LEADERS LEAGUE. Though Belgian, Cobepa is a fixture in the French private equity ecosystem. Do you think of yourself as a multi-family office or, rather, a private equity company?

Jean-Marie Laurent Josi. Cobepa is an investment firm first and foremost. To be more precise, Cobepa is equal parts private equity fund and family office. We work closely with dedicated private equity funds and are organized along similar lines (deal sourcing, deal execution, value creation etc.). However, Cobepa more closely resembles a family office when it comes to access to capital, which is permanent, in contrast to funds, whose fundraising vehicles are for a limited time only. With us it really is permanent capital, and not patient capital. In the current investment environment, it’s dangerous to be patient; we prefer to be pro-active. That said, some cases merit longer support than others. This is why our investment horizon is flexible and undefined. It allows us, when the need arises, to assist groups with their long-term strategic projects, whose playback is farther out, but greater. Let’s not forget, also, that Cobepa is exclusively backed by familial shareholders. No institutionals are present in our organization. This industrial and family dimension is equally justified by our involvement in, and commitment to, long-term entrepreneurial project. In addition, Cobepa is not a conglomerate, which means we have no strategic assets. Neither are we a holding, a term which suggests passivity. That’s not us at all.

Are the family funding rounds which support your activity still the same, or have they changed?

Today, 80% of the families present for the Cobepa funding round in 2004 – the year when the firm split from the investment arm of BNP Paribas – are still with us. This means that there has been a 20% evolution in our capital, and that there exists, therefore, the means to inject oxygen into the group with the entry/exit of families. This rotation is easier to achieve when the expected value is maintained. The last main change of shareholder was at the end of 2013, with the arrival of the Boehringer family, active in the pharmaceutical industry, which saw a capital injection of €400 million. Since then, the situation has remained stable.

Do you think that an investment firm which resembles a multi-family office is more selective when it comes to the composition of its portfolio and the management teams it works with?

It’s clear that the board meetings we have with our main shareholders, held five times per year, speak to a relationship that is quite different from those of investment funds, which usually only see their LPs during annual road shows. We feel that we are more than just responsible for the money that they confer. We feel, I would say, accountable as placement agents not only for the capital we invest, but also as custodians of the values of the families with which we work, whether they involve ESG criteria, or in their ability to generate value. This goes beyond techniques of financing. On each investment, we have to be able to answer the question: what has this company created since we began working with them? It’s possible that the main difference between us and a traditional private equity fund resides in our conception of just what a business is. Cobepa sees the company as a subject rather than an object. Inevitably, when you are an asset manager, the coming and going of assets in your portfolio disconnects you somewhat from the life of a given company, even though you may be directly responsible for that company. By design, I think that such a disconnect is impossible at Cobepa.

Sum up your investment strategy for us.

Like many involved in private equity today, we can also hold the majority of the capital of a company as well as a minority. In the latter case, it increases the size of the deals we can look at – companies valued at around €1 billion, in our case. As regards sectors of activity, we take an agnostic approach. Outside of the obvious taboo activities, all opportunities warrant our interest. There is nothing stopping us from adding an asset light or business services segment, for example. The reason for this is relatively straightforward. The right to make a mistake is possible in some cases, but much less so in others. If a company’s growth prospects in business services are bad, at least you have the value creation generated by the company’s free cash flow. On the other hand, if the group is rather heavy, an error with the topline can have a direct impact on the capex, which in turn can lead to margins being squeezed. Given current value multiples, that could prove fatal. Business services favor an economic model than a sector of activity, which covers a large area of economic activity including, in certain cases, healthcare logistics.

So, the idea is to invest in very profitable companies and in those whose level of debt is modest.

Cobepa has a track record of investing in companies with a high cash-conversion capacity. This is part of our economic model. If we organize our investments in a similar way to a fund, with a senior indebtedness structure, we do not raise junior debt, as we judge the risk/return ratio associated with it as unsatisfactory. In fact, when you spend four years or longer on the capital of a company, there needs to be an effective mechanism in place for paying out dividends. This is just a reflection on our capacity to remain on the capital indefinitely, which allows Cobepa to pay out a growing rate of dividend to our shareholders each year.

GPs rely more and more on buy and build strategies to stimulate the growth of their companies. What is your approach?

Ideally, we would like to see companies achieve organic growth through external acquisitions. In a macroeconomic environment where the GDP growth of developed economies is weak, dynamic companies need to look to build up opportunities to optimize their growth. That said, build up is not a strategy in and of itself. It is a means to executing a strategy. Cobepa will never do this unless it is part of a predefined growth strategy. We currently have interests that are so well positioned in their markets that a build up would only be a distraction. On the other hand, several companies in our portfolio are engaged in the activity.

In cases where a buy and build strategy wins out, what is the best way of executing it, according to you?

The best build up is one that the company orchestrates itself. Therefore, we must help them, give them the means to conclude an acquisition in an autonomous fashion. This is what allows them to better integrate the target and the negative aspects that can sometimes come with post
acquisition integration. Of course, we are going to provide all the support we can to a company going through this stage, by providing access to intermediaries, and reflecting together on all the ins and outs of a particular purchase. But this common work has to produce a positive impact, both on the work of the individuals and that of the company a whole.

Where do you see Cobepa in the world of private equity in five years’ time?

We intend to put the same effort into  the development of Cobepa as we do for our investment dossiers. The size of our business is not the most fundamental aspect, rather, it’s the performance of the prevailing economic model, and Cobepa’s is highly effective. It has seen us go from €400 million in assets under management in 2004 to over €2.6 billion in 2018. This growth has been almost entirely organic, because our two capital increases have been counterbalanced by proportionate dividends. Apart from the quality of our teams, the combination of our diligent approach to private equity and the fact that we provide clients with value over the long term, means we can have the best of both worlds. And this is precisely why family investors continue to call on us. One must, though, stay humble and continue to refine and improve the process. Furthermore, Cobepa will continue to expand, notably in Germany and the United States. For the meantime, we don’t envisage expanding
into other asset classes. A lot remains to be done in our investment, area, but our economic model will ensure, that we continue to have great growth prospects.