Trends Watch: Private Equity Investing in European Small-Cap Companies

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Stephan Seissl, Founding Partner, Yana Investment Partners.

What is your outlook for investing in European small-cap companies?

We have been witnessing a structural undersupply of capital into small-cap private equity firms in Europe versus large-cap. According to Preqin, between 2017 and 2022, the number of small-cap vehicles raised has decreased by 51% and we don’t see any signs of this trend subsiding. As a result, there is less competition for high-quality assets in the small-cap space, leading to more attractive entry multiples, allowing for conservative capital structures, often with low- or no-debt financing. We thus do believe that the space will continue to generate attractive risk-adjusted returns.

Where do you see the greatest opportunities and why?

Despite the above, we continue to see high-performing private equity professionals leaving established firms to pursue their entrepreneurial spirit and passion, starting their own firms and then – most of the time – financing their first transactions on a deal-by-deal basis, backed by specialist investors. It is a win-win setup as it allows these groups to get their first investments over the line while their investors get access to interesting small-cap investments at attractive entry multiples, reasonable cost, and in a very economically aligned fashion between themselves and their investment partners. At Yana Investment Partners, we are specialized in partnering with such spin-off teams. In terms of sectors, we see the most attractive opportunities in business services, health care (services), and pharmaceuticals.

What are the greatest challenges you face and why?

While the investment environment is a very positive one from our perspective as a result of the above, the other side of the coin is that fundraising for the small-cap space remains challenging and we are not insulated from this trend ourselves.

What keeps you up at night?

The geopolitical situation. Even though it has so far not directly impacted our portfolio, I believe that we are currently witnessing a level of fragility in our established “world order” which would have been difficult to imagine even five years ago.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.