Eduardo Navarro, CEO of Sherpa Capital: ‘We want to transform companies strategically and operationally’

Sherpa Capital is a private equity fund management company in Spain specialising in investments in mid-sized companies. In 2020, it reached a final close of €120million for its fourth fund, Sherpa Special Situations III, which follows the special situation vehicles Sherpa Capital I and II, and the Sherpa Capital Private Equity fund, which acquires stakes in “profitable and growing companies”. It was the first private equity fund to close in Spain since the start of the Covid-19 crisis, according to Sherpa Capital. Around 75 per cent of the commitments were made by institutional investors from Europe and North America, the vast majority of which had previously invested in Sherpa’s earlier funds. Following the close of Sherpa Special Situations III, Leaders League spoke to Sherpa Capital CEO Eduardo Navarro about the investments the fund is targeting, the industry sectors offering the best opportunities in Spain and the key elements of Sherpa Capital’s strategy. 

What industry sectors in Spain are currently offering the best investment opportunities for private equity funds and why?  

It all depends on the strategy of the fund. Among the more interesting opportunities are, firstly, companies that are not affected by Covid – specifically, companies in the food, healthcare, technology and infrastructure sectors. However, in addition, there are also significant opportunities in sectors that have been heavily affected in the short-term, but not in the long term – these include hotels and some industrial companies, for example. 

What would you describe as the key elements of Sherpa Capital’s strategy when investing and why are these elements important? 

I believe the most important part of our strategy is that we want to transform the companies we buy both strategically and operationally. To do that, our two main levers are ‘buy and build’ and operational transformation. That’s why we have the biggest operational in-house team in Spain. 

The majority of Sherpa’s investments are in Spain, but will the firm begin to explore more opportunities in other countries?  

We have expanded our geographical strategy and, although our core markets are Spain and Portugal, we are able to invest up to 15-20 per cent of our funds in companies that are not based in Spain. Moreover, one of the main parts of our strategy is international buy and build and, typically, the companies we invest in buy other companies in Europe and/or America. In fact, we have closed two deals in the last 18 months in Portugal and we are one of the most active players there. 

Sherpa  recently launched a special situations fund, what was the thinking behind this and what type of investments will it be targeting?  

This is the third generation of our special situations strategy and it’s going to follow the same strategy as the predecessors, that is, investments in equity in complex situations (such as negative EBITDA, high debt/EBITDA ratio, carve outs or shareholders conflicts) in Iberia – that is, Spain and Portugal – in the middle market. Furthermore, we have a co-investment vehicle that allows us to invest in bigger deals (that is, up to €100 million in equity).