unquote.com: Jet Investment doubles down on industrial impact ahead of next fundraise
30 May 2022
Central European industrials-focused GP Jet Investment is doubling down on its industrial impact strategy and assessing opportunities in the region as it heads for its next fundraise, partner Marek Malik told Unquote.
The firm's current priorities include raising capital and developing its portfolio amidst a market that is rich in opportunities, according to Malik. "We will be preparing for fundraising and new investments this year," he said. "We will also consider bolt-ons for our current portfolio and will continue exiting there maining Jet 1 portfolio."
The GP expects to have two fund structures as it moves towards its next fundraise. “I can’t comment on our Luxembourg-based fund, but we will have one sub-fund in our next vehicle dedicated to our local HNWI investor base in the region,” Malik told Unquote. “The fund is in the planning stage, but we will continue with our impact deals strategy as we see it as a great investment opportunity.”
Jet Investment plans to keep its focus on Central Europe for its next fund.“Central Europe is a brilliant region for industrials investments, but we are more ambitious than typical industrials investors, who are targeting in general 2.2xmoney,” Malik said. He added that Jet Investment’s gross return has been 3.7xmoney historically, adding that historical performance is no guarantee of future returns. “We have a thorough sourcing strategy, deep industrial knowledge, and a hands-on operational approach, which is often based on R&D and strategic add-ons,” he said.
Jet Investment generally writes equity tickets of EUR 50m-EUR 100m, with a EUR 60m sweet spot. The firm invests in Central European SMEs with entry EBITDA of up to EUR 25m.
Team development is also on the horizon for the Czech Republic-headquarteredGP, which currently has a team of 17, including four senior partners, Malik said.
“We will be looking for new hires and we are planning to open a Polish office and a German office in the next two years, so we will also hire people there,” Malik said. “We have a stable team: one project manager left, one was promoted from fund to project, and we have made a senior and a junior hire in the past year.”
Jet Investment manages EUR 300m in equity via institutional funds and raised its first fund in 2015. Prior to this, Jet Investment had invested EUR 65m on an investment project basis, Malik said.
The firm’s 2015-vintage, EUR 128m Jet 1 Fund focused on automotive, energy, industrial machinery, oil and gas, rail components, technical textiles, compositebmaterial and products, wood processing, and energy production. The fund is now more than 50% exited, Malik said.
The GP raised Jet 2 Fund around three years after its first fund, holding a final close in November 2018 on EUR 153m. The vehicle was fully deployed after three years and its co-investments from LPs increased its fund size by 18%, Malik said.
Jet refined its investment focus from Jet 1 to Jet 2, according to Malik. “From Jet2, we invested in energy equipment and machinery and general industrial machinery, and the investment thesis of the fund is based on industrial impact deals,” Malik said. “We have identified automotive and energy subsectors that are growing much faster than the overall sectors themselves: these are e-mobility, and energy equipment supporting clean, decentralised energy resources transmission.”
For its next fund, Jet will target industrials companies, developing platforms to develop leaders in sustainable technologies in the following sectors: rail, aerospace, automotive, energy equipment, industrial machinery andbiochemicals, industrial processing and recycling, composite materials such as alloys, building materials and ICT.
Jet’s investment focus means that it is integrating ESG and sustainability goals into its investment strategy. The GP is a UN PRI signatory and expects its next fund to be an Article 8 fund, Malik said.
The GP has goals that it expects its companies to achieve We have goals to achieve in its core fields of e-mobility and energy equipment supporting clean, decentralised energy resources transmission, Malik said. “Firstly, co-generation units will become the controlling units of decentralised energy systems; and the second goal is to create the virtual powerplants, using different energy resources and storage, aggregating both production and consumption. This will ultimately lead to energy efficiency and cost savings for the end customers.”
Jet also places emphasis on the transition to hydrogen, which it is already putting into practice in its existing portfolio in Jet 2 Fund. “Our biggest goal is to support the transition of energy resources towards hydrogen,” Malik said. “We are focusing on R&D, and in Tedom we are 20% hydrogen already. In Rockfin and 2JCP, we are also working on this.”
The GP invested in electricity co-generator manufacturer Tedom in May 2019, subsequently acquiring the remaining 45% stake in the Czech Republic-headquartered company in 2020. It has owned 2 JCP, a Czech Republic-based producer of filtration and acoustic solutions for gas turbine manufacturers, since June 2020. It acquired Poland-based hydraulic oil systems designer and distributor Rockfin in March 2022.
Bespoke deal sourcing
The firm operates “seamlessly” in the geographies that it targets, Malik said; namely, across Germany, Austria, Poland, the Czech Republic and Slovakia. “The region brings a lot of opportunities: trade is well-established, but business operations are quite fragmented and that makes for inefficiencies, so there are plenty of SMEs that can be consolidated,” he said. “There are significant differences between the southwest and northeast of the region and we are combining the attractive characteristics across each area.”
Jet takes a different approach to deals in each region that it targets, Malik noted.“In Germany and Austria, private equity is well accepted, so you need to be a sophisticated investor with a clear angle in industrial experience,” he said. “In the Czech Republic, Poland and Slovakia, local roots and reputation are essential for unlocking opportunities.”
Developing a network in the Central European region has been key to sourcing opportunities. “In addition to local advisers, we get dealflow generated from our business network,” Malik said. “Entrepreneurs come to us to discuss succession deals and we have a large HNWI investor base, who often act as ambassadors forus.”
Although the GP continues to see opportunities from its existing network, it is open to inbound approaches, too. “We are of course open for advisers to come to us,” Malik said. “We already work with the main M&A advisers in the region – in Germany and Austria, it is more fragmented, so it’s important to talk to many different firms, but in the Czech Republic, Slovakia and Poland, it’s more centralised.”