Aurelius started out 20 years ago focusing on special situations but has in the past decade switched focus towards “healthier companies” with operational improvement potential.

The private equity firm, which has invested in the non-European part of Lufthansa’s catering business LSG Group and in UK sports retailer Footasylum, now sees better returns in turning a low-profit company into a company with healthy margins than turning a loss-making business into a profitable one, says Donatus Albrecht, partner at Aurelius Investment Advisory.

“We are now leveraging our operational expertise to transform businesses in difficult market environments or with operational issues or unsuitable management structures into companies with double-digit margins,” he said.

The investor’s focus is now on companies with typical EBITDA margins of 5% to 6% and up to 10%, which is a departure from its initial strategy from the early 2000s as a turnaround investor targeting unprofitable or barely profitable companies, Albrecht said.

With its increasingly global footprint, Aurelius is positioning itself as a partner for complex carve-outs, in particular for internationally active corporates with operational challenges.

Aurelius opened a new office in New York in early 2024 to better support portfolio companies with activities in Europe and North America, as well as to grow in the North American market, Albrecht said. The office is headed by AURELIUS Investment Advisory managing director Stephan Mayerhausen.

Aurelius is also planning to increase the equity ticket size for its mid-market buyout strategy to up to EUR 150m from currently up to EUR 100m, Albrecht said.

Aurelius’ planned Fund V was registered in October 2023 and was expected to launch in 1Q25, according to Mergermarket data.

Albrecht declined to comment on fundraising activities and the new fund but said that Aurelius LPs in its existing Fund IV include US and UK-based pension funds, university endowments and fund-of-funds. Fund IV was Aurelius’ first institutional fund.

Aurelius currently manages EUR 540m for this mid-equity private equity strategy, which comprises EUR 380m Aurelius European Opportunities IV, which was raised in 2021, and EUR 160m of co-investment from AUR Portfolio III, according to its website.

The strategy sits around three-quarters deployed, and the sponsor plans to ink two to three more platform deals plus a few add-ons this year, Albrecht said.

In terms of exits, Aurelius is looking to put four to five portfolio companies from the mid-market buy-out strategy on the block, Albrecht said.

Tm group, a UK-based software company, and Weck, a German manufacturer of glass containers, are still in the portfolio, for example.

Aurelius’ lower mid-market vehicle AUR Portfolio III exited VAG-Group, a supplier of water utility valve solutions, earlier this month in a CHF 200m deal.

Companies with longer holding periods in the lower mid-market portfolio include European Imaging Group, a UK-based provider of omni-channel vendor of photographic and video equipment.

Focus on complex carve-outs

Aurelius’ private equity strategy rests on three pillars. The flagship private equity fund Aurelius European Opportunities IV, an evergreen vehicle AUR Portfolio III, and its small-cap growth strategy Aurelius Growth Investments (Aurelius Wachstumskapital).

The first invests primarily in complex carve-outs with enterprise values between EUR 50m and EUR 500m.

“We are seeing good dealflow for carve-outs as many strategic players are re-positioning themselves in Germany but also in other regions, where we are active, such as the Nordics and Benelux and North America, for example,” Albrecht said.

Aurelius’ value-creation strategy relies heavily on its 180-headcount, fully in-house operational advisory team – recently named Aurelius WaterRise – which supports portfolio companies to set up necessary overheads for carve-out situations such as marketing and human resources functions, Albrecht said. The WaterRise team consists of consultants and former managers with experience in the respective industries, he added.

Portfolio companies will ordinarily be ready for an exit five to seven years after the acquisition, which is slightly longer than the buyout fund.

The evergreen vehicle, with a firepower of around EUR 160m, acts as a co-investor for deals of the flagship fund and can also invest in companies below EUR 100m enterprise value, deploying equity tickets of up to EUR 25m. When it acts as a co-investor, it will contribute 30%, Albrecht added. AUR Portfolio III was formerly known as Aurelius Equity Opportunities.

Meanwhile, Aurelius’ small-cap strategy focuses on succession solutions and buy-and-build as well as roll-up strategies in sectors such as software and business services. The growth strategy has a volume of EUR 300m and is backed by entrepreneurial European families. The investment team strikes about four platform deals per year and 20 to 30 add-ons, Albrecht said.

The GP plans to lock in two to three more deals for the strategy.

Deal sourcing and financing

Aurelius sources most of its carve-out situations via M&A advisors, Albrecht said. Its international footprint often gives it an edge in auction processes versus more regionally focused players. The reputation and track record, as well as relationships with corporates, also provide comfort in terms of transaction security, Albrecht said.

The investor is principally sector agnostic but has recently been focusing on industrials, chemicals, lifestyle, and consumer goods. Attractive opportunities are also emerging from the automotive sector, Albrecht said. However, Aurelius would not consider so-called “sunset” cases, where it isn’t possible to transform the business into a viable operation in the long term, he clarified.

Business services is another attractive sector, according to Albrecht. Aurelius European Opportunities Fund IV acquired Lernia, a staffing, recruitment, matching, and training agency from the Swedish government in January this year.

Deals for the flagship fun,d Aurelius European Opportunities Fund IV, are financed via asset-backed facilities with banks and partially with acquisition financing. Pin-pointing the exact leverage can be difficult for carve-out deals since the EBITDA numbers are, by nature, heavily adjusted, Albrecht noted.

Aurelius was founded in 2005 in Munich by Dirk Markus and Gert Purkert, former McKinsey consultants, and raised capital via public markets before transitioning to raising private capital. In addition to its private equity strategies, Aurelius is also active in private debt and, to a lesser extent, in real estate. Aurelius employs more than 400 professionals in nine offices spanning Europe and North America.