Hedging ‘wake-up call’ for private equity; Abris exits fish firm

Abris Capital Partners is set to sell all its shares in Polish canned fish producer Graal, alongside the company’s founder.

Good morning Eurohubsters, Craig McGlashan here with the opening Dealflow of the week.

We open today with a look at how private equity firms are approaching the hedging side of dealmaking after the end of more than a decade of rock-bottom interest rates. Then we examine an exit from a canned fish company by Abris, a deal by Exponent to enter the base aroma market and Altor buying an engineering company from DPE.

Hedging. I had an interesting chat recently with Benoit Duhil de Benaze, managing director, hedging and capital markets, at risk manager Chatham Financial.

We talked about how the end of ultra-low interest rates had affected private equity firms’ strategies and I was surprised to hear that many had not even been hedging interest rate risk during the long period of quantitative easing – making the rate volatility last year a “wake-up call”.

“Some investors got used to staying unhedged in euros and sterling,” he added. “Private equity investors now need to adapt to new market conditions not experienced in the past 13 years. When rates were close to zero or negative, interest risk hedging was not a high priority. We are now at a time where raising financing is more difficult. Higher borrowing margins combined with higher base rates will likely impact investment returns.”

We also touched on the growing popularity of private debt financing, already big in the US and “getting bigger” in Europe. That avenue brings its own challenges, Duhil de Benaze told me.

“Private lenders can’t offer hedging products, so we need to create hedging capacity for our clients with third-party banks,” he said. “When there is potential credit risk associated with the hedge, this process takes longer due to credit due diligence processes run by the potential hedge counterparties. A lot of banks don’t offer derivatives if they’re not a lender.”

I’d love to hear how you’re adapting your hedging strategies and how that’s affecting your dealmaking. Send me your thoughts at craig.m@pei.group

Casting out. Private equity investor Abris Capital Partners is set to sell all its shares in Polish canned fish producer Graal, alongside the company’s founder. Lisner Holding, owned by German food business Müller Group, is the buyer.

Graal has three brands: Graal, Neptun and Kuchnia Staropolska, and also supplies to private labels. The deal excludes the Koral fresh and smoked fish business. It is subject to Polish antimonopoly office approval.

Abris had a stake in the company for six years. Graal recorded sales of Z1.6 billion ($360 million; €336 million) in 2022.

Read more on the deal here.

Sniff of a deal. Exponent has agreed to acquire IFF’s Flavour Specialty Ingredients division (FSI), a global supplier of base aromas. The proposed sale includes four dedicated manufacturing and distribution facilities in the UK, US and China, as well as additional distribution centres in Mexico, Brazil and Hong Kong.

Headquartered in the UK, FSI is a supplier of “high-value”, specialty base aromas with an offering of natural and aroma chemical products. The company serves more than 970 clients across Europe, North America and Asia and generates over $100 million in revenue.

“FSI is a global leader in the base aromas market, with a strong customer base and a differentiated portfolio of natural and aroma chemical products,” said Mark Taylor, partner at Exponent.

Check out more on the deal here.

Process. Altor Equity Partners has agreed to acquire a majority stake in VTU Group from Deutsche Private Equity (DPE). VTU’s management will reinvest.

Based in Graz, Austria, VTU is a process engineering company servicing blue-chip customers in the life sciences and fine chemicals industries. VTU is an EPCMv (engineering, procurement, construction management and validation) provider with more than 1,200 employees across Austria, Germany, Switzerland, Italy, Poland, Romania, and Belgium.

DPE acquired a majority stake in VTU in 2018. Under the Munich-based firm’s ownership, VTU made three strategic acquisitions and increased its revenues by approximately 160 percent, according to DPE.

Read more on the deal here.

Finally, we’re doing our last call for the best private equity/Eurovision punny headlines. Pop them over to me at craig.m@pei.group

That’s all from me today – I’ll be back with you tomorrow.