Happy Tuesday – we hope everyone had a great holiday weekend! 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

The VIP Section. Warburg Pincus agreed to buy Vermont Information Processing last week for $1 billion including debt. The firm is a software company focused on wholesale beverage distributors. 

Warburg Pincus’s last comparable asset was TriMark, a restaurant supply company, which it bought from Audax Group in 2014 for an unknown sum and sold to Centerbridge Partners in 2017 at a $1.35 billion valuation.

Trifold. The PE firm’s value creation strategy with TriMark was three-pronged: digital transformation, leadership changes, and M&A. 

First, TriMark’s website was reworked to be more customer-focused. Warburg Pincus also implemented enterprise resource planning software across the company to improve cost margins. 

Then, the firm “added a number of seasoned professionals to the management team and created a number of new positions needed to efficiently manage the growing business,” according to Warburg Pincus. On the sponsor side, Warburg Pincus added Michael A. Pulick as an industry advisor to help oversee the asset.

Finally, Warburg Pincus made two add-on acquisitions of smaller competitors to the firm in 2016: RW Smith & Co. and Adams-Burch. These acquisitions strengthened TriMark’s market share in the southwest and the mid-Atlantic, respectively.

Parched. When asked if Warburg Pincus intends to implement any of these strategies at VIP, the firm declined to comment. However, it is worth noting that Pulick, the industry advisor who helped Warburg Pincus oversee TriMark, is no longer affiliated with Warburg Pincus. 

The food and beverage distribution industry is a different world, too, from what it was from 2014 to 2017. For starters, consumption of alcoholic beverages has been on the decline, with sales of high-margin beverages (alcoholic beverages) down for the first time in three years and expected to continue decreasing due to a rising “sober-curious” movement. President Trump’s proposed tariff plan is expected to exacerbate this trend.

Portco News

PE portcos also saw some full and partial exits last week:

• Hg and GRO Capital sold Trackunit, a SaaS and data platform for the construction industry, to Goldman Sachs Asset Management’s private equity business for an undisclosed amount. Previous reports from Bloomberg indicate that the company’s valuation is about $1 billion.
• Pharma giant Novartis bought Anthos Therapeutics, a therapy developer for cardiometabolic diseases, from Blackstone for upwards of $3.1 billion. Shareholders will receive $925 million upfront and further payments will be made if regulatory hurdles and commercial milestones are cleared.
• Apollo sold its remaining 12 percent stake in Sun Country Airlines for $10 million, or $16.50 per share. The buyer was Sun Country Airlines itself, a portco Apollo acquired in 2017 and took public in 2021 (at $36.38 per share, above its $24 asking price). 
• KKR sold Kito Crosby, an industrial manufacturer the PE firm bought in 2013 for $1 billion, to Columbus McKinnon, for $2.7 billion in an intended merger. Columbus McKinnon motion technology manufacturer and a portfolio company of CD&R, which will own a 40 percent stake in the combined entity post-transaction. 
• Thoma Bravo’s Sailpoint, a cybersecurity software firm, IPO'ed at $23 per share, or a $12.8 billion valuation. 
• PAI Partners sold Apleona, a provider of industrial facility management services, to Bain Capital for €4 billion ($4.2 billion).  
• EQT IPO'ed HBX Group, a travel software platform, on the Spanish stock exchange for €10.54 per share, below its €11.50 asking price. The implied market capitalization is about €2.7 billion.
• CVC Partners agreed to sell a 51 percent stake in Indian oncology hospital chain Healthcare Global Enterprises to KKR for ₹430 to ₹440 per share (between $4.95 and $5.06), or at an enterprise valuation of about ₹3,128 Cr (just under $360 million).

Meanwhile, portco M&A was in full swing:

• Ares-backed Resource Label Group, a provider of label and packaging solutions, bought competitor Imprimerie Ste-Julie in its 34th acquisition. Financial terms were not disclosed.
• Baker Tilly, a tax, advisory, and assurance firm backed by Hellman & Friedman and Valeas Capital, agreed to buy Connecticut-based CPA advisor CironeFriedberg for an unknown sum.

And there were some key people moves:

• Apax-backed tech consultancy Thoughtworks appointed Gene Reznik as chief strategy officer and global head of service lines, and Steven Yurisich as APAC regional managing director. Reznik joins from German data processing company Celonis and Yurisich from IT consultant Merkle Australia, respectively. Additionally, Ami Kaplan, a recently retired senior partner at Deloitte, and Michael Carajohn, a principal on Apax’s tech team, joined Thoughtworks' board of directors.
• CD&R hired Peter Crawford, former CFO of Charles Schwab, as an operating advisor for its financial services portfolio.

Hot Take

Alarm bells. LPs require private equity firms to enlist third-party auditors when they report their portfolio valuations. However, even with a seemingly independent third party involved, there has long been industry criticism that valuations are inflated and valuation methods are not transparent. 

These concerns have been cropping up a lot lately with the rise of private equity purchases of those third-party auditors. Experts predict that one-third of the US’s largest accounting firms will likely be PE-backed in the near future.

For example, President Biden’s outgoing SEC chief accountant Paul Munter preached skepticism of private equity accounting deals at the end of 2024, stating, “You’re talking about a capital provider who’s not grounded in a public interest mentality as the CPA profession is,” and arguing that PE-backed firms should be closely monitored “so that you don’t end up in a situation where you’ve had a significant culture shift away from a public interest mindset and focus on audit quality.”

Meanwhile, the UK’s audit watchdog recently increased the potential risks it believes private equity poses to the industry from “moderate” to “high” and the ethics committee of the American Institute of Certified Public Accountants (AICPA) is looking to revise its independence rules to incorporate the realities of private equity ownership in the industry.

Always the skeptic. I can’t say with data-backed certainty that these concerns are based in fact. But I can say that in my experience, LPs are right to question the system, and should likely do so more. 

I recall a conversation I had with one of my sources last year, a C-suite level executive whose decade-plus of experience in private markets spanned both large-cap and boutique GPs.

“It's a sham,” they said. “This is kind of like the financial crisis; I'll use the analogy of Moody's and S&P, for example. They were paid by the underwriters, the banks, in order to value mortgage-backed securities. If they didn't give them a good rating, the banks wouldn't pay and they’d go somewhere else. Well, in the world of private equity, we have NAVs.”

Can we fix the broken system overnight? Absolutely not. But staying skeptical of valuations – and PE deals in the accounting space – is step one to creating a healthier PE playing field.

More from Privitas

• PE Ownership and Bankruptcy Link Strengthens in Healthcare, Retail for 2024 (Read)
• Leonard Green’s Twice-Bankrupt JOANN: A Cautionary Tale? (Read)
• Are All of 2024’s Bad Assets in Continuation Funds? (Read)
• Mega Fund Exit Trends 2025 (Read) 
• Small Exits Outperformed Large Ones in 2024 (Read)

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