INTERVIEW: Eurazeo Branches Out To Invest In French Midcaps

French-based European investment company Eurazeo (RF.FR) Friday said it has earmarked EUR500 million for investment in small and midsize companies in France, launching a new activity that could represent as much as 20% of the company's investments five years from now.

The plans come as several other private equity companies starved of larger buyouts either boost their commitment to providing funds to enable midsize and smaller companies to grow or start investing in smaller companies for the first time. This type of investment is typically referred to as growth capital and is distinct from venture and early stage investment, which is money for very new companies; and buyout investment, which involves taking control of established companies from current owners.

"We saw a gap between traditional midcaps needing capital and private equity investors who invest in capital development in France," Fabrice de Gaudemar, Eurazeo executive board member, told Dow Jones Newswires.

De Gaudemar will head the new activity, labeled Eurazeo Croissance.

Eurazeo, whose main focus has been on larger companies since 2002, isn't changing its strategy but seeking to tap into new sources of potential future growth, de Gaudemar said. He cited investments in marketing research company Ipsos and the economy hotels chain B&B as examples of experience in smaller companies.

Eurazeo is best known in France for its role as a key shareholder, alongside U.S. investment fund Colony Capital LLC, in the French hotels and pre-paid vouchers group Accor SA (AC.FR). The group is currently splitting into two separately listed companies, scheduled for completion in July.

Like many others, the French buyout firm's strategy has been affected by the financial crisis, which effectively put a brake on M&A and, while activity has picked up over the past six months and banks are starting to lend again, large leveraged buyouts remain elusive.

U.K.'s 3i Group PLC (III.LN), one of the oldest European private equity firms and an investor in all stages of a company, has just raised EUR1.2 billion for a new Growth Capital Fund, having flagged up the sector as an area of focus for the firm following the financial downturn.

3i along with other growth capital investors such as General Atlantic Partners and Summit Partners are being joined by some of the biggest buyout players--such as Kohlberg Kravis Roberts and Blackstone Group (BX)--that are turning their attention to growth capital investments especially in Asia as they try to invest large sums of cash raised before the M&A freeze.

"Last year, we held a meeting in which we asked, 'What will be Eurazeo's strategy beyond the crisis?'" de Gaudemar said. "We knew there will be less multi-billion euro deals."

The company carried out its last leveraged buy out transaction in 2007.

De Gaudemar said the LBO market is slowly returning, and the company is currently studying a few of these types of transactions. Industry players say debt is available but only for the very best companies and even then on tighter terms and lower multiple level than seen during the boom.

Eurazeo isn't targeting companies in specific sectors, de Gaudemar said. The unit's first investment will be in the solar panel company Fonroche, in which it plans to invest up to EUR50 million through the end of 2011.

He added there will likely be a number of targets in the field of sustainable development because it is a rapidly growing area.

Eurazeo last month said its net loss last year almost tripled compared with the previous year to EUR199.3 million as its booked fewer capital gains and recorded losses from equity affiliates, derivatives and investment properties. The company said its performance began to improve in the second half.

-By Mimosa Spencer and Marietta Cauchi, Dow Jones Newswires; +33 1 40 17 17 73; mimosa.spencer@dowjones.com; marietta.cauchi@dowjones.com

(Marietta Cauchi reported from London.)

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