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Best idea: small-cap manager on why he targets acquisition champions

Best idea: small-cap manager on why he targets acquisition champions

For La Financière de l’Echiquier’s European small and mid cap fund, the Echiquier Agenor, Citywire AA-rated manager José Berros targets companies that have an active acquisition strategy.

Having a keen eye for acquisitions – whether it’s a union of equals or a buy-out of a rival – makes a firm particularly attractive to Berros. That’s because anything from a moderately sized bolt-on to a completely new portfolio of products can help a firm penetrate a new geographic region or enter a new sector.

The fund invests nearly exclusively in growth companies, Berros explains, including groups that are in growth sectors by their very nature. This includes pharma, tech, innovation, the internet, e-commerce, health foods and payments, he explains.

French laundry service group Elis is one example of an actively structuring firm with a reasonable valuation that Berros has picked for the portfolio. ‘Over the two years we have been invested in Elis, the company is on its sixth or seventh acquisition,’ he says. ‘Because after buying firms in France, Elis made acquisitions in Argentina, Spain and Germany, and has just bought a leading firm in Europe, Berendsen.

One strong theme that the fund plays is the digitisation of the payments sector. ‘There’s a whole migration of traditional payments.’ At 3.3%, Danish digital payments firm Nets is the biggest holding in the fund, which Berros runs alongside managers Stéphanie Bobtcheff and Guillaume Puech.

There has been good news for the company recently, Berros says, with private equity fund Hellman and Friedman launching a takeover bid for the firm in September. Another of the fund’s largest positions is the French global payment services provider Worldline, which represents 2.8% of the fund. The company is a leader in France and southern Europe but has started to spread its activity with acquisitions in north east Europe.

Nets and Worldline both boast strong and credible management, with an alignment of interests within the management teams. That’s a feature you rarely find in other firms in the sector in Europe, Berros says.

‘The second element is the visibility of Nets and Worldline’s business models, which is very high, so the risk profile is more attractive than in other players in the sector,’ he explains.

Another theme in the Echiquier portfolio is e-commerce. ‘E-commerce is also interesting: the sector is growing by between 5% and 10% in Europe,’ Berros says.

It is also a sector that is penetrating new segments – for example, the luxury fashion sector. ‘Until a couple of years ago, people would be reticent to buy luxury goods on the internet, but we see, thanks to certain players, that there has been a sector upheaval in terms of client mentality and that’s coming through very strongly,’ Berros explains.

Berros’s top ten holdings from this sector include British company ASOS, which the fund has been buying for three years, and Italian luxury goods firm Yoox Net-A-Porter Group.

This article was originally published in the November 2017 issue of Citywire Switzerland.

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