relatively lacklustre of late.
How do you ensure liquidity in this environment?
Although overall European buyout divestments have fallen significantly over the past 2 years, Access fund managers have been able to outperform the wider industry. They have delivered a steady stream of exits at attractive multiples.
The majority of our portfolio operates in fragmented sectors, both geographically and in terms of the number of players. For these markets, consolidation and build-up strategies are both a major driver of value creation and a liquidity factor, offering clear exit routes via sales either to mid-cap buyout funds, or to companies owned by mid-cap buyout funds. As a result, the mid-cap segment, which currently has significant investment capacity but faces a major shortage of transactions, has acted as a natural reservoir of liquidity for our portfolio.