Last month I went to Europe to meet our local contacts, build deal flow, and establish some new relationships. I wasn't quite sure what to expect, but came back with some valuable insight.
Bank lending is very difficult to secure (even in the UK and smaller German deals), in business meetings the crisis is talked about constantly, and there is tremendous lack of faith in the governments to get the Continent on sound footing. As opposed to a large hunger for capital, deal activity has essentially frozen. Investment funds, and to a lesser extent strategic buyers, are waiting for some uncertainty to be resolved before deploying capital.
I was actually born in Europe (Poland) and have traveled there extensively. The culture is quite a bit different, which holds true in business as well. While the people I met with were appreciative of my visit, personal relationships hold more weight than in the US and local capital providers are inherently preferred. I can appreciate this knowing execution risk is naturally higher with a foreign investor. I also learned there are only a few hundred private equity firms focused on developed Europe, versus thousands in the US. There are even less mezzanine and specialty lending funds. European business owners are not as familiar or comfortable with the concept of subordinated debt that is more expensive than senior but cheaper than pure equity.
I recognize the turmoil abroad, but see the flight of capital as potential opportunity for Catalus. We're excited to continue pursuing deals in Europe as well as the US, Canada, and the Caribbean. We encourage you to reach out with any transactions fitting our investment profile.
