Happy Monday! It’s Isabel O’Brien here with Value Add, a free weekly newsletter from Privitas covering the latest private equity operations news. Here’s what you need to know this week.

Done Deal

Passing the baton. Citrin Cooperman, a Rhode Island-based tax accounting and advisory firm, was first bought out by New Mountain Capital in late 2021. At the time, the deal valued the firm at $500 million, or an 11x EBITDA multiple.

Under New Mountain’s leadership, the firm saw explosive growth. In a matter of a few years, revenue grew from $351.8 million in 2021 to $900 million last year. Headcount more than doubled.

As such, Blackstone was willing to pay a hefty price for the asset, with reports placing Blackstone’s valuation of the firm at $2 billion, or a 15x EBITDA multiple.

But can Blackstone keep the growth going?

Onwards and upwards. New Mountain’s growth strategy for the asset mainly consisted of add-on acquisitions, snapping up 26 professional services companies in just over three years.

Blackstone is, of course, no stranger to an add-on strategy. However, the firm is a stranger to the accounting industry as a whole. This deal marks Blackstone’s first foray into the sector for which M&A has become increasingly competitive lately due to a number of high-profile deals.

However, whether or not Blackstone will continue to pursue M&A as an avenue for growth for Citrin Cooperman remains to be seen – and portco leadership have hinted that product development and other types of expansions might be on the table.

“Blackstone will help us make additional investments in expanded service offerings and technology,” Alan Badey, CEO of Citrin Cooperman, stated in a press release.

Blackstone and New Mountain Capital declined to comment. Citrin Cooperman did not respond to request for comment.

Portco News

PE portcos also saw some full and partial exits last week, as well as some exits-to-be:

• Vestar Capital Partners sold snack maker Simple Mills to Flower Foods for $795 million in an all-cash transaction.
• Apax cashed out on its majority stake in Paycor, a payroll software provider it bought in 2018 for $1.3 billion. It took the firm public in July 2021. The buyer, Paychex, is paying $22.50 per share for the firm, making the company’s total enterprise valuation $4.1 billion.

Meanwhile, portco M&A was in full swing:

• TPG-backed Elite, a business operations solutions provider for lawfirms, bought Tranch, a B2B payments platform, for an undisclosed amount. 
• New Mountain Capital recently completed a four-way merger through the acquisition of Machinfy, a healthcare payments company. The firm will join with three previously merged companies, The Rawlings Group, Apixio’s payment integrity business, and VARIS to form a new company that will operate under the name Machinfy. The merged company is said to be valued at $5 billion.
• Hg’s CINC Systems, a residential management software company, bought its competitor ONR Applications for an undisclosed amount.
• The US-based Duravant, a food processing equipment manufacturer backed by Warburg Pincus and The Carlyle Group, bought Canadian protein processor manufacturer POSS Designs. Financial terms of the deal were not disclosed.
• CVC-backed Mehiläinen, a Finnish healthcare provider, acquired InMedica, the largest Lithuanian private healthcare provider. Though the total value of the deal was undisclosed, what is known is that InMedica’s 2024 revenue likely exceeded €150 million.
• Senske Family of Companies, a subscription-based lawn care company owned by GTCR, bought TurfPride for an undisclosed amount. The deal will expand SFC’s reach into the Atlanta market and represents the portco’s 18th acquisition since GTCR invested in it in 2022.  
• Hg’s Caseware, a cloud-based financial software company, acquired LeaseJava, a compliance software company focused on commercial leases, for an unknown amount. 
• Darktrace, Thoma Bravo’s cybersecurity portco, announced its intention to purchase Cado Security, a cyber investigation provider, in February. Cado’s ticket price is reportedly between $50 million and $100 million.  
• TPG-backed accounting firm Creative Planning bought Wisconsin-based financial planner Kowal Investment Group for an undisclosed sum. The firm has $1.3 billion in assets under advisory and constitutes Creative Planning’s 10th acquisition in two years. 

And there were some key people moves:

• Dhruv Vakaria, former COO and CFO of financial solutions provider Vervent, joined GTCR’s Concord Servicing, a loan servicing solutions provider, as CEO. The firm’s prior CEO, Jason Alexander, will remain at the company on the board of directors. 
• Brian Humphries, formerly the chief executive of Cognizant Technology Solutions, joined CD&R as an operating advisor for its European technology portfolio.
• TA Associates-based Solifi, a fintech software provider for the asset-based finance and leasing industries, replaced CEO David Hamilton with Dan Corazzi, the former chief revenue officer of JAGGAER, a B2B supply chain management platform formerly owned by Cinven and now owned by Vista Equity Partners. 
• Grant Thornton US, bought by New Mountain Capital this spring, ousted its CEO, Seth Siegel. Jim Peko, the firm’s chief operating officer, will succeed him.  

Hot Take

Good riddance. Recent reports say that private equity funds are pulling back from NAV loan financing. Is it cause to rejoice? 

For LPs (and for us here at Value Add), yes. But some lenders and PE players alike are arguing the opposite, stating that NAV loans are usually used to fund portco add-ons, not distributions to LPs. 

I’ll take my tinfoil hat off and take them at their word… even though the amount of NAV loans 17Capital, a major provider of such financing, estimates were used to fund distributions curiously dropped from 24 percent of total transactions in 2022 to 2 to 3 percent in 2023 and 2024, just as industry critiques began grabbing headlines. 

Other avenues. Even though firms claim these loans are used to fund add-ons, that’s still a major problem. First and foremost, add-ons are not a bulletproof way to grow a company, as Privitas’ research on the subject has shown that the value-creation strategy often yields uneven results. 

There are other less risky, less capital-intensive ways to grow a portco, such as geographic market expansion via organic growth. These methods aren’t straightforward like add-ons; they require a bit more elbow grease. But on the bright side, they require a lot less high-risk, high-interest-rate capital.

Capital galore. And if add-ons are truly the only way to grow a portco, why finance these add-ons through NAV loans? NAV loans have extremely high interest rates and are often floating, not fixed. Yes, interest rates are high, and perhaps it's impossible for funds to find financing arrangements for certain portfolio companies at more favorable terms. 

Private credit is booming, topping $2 trillion in total global market size in 2024, and NAV loans make up only a small percentage of this. There are plenty of other high-interest financing options in the ecosystem that don’t put LPs in a dicey legal situation where their paid distributions could be recalled to repay lenders.

More from Privitas

• Small Exits Outperformed Large Ones in 2024 (Read)
• Portco CFOs Key to Successful Roll-Up Strategies (Read)
• Technology: Value Creation 2024 (Read)
• M&A Is Risky, But Operating Partners Choose It Anyways (Read)
• Could Unhappy Employees Be Good For Tech Exits? (Read)

That’s all for this week – thanks for reading. Have questions? Email isabel.obrien@privitas.com