• GP is deploying equity via Fund III, which is targeting EUR 200m in a final close this year
• Makes investments in Spain, France, Italy and Switzerland, often via primary buyouts
• Focuses on buy-and-build but aims to integrate add-ons, not aggregate businesses

Following “the most active period in [its] history”, mid-market growth investor Columna Capital plans to develop its portfolio as it continues its latest flagship fundraise, managing partner Rory Devlin and partner Andrea Frecchiami told Mergermarket.

“We’re extremely excited about this fund vintage,” said Devlin, noting that the firm made five platform deals and 65 add-ons, as well as doubling its team size, in the period between 2022 and 2023. “This reflects what we feel is a unique market environment. We are contrarian – where many people have been risk-off, we felt that it was time to go after opportunities in a more attractive environment. We are on the front foot because we aren’t over-levered and are instead deploying offensive capital.”

The GP is currently deploying equity via its fourth fund, Columna Capital III, having begun investing on a deal-by-deal basis, making five investments before launching its first fund in 2016. “Columna Fund III held its first close in March 2022 and we’re targeting EUR 200m for our final close this year,” said Devlin.

The firm is not under pressure to make new platform investments, but is looking to make one to two further deals in the next 12-18 months, said Devlin. The firm is particularly focused on add-ons in 2024, Frecchiami said. “This market environment creates opportunities to buy small businesses and we have 20 targets in our pipeline.”

Lower mid-market niche

Columna typically acquires lower mid-market companies with revenues of EUR 20m-EUR 30m, typically investing as a majority shareholder. It focuses on buy-and-build and growth platforms, targeting the healthcare, animal health, services, technology, insurance and industrial sectors.

Columna’s team has the opportunity to co-invest in its deals. The firm’s GP commitment across its funds typically stands at 7%-8%, significantly above the industry standard of 1%-2%. These factors make Columna the second-largest LP across its investments. This skin in the game is the basis of its “partnership capital” approach and creates an alignment of interests with LPs and the owners of potential portfolio companies, the partners said.

When it comes to investment criteria, the firm typically looks at gross profit rather than EBITDA, said Devlin. “We care about operating leverage if we can double to quadruple the business size, to create accelerated EBITDA growth.” While its average initial ticket is EUR 20m-EUR 40m, the firm reserves further capital for follow-on investments. “This is why we offer quite a lot of co-investment, since we want our fund commitments to be in line with [the] size of the growth opportunities,” he said, adding that it has offered co-investment on all five of the deals from its latest fund.

“Almost all of our deals have a primary and secondary capital component – there is a need for liquidity, but our focus is on primary growth capital,” said Devlin. “We’re fairly conservative with the use of leverage initially, going for below 3x, but we can be more ambitious as the companies grow.” The GP is currently working on the seventh recap for Italy-based clinical laboratory and outpatient diagnostic business Bianalisi, he said.

European approach

“We have a centralised team, in London and Luxembourg, but there isn’t a week in which we aren’t travelling or meeting with a portfolio company at their offices in continental Europe,” said Frecchiami. Columna’s team is international, speaks all core European languages, and has a track record across European dealmaking, he said.

Columna focuses on Spain, France, Italy and Switzerland, countries that it has identified as being “less developed, less mature markets” where it is willing to take execution risk. “We try to observe successful PE strategies that have worked in more mature and competitive markets like the UK and Germany, then implement them in markets that are 10-15 years behind,” said Frecchiami.

Columna is often the first financial investor in a business, following which it aims to institutionalise it – and these businesses, which are often family-owned and often not involved in a sale process, are easier to find in these markets, he said. “We choose our partners carefully – the company’s management also need to see if we are the right partner,” he said. “This is key to our focused approach, where we have 10-12 portfolio companies as the maximum we would hold, and the team has expanded to support them.”

Columna’s geographic approach makes it stand out in its lower mid-market segment, said Devlin, and makes the firm appealing to prospective partners. “Our partnership capital and operational engagement approach means that we support the growth of businesses that entrepreneurs would not be able to achieve on their own, allowing them to create a lasting legacy,” said Devlin.

Returns and liquidity

Columna’s LP base is made up of blue-chip institutional investors and family offices, said Devlin. “They appreciate our entrepreneurial approach and have grown with us. We underwrite every deal to a 3x gross return across our own capital and we’ve exceeded this target for our aggregate gross MOIC [money on invested capital] and IRR [internal rate of return] for our realised portfolio,” he said.  The firm has seen an average of 20% top line growth in its portfolio over the last decade and a half, and in some cases, this has been up to 10x-20x from an EBITDA perspective, he added.

The GP’s first fund is now fully realised and reached 1x Distributed to Paid-In Capital (DPI) by year four – this is a landmark typically reached by year eight, said Devlin. “We aim to manage the balance of generating returns and liquidity. We’re not an asset manager, we’re principals seeking to optimise returns.”

In addition to selling assets via M&A, Columna has regularly turned to the secondary market to generate liquidity for its LPs. The firm has structured four continuation vehicles to date, two of which were for agricultural technology company Datamars (in 2017 and 2021), which the firm first acquired in 2011. It has also formed separate continuation vehicles for Bianalisi in 2021 and France-based pet insurance platform Santévet in 2022.

While Columna was “a pioneer in continuation vehicles” when it structured its first deals of this kind, they have become ”one of our best mechanisms for generating liquidity,” said Devlin. The rationale for forming these vehicles has been a combination of an underlying business need and the desire of each company’s management to keep working with Columna, “often for specific M&A opportunities,” he said.

The firm makes a point of only forming continuation vehicles once it has realised its target returns. It makes sure to have a third-party valuation and “the full support” of LPs and the Limited Partner Advisory Committee (LPAC), said Devlin. “A great business that will benefit from long-term macro trends, hopefully over a 10-20 year cycle, requires you to capture as much value as possible,” he said.

Integrating, not aggregating

The firm’s approach to value creation begins prior to the investment period for any asset, according to Devlin. “We’re often dealing with bilateral deals with a diligence period of up to a year, so by the time we invest, we have already developed a very specific road map for growth and value creation – which translates to a significant amount of M&A.” The firm has made more than 180 add-ons over the past decade, he said.

In spite of this focus, the firm does not aim to be “an aggregator of businesses via buy-and-build,” he said. “Building businesses means acquiring and integrating them, looking at revenue synergies and fixed cost synergies. We want to help small owner-managed businesses become part of a larger group. If you’re just aggregating, you’re not integrating, and you’re not creating real value. This is why recruitment to strengthen the management team is so important in helping to institutionalise these small businesses as they scale to be mid-cap champions in their own country and Pan-Europe.”

The partners pointed to continuation vehicle assets Datamars and Bianalisi as examples of the GP’s value creation approach.

Datamars had CHF 27m (EUR 28m) in revenues when Columna first invested and its EBITDA has grown almost 20x since this time. During the investment period, it has expanded into livestock identification and made two larger acquisitions to expand into precision farming, doubling the size of the business, said Devlin. “Combining and collecting precision farming data points was the third phase of growth, transforming Datamars into a smart farming solutions business which is fundamentally software-driven, with the aim of supporting the feeding of the anticipated future world population of nearly 10bn people,” he said.

Bianalisi has grown from EUR 27m in revenues when Columna first invested in 2016 to EUR 120m in 2021, and approximately EUR 200m in 2023, said Frecchiami. Its EBITDA has grown around 12x in eight years, he added. “We’re still seeing a consolidation trend in this industry, given that it is behind other European countries, so there is still a lot of strategic value,” he said. “This has been our only minority investment – we were asked by the management team and founder to remain on board, and we thought the opportunity was exceptionally interesting.”

ESG is also part of the firm’s value creation strategy. Datamars’ regenerative farming focus is in line with this, and the company also launched a foundation in 2023. Italy-based senior living business Over also runs a foundation and is committed to becoming a B Corp, the partners said. Santévet donates 1% of its profits from new contracts to You Care, an organisation that helps pet owners with access to pet insurance and also aims to combat pet abandonment.

Columna is partner-owned and has assets under management of EUR 1.4bn, said Devlin and Frecchiami. It was co-founded in 2009 and is also managed by partners Vilmos Pongrácz and Michael Tose, in addition to Frecchiami and Devlin.