Jet Investment aims to close one or two more acquisitions this year
Date: 7 August 2020
Author: Katka Krosnar
- Jet 2 fund has CZK 3bn (EUR 111m) dry powder
- Expects wave of opportunities in 2021
- Could spend up to EUR 90m on an acquisition
- To begin fundraising for up to EUR 300m third fund in 2H21 or 1Q22
Jet Investment, a Czech private equity firm, aims to close one or two more acquisitions this year, partner and board member Marek Malik said.
The PE fund is seriously looking at five or six targets in the Czech Republic, Poland and Germany, Malik said. Jet Investment specialises in investing in turnarounds, distressed companies and insolvent situations in the Czech Republic, Germany, Poland, Austria and Slovakia.
It is focused mainly on nearby markets as it sees plenty of opportunities there, he said. The GDP levels of Czech, Polish and Slovak economies are the closest in the CEE region to those of Germany and Austria, he noted. Additionally, the cultural and managerial aspects of businesses are a close match, he added.
As the fund is very “hands-on“ with its portfolio companies, regularly travelling long distances to countries further away would be impractical, he said.
In addition to these core markets, it is also open to opportunistic buys in other markets mainly in Europe, Malik said.
Jet Investment has CZK 3bn (EUR 111m) remaining in its Jet 2 fund, which was raised at the end of 2018, and expects to invest 70% of the fund by 1Q21, he added.
The fund is looking to extend the investment period by six months into next summer to take advantage of the expected wave of opportunities in early 2021 due to the COVID-19 pandemic, he noted. It expects a wave of distressed companies to be on offer next spring once the true impact of the pandemic is felt, he said.
The fund largely focuses on industrial companies and related industrial services, Malik said. It is eyeing opportunities in the energy and energy-related products, chemical, composites, technical textile, special coatings, light automotive production sectors, low-emission transport such as rail and energy-saving technologies, he said. It could also look at the automotive, furniture production, aerospace, transport and retail sectors, he added.
COVID-19 pandemic effect
The coronavirus pandemic will exacerbate the problems of companies which were already facing financial difficulties and many highly indebted companies have been surviving on cheap debt, he said.
COVID-19 has made the fund more careful and selective about future investments, he noted.
There will be a greater gap in valuation expectations due to the uncertainty over financial results for 2020 and 2021, he added. Its own portfolio companies were relatively immune to the pandemic, he said.
Its current portfolio includes PBS Industry, acquired in 2004 by its first Jet 1 fund, together with add-on Benvig Heat Transfer and Hoeckle, a German-Austrian manufacturer of automotive precision parts together with Czech-based peer Strojirny Poldi. These two portfolios could be grown both organically and through bolt-on acquisitions, he said. Its portfolio also includes Fiberpreg DE, a German-based manufacturer of carbon, aramid and glass prepregs and Czech-based technical textile producer Kordcarbon. See table below for a full complete Jet Investment portfolio.
The first Jet 2 fund investment was the acquisition of a 55% stake in Czech electricity co-generation manufacturer TEDOM in May 2019. The fund recently raised its stake in TEDOM to 100%, as reported in July 2020.
The newest addition to the Jet 2 fund is 2 JCP, a Czech supplier of filtration and acoustic solutions for leading gas turbine manufacturers, as announced in June. The investment horizon of the Jet 2 fund is 8-10 years, Malik said.
New niche markets
In addition to its target sectors, Jet Investment is currently looking at acquisitions in two new niche sectors in the Czech Republic and Poland where it could play a role in consolidating smaller players, Malik said, declining to further specify.
The typical investment size into an acquisition is around EUR 40m, but could be up to EUR 80m to EUR 90m, he said. Bolt-on acquisitions average investment of EUR 10m to EUR 15m, he noted. It is receptive to advisors with target suggestions and regularly works with external advisers on transactions, although a large part of the fund’s deal pipeline is generated internally, he added.
Jet Investment is not actively working on any exits in the next year, Malik said. The company divested much of its portfolio over the past two years, he said. It had considered divesting PBS, as previously reported, but now plans to hold on to the company since there are a lot of potential synergies with its new portfolio company 2 JCP, he said.
It is also not planning on divesting its other large portfolio group Hoeckle as it plans to use it as a platform for add-ons and organic growth, he said.
The firm plans to begin fundraising up to CZK 7.8bn (EUR 300m) for its third fund Jet 3 in 2H21 or 1Q22, Malik said.
The investors in the first two funds included high net worth individuals, family offices and institutional investors, he said. A number of these have already expressed interest in investing into Jet 3, he added.
It also plans to launch a separate real estate fund, focusing mainly on industrial real estate, Malik said. The initial size of the fund is planned to be around CZK 1 bn (EUR 38m), growing to CZK 15 bn (EUR 573m) within five years, he said. This decision was prompted by the fund seeing many companies taking care of their core business, but not their real estate, he added.
It believes in specialisation and separate ownership of businesses and their property assets, as it is quite common in other markets such as Germany and Austria, he said. This separation can help the business owner invest properly into its core activity and the owner of the real estate to take proper care of the assets, he noted.
The fund will potentially also invest in other properties such as logistics, office and retail centres, he said.
Jet Investment was founded in 1997 by its Chairman, businessman Igor Fait.