Eurazeo / 2019 Universal Registration Document

Risk management Risk factors

Vetting of investment projects 4.2.1.2

HIGH Risk that analysisand due diligencework conducted for an investmentprojectdoes notidentify existing risks athe transactiondate, which materialize laterandultimatelyresult in a loss of investmentvalue. Makinginvestments in target companiesmayexpose the Company to a number of risk factors,potentially leading over time to a loss ofvalue for the relevant investment. These risks include: the overvaluation of the acquisition target, due for exampleto: • the insufficient capacity of the target company and itsmanagementto meet its business plan targets, • the undermining of the target company's business model( i.e. technology break, adversechange in the regulatory environment,etc.) • or any other unknown factor liable to lessen the consistency andreliabilityof management's business plan ( e.g. over-ambitious hypotheses), the failure to identify or under-estimation ofa significant liability or the incorrect valuationof certain assets; • the lack ofreliabilityof financial andaccounting information on the target company: erroneous informationmaybe provided when prospective • investments are vetted, deliberately or otherwise; litigationanddisputesliable to arisewithsellers or third parties: these mayrelate to the insolvency of thesellers andtheirguarantors • when applicable (makingit difficultto implement guarantees), or to a change in management (which maythreaten contractswith key suppliers or clients). Eurazeo'spoliciesfor managing these risks relyin largepart onin-depthdue diligenceproceduresandcompliance withstrictinvestment criteria. Prior to any acquisition, during the period when a prospective investment is vetted, Eurazeo performs a comprehensive analysis of the investment risks.In additionto the investment team responsible for the deal, the CSR, Risk Management,Human Resources and Legal Departments are systematically involved in this processunderthe supervision ofEurazeo’sGeneral Secretary (see Section 4.1.1 of this chapter). Basedon thisanalysis, in-depthdue diligence procedures are conducted in strategic, operating, financial, legal and tax areas, generallyby third parties. This comprehensive worknotably encompasses social, environmental, compliance, digital andgovernanceissues.On a case-by-case basis, risks identifiedcanbe covered by warranties negotiated with sellers or insurers.At the same time, in reviewing prospective investments, Eurazeo payspecialattention to the following investment criteria: barriers to entry, profitability, recurrence ofcash flows,growthpotentialanda shared investment vision with management. Athe various stages of the vettingprocess,the risks associated with the targetinvestment are assessed, documented and reviewed regularly during Investment Committee meetings, upuntilpresentationto the Finance Committee, and/or the Supervisory Board. Eurazeo has developed an approachto identifying investment opportunities well in advance ofa sales process. This enables it to form an opinion aboutthe vendor and the fundamentalsof the target. Potentialeffects Capital loss on the investment • Reducedinvestmentprogramperformance • Teams andmanagementdiverted from strategic priorities to tackle • the risk Examples of risk mitigation measures In-depth due diligence process • Seniority ofInvestment Committees • Understanding ofsectors • Approaching potential targets well inadvance ofa salesprocess • As ofDecember 31, 2019, Eurazeo’sassetsundermanagement(AuM) stood at nearly €18.8 billion,a 16% increase compared to December 31, 2018. In 2019, as part of its EurazeoCapital IV investment program, the Company raised nearly €700 millionfrom investors. In line with its ambitions in third-party management, on the fundraising marketEurazeois exposed to the behavior of international investorswith regardto privateequity. Whilst their appetite for this typeof assetmightbe very highnow, we cannot predict their future behavior. If performance declined, these investors might turn to other asset classes. To mitigatethe effectsof this risk, Eurazeo must be ableto reinforce andexpand its international investornetwork, andcontinueto deliverattractive performance to benefit investment partners. The effects ofthe COVID-19epidemic ontheglobaleconomycould slow Eurazeo’s fundraisingprogramin 2020. Potentialeffects Negativeeffectson Eurazeo’sresults, the valuation of its third-party • managementactivities, due to management fee levels (stagnation or decrease) Change in Eurazeo’s ability to deploy a dual investment strategy • in the longterm Examples of risk mitigation measures Track record ( i.e. performance in previous years) • Strengthening of teams dedicated to fundraising • Stability ofinvestment teams • Broad geographic coverage of international institutional investment • partners Variety ofinvestor profiles: assetmanagers, sovereign funds, • insurance companies, family offices Ability to raise funds 4.2.1.3 HIGH Risk that Eurazeo is unable toachieve itsobjectivesto raisefunds to finance its investmentprograms.

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