Chester Higgins Jr./The New York TimesKurt Björklund, left, and Tom Lister are Permira’s co-managing partners. The firm is willing to wait out the tumult in Europe.LONDON — Kurt Björklund does not seem worried about Europe’s sovereign debt crisis.
As competitors pull back from the troubled market, his private equity firm has doubled down on the region, picking through distressed companies from Dublin to Dubrovnik.
Since the start of 2010, Permira, one of the largest buyout specialists in Europe, has spent almost $6 billion, including acquisitions in debt-ridden countries like Spain and Ireland. The firm bought the call center operator Genesys from the Franco-American telecommunications company Alcatel-Lucent for $1.5 billion in early February.
“This is the right time to be staying in — not getting out of — the market,” said Mr. Björklund, a co-managing partner at Permira, which has assets of 20 billion euros. “Europe is a complicated place to do business, but the outlook for investing is good.”
Now, the private equity firm is playing up its Continental roots, as it looks to expand in the United States and elsewhere. To differentiate itself from rivals, Permira, in part, highlights it regional network of offices. The firm operates in eight European countries, compared to three for Blackstone and two for Kohlberg Kravis Roberts.
Simon Dawson/Bloomberg NewsHugo Boss men’s clothing at its headquarters in Metzingen, Germany. Permira holds a controlling stake in the company.“You can’t do private equity in Europe if you are just based in London,” said Mr. Björklund, 42, who joined the firm in 1996 after working for the Boston Consulting Group in Sweden. In each country, private equity firms require on-the-ground knowledge, says Mr. Björklund, who is from Finland.
Permira will need to draw on that experience as the European economy slides toward recession. The gross domestic product of the euro zone is expected to contract 0.5 percent this year, according to the International Monetary Fund. Southern European countries — where Permira currently has six holdings — will be the worst hit. Spain’s economy is forecast to shrink 1.7 percent this year, while Italian G.D.P. is predicted to fall 2.2 percent.
The private equity industry has felt the ripple effects of the economic turmoil. As banks have pulled back on lending, buyout firms have been reaching deeper into their pockets to finance deals. Last year, debt — or leverage — represented 55 percent of European buyout deals, compared to 66 percent in 2007, according to data provider Standard & Poor’s LCD.
“It has become more difficult to finance buyout deals,” said Peter Roosenboom, a private equity professor at Erasmus University in Rotterdam, the Netherlands. “Leverage isn’t as cheap as it was before the crisis.”
Permira has ridden out previous periods of uncertainty. The private equity firm was founded in 1985, after the buyout divisions of the European asset manager Schroder were spun off as a separate business. Since then, it has weathered the reunification of Germany, the creation of the euro as well as the slow growth and high unemployment that have characterized Europe’s economy over the last two decades.
Last year, valuations across the firm’s three active funds increased by a combined 16 percent, compared with a more than 30 percent rise recorded in 2010. Its portfolio of 25 companies, including the German high-end fashion retailer Hugo Boss, the Asian casino operator Galaxy Entertainment and the Spanish fast-food chain Telepizza, currently has a combined market value of around $80 billion.
Amid the upheaval, Permira is trying capitalize on Europe’s fragmented markets. The private equity firm focuses on leading local companies in a small number of sectors, like financial services and consumer products. Then it consolidates those businesses to create larger regional players.
With growing demand for low-cost travel, Permira joined forces with rival Axa Private Equity last year, merging three online travel Web sites across the Continent. Each company — eDreams of Spain, Opodo of Britain and GO Voyages of France — had a strong market share in specific areas in Europe, but now cover all 27 countries in the region.
Permira also emphasizes global brands with a significant portion of revenues overseas. Last December, it bought a controlling stake in Netafim, a leading water irrigation company majority owned by three kibbutzim in Israel. Despite its Israeli heritage, Netafim holds a dominant market share in more than 100 countries worldwide.
The Permira team spent over a year — and more than 60 separate trips to Israel — convincing the owners to sell. In the end, the firm beat out other leading private equity firms, after owners interviewed an executive from another Israeli company in Permira’s portfolio.
“We had to convince them that we would be able to take the company forward,” said Jörg Rockenhäuser, 45, the head of Permira’s Frankfurt office.
With less debt financing available, Permira’s network of offices across Europe could give it at a competitive advantage, according to Stefano Caselli, a finance professor at Bocconi University in Milan. Private equity players can no longer offer high valuations, financed by debt, to takeover targets, so local contacts able to woo companies are increasingly important.
“Investors are looking for private equity firms with strong roots and high levels of expertise,” Mr. Caselli said. “Today, leverage isn’t enough. You have to fundamentally know the company you’re investing in.”
Still, convincing investors to part with cash just as Europe’s economy is going from bad to worse remains a tough sell. Permira has been raising a new 6.5 billion euro fund — one third smaller than its previous fund raised in 2006. Tom Lister, 47, Permira’s other co-managing partner who is based in New York, said he had spent a lot of time with potential United States investors explaining the implications of the Continent’s debt crisis. Much of the discussions have focused on short-term problems facing the euro zone, like the bailout of Greece.
Despite the challenges, Mr. Lister said Permira’s long-term American backers have experience investing in Europe and understand the Continent will most likely bounce back from its current difficulties.
“There’s more uncertainty for U.S. investors because of the lack of information coming out of Europe,” said Mr. Lister, who joined Permira in 2005 after more than a decade with New York buyout firm Forstmann Little. “But North American investors continue to commit funds to Europe.”
Permira’s returns will depend on its finding buyers for its assets. In November, the firm sold the Dutch animal feed company Provimi to Cargill for $2.1 billion, more than doubling its initial investment. Permira also sold one-third of its stake in Galaxy Entertainment last September for $616 million.
Future deals may be more difficult. The market for initial public offerings is still shaky. Nonfinancial companies also are wary of spending their cash reserves on acquisitions, given continued weakness in the broader European economy. In 2010, Permira shelved its plans to take the British fashion retailer New Look public because of volatility.
But the private equity firm is willing to wait out the tumult. The amount of distressed assets in Europe is likely to rise, and Permira is currently focused on expanding, not reducing, its portfolio of companies, according to Mr. Björklund.
“We never want to be held hostage to an I.P.O. as the only possibility,” Mr. Björklund said. “If you have a market-leading business, you will always have different exit opportunities.”