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Private equity players buffeted by macro-economic headwinds
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IDI is a pioneer in the private equity arena in France, with over 50 years of experience in the field and a particular investment focus on SMEs. IDI is one of the first listed investment companies in France (1991), achieving an annualised IRR (dividends reinvested) of 15% over the past 30 years. Its NAV at the close of H1 21 stood at €577m, with an average discount to NAV of c.30% since 2014.

IDI strikes as a private equity firm effectively more aligned to the interests of its stakeholders than the industry mediocre record in that respect. This is in spite of its resorting to a partnership limited by shares as a legal shell. IDI differs as it has no time constraint and as its management has skin in the game at the holding level as well as at the equity stakes level. Indeed, what sets IDI apart from other private equity players, aside from the fact that most of the investment activity is funded by its own equity capital, is that it operates under a model that is not constrained by time to liquidity that most PE funds are subject to.

On the one hand, this flexible approach allows IDI to accompany the investee companies through the whole development process without having to resort to hasty value-pumping measures in order to appease investors waiting to be paid out. On the other hand, the liberty of not having to adhere to a calendar also allows the company to be agile and seize opportunities when they arise. This may result in IDI exiting investments faster than its more usual investment horizon of five to seven years, to capitalise on favourable market conditions and crystalise higher IRRs.

A resilient flexible investment approach in the face of a crisis

This no-rush approach is conducted by a management team that, all combined, makes up the main shareholder base, accounting for 55% of the share capital, providing plenty of confidence that the company’s equity capital is being allocated wisely in order to support long-term value creation. The lack of a liquidation schedule also allows IDI to time its exits better in periods of market downturn — as was the case in 2020 at the height of the Coronavirus pandemic — to capitalise on a subsequent recovery in market multiples to crystallise higher rates of return, which appears to be the case in 2021, judging by the several recent transactions announced since the beginning of the year (with an average IRR of 27.3%).

Demonstrating the resilience of the IDI model in a volatile market environment, as was the case in the midst of the COVID-19 pandemic, is the performance shown in 2020, posting a 6.11% NAV growth rate. This was mainly led by improved fair values of the Private Equity Europe assets (+€36m) and liquid assets (+€12m), with the former benefiting from improved operational performance and higher valuation multiples at the end of the year, as well as the capital gains on the exit of HEA Expertise under very favourable valuation conditions agreed before the sanitary crisis, securing a solid 35% IRR. Even after having invested €32m over the course of 2020, IDI closed the year with a €124m-strong total liquidity position (€142m in FY19), which swiftly rose to €185m at the end of June 2021, attesting to the continued positive momentum of the portfolio.

IDI: a hands-on shareholder

In the holding company universe, one can distinguish three different types of management styles of the portfolio: first, there are those that keep their investments at arms-length and are content with collecting periodic dividends, secondly are those that get “down and dirty”, getting directly involved in the operations of their investee companies, which can quickly get complicated when new investments fall in completely different sectors.

Then, there is a third path, to which IDI ascribes to, a hands-on approach as a shareholder, as it is working in close relationship with the investee company’s management and getting involved in the supervisory board, but leaving the day-to-day operations to skilled managers who have the valuable knowledge in the respective sectors of activity. This avoids spreading the HoldCo’s resources too thin, which increases the likelihood of execution risks.

Regarding investment strategies, IDI specialises in LBO investments as well as growth capital investments in SMEs. The company’s judicious investment approach extends to the near zero leverage maintained at the holdings level, with an average gearing ratio for its investments of 2.6x EBITDA in 2020, displaying exceptional prudence in a private equity market that has seen leverage ratios steadily climb for years (and accelerating further in 2020). One can look no further than the US private equity market, where leverage in the LBO market has reached ludicrous levels of more than 6.0x EBITDA in nearly 80% of deals carried out in 2020, as shown in the graphic below coming from Bain & Company’s 2021 Global Private Equity Report.

In terms of geographical breakdown, the lion’s share of the portfolio is Europe-based (France in particular), accounting for 68% of the NAV (as per the FY20 annual report), with the emerging market exposure (9% of the NAV) being run through a third-party capital management model (combined with own equity capital investing) under the IDI Emerging Markets Partners umbrella.

NAV breakdown as of December 2020

Source: IDI Annual FY20 report, AlphaValue

Concerning the size of the investments, IDI being a relatively smaller player in the private equity space, these range between €10 and €50m and can extend up to €150m with family office type co-investors, i.e. not time constrained as well. IDI is flexible in regards to the shareholding size, as its current portfolio includes majority, co-controlled and minority investments, usually determined by the scope of the deal.

An attractive high-growth portfolio

The portfolio is composed of 16 holdings as of September 2021, allocated across a variety of sectors, including many companies present in digitally-native businesses (reminding us of a smaller Kinnevik), which are supported by strong underlying trends with high-growth potential such as media streaming (Dubbing Bros), e-commerce (Group Label), the energy transition (TucoEnergie) and social issues like education (Talis) and healthcare (Winncare Group).

Regarding the more industrial-type businesses like Flex Composite Group, these follow a solution-based approach which bring added value and recurring revenue generation, setting them apart from more commoditised and, hence, cyclical peers. IDI’s diversified asset base allows stakeholders to gain exposure to these unlisted, high-potential SMEs that may fall under the radar of equity investors.

Upside 46.8%
Price (€) 66.8
Market Cap (€M) 484
Divisional Breakdown Of Revenues
Change 23E/22 Change 24E/23E
  Sector 12/22A 12/23E 12/24E 12/25E €th of % total €th of % total
Total sales 9,798 24,679 30,780 31,284 14,881 100% 6,101 100%
PE Europe Holding Companies 5,950 6,248 6,560 6,560 298 2% 312 5%
PE Emergents Holding Companies 3,452 3,625 3,806 3,806 173 1% 181 3%
Actifs Liquides Invest Mgt-Advis S... 144 151 159 159 7 0% 8 0%
Other 252 14,656 20,256 20,760 14,404 97% 5,600 92%
  Revenues Costs Equity
Dollar 25.0% 25.0% 25.0%
Emerging currencies 0.0% 0.0% 0.0%
Euro 75.0% 75.0% 75.0%
Long-term global warming 0.0% 0.0% 0.0%
Sales By Geography
Europe 72.0%
Other 28.0%
Changes to Story : 26/10/2023, Changes to Forecasts : 26/10/2023.