EQT puts finishing touches to record mezz fund

Nordic private equity firm EQT is chasing down the final cheques from “friends and family” investors in its industrial network for its second mezzanine fund, which could see it close on almost €500 million, a regional record.

EQT, the Nordic private equity manager, is closing its second mezzanine debt fund on almost €500 million ($676 million), two and half times the size of its 2004 predecessor fund and the region’s biggest to date. Nordic Mezzanine, an independent manager, and Capman, a Finnish rival, are now joint-second with their €240 million funds.

An investor in EQT’s fund said it was already closed to institutional investors, which had committed €450 million, while EQT was weighing commitments of up to €30 million from its network of industrial advisers.

The majority of the people in its network are present or past executives in management positions in major international corporations or banks. The participation of these executives is a cornerstone of EQT’s hands-on investment strategy. They invest in EQT funds on the same terms as the general partner.

The source said: “It’s not clear yet exactly how much additional firepower the industrial partners will commit. But the fund size will give EQT the capability to do more sponsorless deals, where the mezzanine is closer to equity in the capital structure.”

Mezzanine funds have been squeezed out of many of the larger buyout deals by the prevalence of second lien loans, a cheaper debt product, ranking behind traditional senior debt and ahead of subordinated junior tiers.

As a result mezzanine funds are increasingly looking to invest more capital in smaller deals which do not have buyout firm sponsors, so-called sponsorless transactions, often with family-owned businesses. This allows them to generate returns closer to those of an equity investment, the traditional level of return expected from a mezzanine fund.

EQT’s first mezzanine fund was launched in 2003. The fund provided mezzanine capital for middle-market buyout opportunities and family-controlled companies in Northern Europe. The committed capital of EQT Mezzanine is €189 million.

MVision acted as placement agent but declined to comment on the fund.