Leasing Professionals

Equipment finance fund supports SMEs as the engine of European economic growth

Makaya sylvain

SMEs are a vital part of the European economy, with a combined turnover of more than €15 trillion annually, accounting for more than half of all business turnover.

They represent most businesses in Europe and will be the powerhouse that generates future growth if their potential can be unlocked.

A vital key to this expansion will be finance, so companies can secure the long-term funding required to invest in new equipment and innovation, which is a key focus of industry expert Sylvain Makaya.

He is a partner with Idinvest Partners, which recently closed a €340 million funding round for its Idinvest SME Industrial Assets fund (ISIA) that will provide equipment finance to enable future business growth for small businesses.

Makaya (pictured), who joined the business in 2013, said: “We have a strong interest in SMEs, as they are the heart of EU growth. Whereas it used to be large corporates that generated new growth, this role has been taken by smaller, more agile companies in recent years.

“You can’t have a powerful economy without a powerful SME sector and our investments will support industry and create a competitive market.”

ISIA launched at the end of 2017 as the first diversified fund intended to finance the modernisation of production tools for European SMEs to help increase their competitiveness and productivity when competing in local and international markets.

Investment sizes range from €1-15 million (on average €5 million) with loans typically written for between five and seven years.

The ISIA fund will be able to finance around 50 projects in its target European markets, covering Belgium, France, Germany, Luxembourg, the Netherlands and Spain.

The initial market focus reflects the individual experience of the fund’s five-strong management team.
The industrial assets fund has already supported more than 15 companies and financed nearly 50 pieces of industrial machinery.

Backers of the fund include 15 institutional investors, a third of which are sovereign wealth funds. Around 35% of the investment comes from outside its home market of France, with leading investors including The European Investment Bank (EIB) and the European Investment Fund (EIF).

Equipment finance areas being covered by the fund include aerospace, medical, automotive and construction, as well as consumer goods including publishing and print.

Makaya estimates it will take around three years to allocate all the fund’s assets, by working closely with the SME sector and responding quickly when opportunities are identified.

He aims to “accelerate the process of financing” by using technology to minimise paperwork and speed up processing.

“The bank finance process is very long,” he said. “We optimise the funding process and quickly provide finance, which gives us a competitive advantage compared to the banks, which tend to be slow moving and risk averse.”

With a relatively small number of clients, the team behind the fund will have a detailed understanding of each customer’s business and its specific strategy, Makaya said, which will enable swift funding decisions and establish a strong position in a niche area of the finance market where banks struggle to operate.

He added: “We can complement the banks, as we operate in areas they don’t typically serve. The banks have a two-tier strategy, with mass market solutions for small funding requirements and specialist solutions for much larger needs.

“We can support the underserved middle tier, such as contractors to larger companies and regional government departments.”

An example is Airbus, a global business that relies on a myriad of contractors, who could be directed to the fund when they are looking for financial support.

The Idinvest team will also use its detailed understanding of clients to ensure it can arrange finance for those that fall outside the parameters set by banks for approving funding applications.

“Bank risk ratio limits tend to be arbitrary,” Makaya said. “We can be more flexible, as we are closer to the market and can make decisions based on the unique circumstances of each client.”

Technology will also play an important role; ISIA has launched a digital platform so SMEs can complete key stages of the application process online, such as providing company and financial data. Financing arrangements are typically completed within four to six weeks, and there is an ambition to further shorten the process.

Overall, one-third of finance is likely to be to private companies and another third to local government-related projects, with the remaining funds allocated through indirect relationships with the wider client base of Idinvest and customers of parent company Eurazeo, which acquired a 70% stake in Idinvest Partners for €230 million last year.

Eurazeo is a global investment company with a portfolio of €17 billion in assets under management, including approximately €11 billion from investment partners, which is invested in more than 350 companies.

Planning is already underway for a second ISIA fund, which will open to investment next year with a target of around €450 million.

It will encompass a greater number of countries, which is likely to include the UK, as one of Europe’s five biggest economies; the current uncertainty of Brexit negotiations means the country has no immediate role in the investment strategy.

Makaya added: “We will target more EU countries with the second fund and the UK will be part of that.

“Our investment will help the European economy to respond to competitive pressures from China and the US. It is important to be able to address the equipment finance needs in countries linked to the competitiveness of European industry.”

Makaya’s views reflect his global experience. His previous roles with Idinvest include leading strategy and corporate development, where he launched an office in Shanghai and established new strategic partnerships with China.

He also launched the Idinvest SME Academy, a program designed to optimise the international development of SMEs financed by Idinvest.

Prior to joining Idinvest, Makaya began his career at Andersen Consulting, then served as chief financial officer in private equity funds such as Euromezzanine Partners and Antin Infrastructures Partners.

In his new role, Makaya has a clear vision for the future.

He said: “We are enabling companies to access more modern industrial equipment, which will help them expand and support growth throughout Europe to maintain the region’s global competitiveness.”