Apheon says mid-market financing is reopening but valuation gaps remain

Wolfgang de Limburg, managing partner, explained how the market has evolved and why Apheon has rebranded from Ergon Capital.

Apheon believes the private equity market must adapt to a new dealmaking environment, managing partner Wolfgang de Limburg told PE Hub Europe. The pan-European mid-market investor has undergone a change itself, rebranding from Ergon Capital after hitting 18 years’ old – “the age of maturity” – as it sought to “reaffirm our values, our purpose, our strategy”, said de Limburg.

Dealmaking changed “significantly” last year, said de Limburg, driven by the after-effects of covid, the war in Ukraine and the inflation that came as a result. But the situation now “is much more positive than what it was late last year. Q4 was the worst moment – everyone was frightened”.

That said, Brussels-headquartered Apheon – or Ergon as it was then – was still able to do a deal. It announced a partnership with Belgian insurance broker AlliA in which it acquired part of the company alongside the founding Lebon family and management.

Partnering with family, founders and management is very much Apheon’s modus operandi, something that won’t change with the new name.

“We will keep doing what we’ve been doing for 18 years, which is lower mid-market private equity across Europe, targeting mostly primary deals,” he said. “We’ll invest next to founders and families; we’ve really made a name there.

“These deals are very different. You need people with a different skillset. It’s one thing to compete in an auction and deal with managers and a CEO that have been in primary equity for 10 years, versus families and founders, which takes more time.”

Valuation gap

But the changing market means completing deals is taking even longer.

The lower mid-market started to reopen in the first quarter and the second quarter “really feels like it’s starting again”, said de Limburg, although deal volumes are still far below pre-war levels.

On the plus side, financing is reopening – “definitely with funds, and in most cases with banks”.

“The processes are resuming,” he added. “There are not yet a huge amount of processes active in each of the markets where we are, but you can tell the advisers are preparing. Everyone is getting ready to press the button when ready.”

The sticking point instead comes from valuations.

While businesses that are performing well and haven’t been unduly affected by inflation or any of the other headwinds of the last 12 months can find buyers, that is not the case for all companies.

“Prices have gone down massively – they have to because of interest rates rising – but there is still a market for very good assets and people still pay crazy prices, because there’s so much dry powder overall,” he said. “The lag in terms of dealmaking is driven by a mismatch in expectations of sellers and what buyers are willing to pay given these new circumstances.”

Sometimes those top assets will achieve valuations in line with a year or two ago, meaning owners of less sought-after businesses do not expect their own valuations to go down, sources have told PE Hub Europe.

De Limburg agreed. A lack of deals “doesn’t mean there’s no offers”, said de Limburg. “There’s a process and at the end, the seller says, ‘I won’t sell’.”

What’s in a name?

Alongside the evolving market, Apheon has undergone “a bit of introspection to recognise where our culture is, where we’re strong, and to stick to what we do well”, said de Limburg.

The Groupe Bruxelles Lambert (GBL) family office launched the firm as Ergon Capital in 2005. That “family DNA” brought the “ambition to do private equity differently”, said de Limburg. Being backed by a family brought a lot of credibility with families and founders, he added.

“It brought us a lot of the DNA we still have and don’t want to lose.”

After an early phase where the firm was fully captive within GBL, Ergon started investing like a traditional private equity fund between 2010 and 2015, operating increasingly independently while still under the family office.

In 2015 it gained full independence, opening to new institutions and LPs.

“That was a key moment,” said de Limburg. The company has since grown from half a billion of AuM to €2.5 billion, as well as in terms of team size and country coverage. Aside from its Brussels HQ, the firm has offices in Amsterdam, Luxembourg, Madrid, Milan, Munich and Paris.

“The change in name is because it has always been associated to GBL, which is great,” said de Limburg. “But we have grown from four people to more than 50, and most people have no connection to the period of Ergon. So we thought, let’s create a new company for all of us.”