Danny

Daily Insights

Isabel O'Brien

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 

Can Warburg Pincus Make Its $1B VIP Play Another Triple Threat?

The relationship between private equity ownership and the likelihood of bankruptcy for a company has been the source of intrigue for many years. In many ways, the relationship was misunderstood in the era succeeding the Global Financial Crisis, with critics pointing to pre-GFC practices (and data) as evidence for private equity companies’ ill intentions with their portcos. 

The affinity PE companies have for debt still stands, of course, but nowhere near its pre-GFC levels. This has led to a reversal in the pre-GFC trend, where private equity-owned companies were 10 times more likely than their non-private equity-owned counterparts to go bankrupt. Nowadays, even though private equity makes up between 15 to 20 percent of total corporate equity in the United States, it only accounted for 11 percent of total bankruptcies in 2024. 

On the surface, that’s good news. But on a sector-by-sector basis, this clean-cut narrative doesn’t always hold. 


Healthcare and retail in the hole

Healthcare and retail continue to be sectors plagued by bankruptcy – and in these sectors, private equity ownership seems to make companies’ odds worse.

According to research from the Private Equity Stakeholder Project, 21 percent of healthcare bankruptcies in 2024 were PE-backed companies, and the same could be said for just under 25 percent of consumer bankruptcies. This is despite private equity only owning 4 percent of the US healthcare market. A similar figure was not available for the consumer sector, but it is worth noting that private equity investment in the sector was at an all-time low in 2024.

For both sectors, the reason behind the high likelihood of bankruptcies is debt. However, each sector obtained outsized debt for different reasons.

In healthcare’s case, large, unserviceable debts were likely incurred during the investment surge the industry saw from PE firms back in 2021. During this period, multiples paid for assets were high – perhaps too high.

“Maybe those multiples were higher than they should have been. Maybe those companies weren't really worth that extra turn to two turns of leverage,” said Brian Lohan, the head of law firm Clifford Chance’s US restructuring and insolvency practice. “Now it's all coming home to roost.”

Meanwhile, on retail’s end, debt was mostly incurred during the same period to keep companies afloat amidst pandemic uncertainty.

“Retail took on leverage in 2020-22. They probably took on more leverage, not necessarily based on multiples, but based on lower interest costs. I'm guessing a lot of those leases are also resetting and the cost structure is increasing,” Lohan explained.


Playing with scale

Across all sectors, not just healthcare and retail, large PE deals were associated with a larger risk of bankruptcy. According to PESP, 56 percent of bankruptcies involving liabilities exceeding $500 million at the time of filing were private equity-backed companies. 

This could be due to the fact that companies with juiced-up valuations took on more debt, which became unserviceable due to its sheer size. It could also be due to the fact that there are structural differences in the way that large private equity firms and midmarket private equity firms manage their assets.

According to Lohan, midmarket firms are more likely to settle refinancing issues out of court given the high price tag associated with filing for bankruptcy. For larger firms, this is more difficult to pull off.

“There will be times when Chapter 11 makes a whole lot of sense, especially if there are operational burdens or burdensome contracts or other things to deal with. In larger companies, it's harder to just hand the keys to lenders outside of bankruptcy,” he explained.


Cutting out

Another time when bankruptcy just makes more sense for a private equity company (of any size) is when the asset is highly regulated – such as with healthcare assets.

“For healthcare systems, you almost need bankruptcy to help solve the problem. Out of court, it'd be nearly impossible to be able to sequence and manage the various regulatory approvals and other types of things that would go along with dispositions of those healthcare systems absent having a bankruptcy court overseeing everything, pushing along deals, and bringing people to the table, including regulators,” said Lohan.

But why is retail experiencing more bankruptcies? According to Lohan, it may just be because investors want to cash out.

“From a sponsor perspective, it's not like we're in 2021 or 2020, when it was like, ‘Let's put a little more money in and see what happens when the world comes back and stabilizes.’ They've realized the landscape has changed and that regressing to 2019 is not coming and, if anything, it's getting worse with cost. So I think at that point it's just like if we cut our losses on retail and if we can turn it over, great,” he said.

In other words, instead of settling refinancing out of court through liquidation, PE sponsors are just happy to pass on bad assets to lenders, clearing them from their balance sheet. 

For all of these reasons, Lohan argues that bankruptcy cannot be the sole measure of how poorly a private equity company runs companies – or indeed, how entire sectors are potentially negatively impacted by private equity ownership.

“The more realistic metric is how many refinancings occur. How many companies are basically being run for option value for the private equity firm that could hand the keys over to lenders at any given time,” Lohan explained.

Information such as this, however, is hard to find – as such, it's hard to know just how “bad” or “good” private equity might be for sectors outside of retail and healthcare.

Consumer

PE Ownership and Bankruptcy Link Strengthens in Healthcare, Retail for 2024

Happy Tuesday! 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

Deal of the centuries. A common private equity deal? A software company established in the early oughts. Less common? An industrials firm established during the last century.

Unheard of? A private equity deal for a 340-year-old Japanese pharmaceutical company. But there’s a first time for everything.

Last week, Bain Capital placed its $3.3 billion bid for Tanabe Pharma, the pharmaceutical business of Mitsubishi Chemical Group that was founded in Osaka in 1678. If approved, the take-private would constitute the largest private equity deal ever in Japanese healthcare.

Regime change. Why Japanese pharma, and why now? Japan is notoriously slow to approve new drugs due to archaic rules such as requiring testing on Japanese citizens. As a result, far fewer drugs are available to Japanese citizens when compared to those in other developed countries. However, the Japanese Ministry of Health, Labor, and Welfare is looking to ease these rules for specific drugs. 

And it looks like the firm is trying to be a first mover, recently expanding into cancer drugs, central nervous system medications, and immuno-inflammation drugs. 

Pharm to table. Tenabe is not Bain’s first APAC pharma play. Bain bought a stake in Emcure, an Indian pharmaceutical company, from Blackstone in 2013 for just over $82 million. The PE firm only recently exited the asset, with Emcure staging a highly successful initial public offering in July of last year. Seeking to raise $234 million, Emcure raised $11.2 billion in bids, or 68x higher than the amount on offer.

How did Bain get it there? Much like Tanabe, the process for Emcure focused on local markets, with Emcure spinning out its American presence (Heritage Pharmaceuticals, now Avet Pharmaceuticals) in 2022. 

Unlike Tenabe, though, Emcure was a relatively young and nimble company, established in 1981. And more importantly, the asset wasn’t carved out from a larger corporation.

When it comes to Tenabe, however, this is not the case. Most carve-out deals have issues replacing core operational teams like human resources and compliance. Given that Mitsubishi Chemical is centuries old, those elements of Tanabe’s business are probably well-entrenched. This will be one major hurdle for Bain to overcome when spinning out the business. 

Bain did not respond to request for comment.


Portco News

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

 * Multinational manufacturing company Jabil bought Pharmaceuticals International, Inc. (PII), a pharmaceutical contract development and manufacturing organization backed by a consortium of investors including Athyrium Capital Management and Hildred Capital Partners, in an all-cash transaction. Financial details were not disclosed.
 * Warburg Pincus sold its majority stake in Kestra Holdings, a platform for wealth management professionals with $117 billion in assets under management, to Stone Point Capital for an undisclosed amount. Oak Hill Capital will retain its minority stake.
 * Providence Equity Partners sold Tempo Music – the owner of a catalog of rights to songs by top-name artists including Wiz Khalifa, Adele, and Bruno Mars – to Warner Music Group (owned by Warner Bros) at a $450 million valuation.

There were also a number of exits-to-be:

 * News broke that IVC Evidensia, Europe’s largest veterinary group backed by EQT and Silver Lake, is considering an IPO on the London stock exchange. The firm was last valued at over €12.3 billion ($12.7 billion) in 2021.
 * Also rumored to IPO was SailPoint, a cybersecurity firm owned by Thoma Bravo. The firm would be seeking to raise $1.05 billion, or a $11.5 billion total enterprise valuation.
 * News also leaked that GTCR has been looking to offload Ultimus, an independent fund administration provider, at a valuation of $2 billion.
 * Similarly, Aquiline Capital Partners looked into exiting Hedgeserv, another administrative service provider for funds, at a valuation of $1 billion.
 * Also, Ontario Teachers Pension Plan looked into the possibility of selling Miratech, a legal and compliance software company. The pension fund has enlisted Lazard to launch the sale process, which it hopes will garner a valuation of $4 billion inclusive of debt.

Meanwhile, portco M&A was in full swing:

 * TA Associates bought and merged FGE and NexantECA, two energy and chemical consultancies. Financial terms of the transaction were not disclosed. 
 * Encora, a digital services provider backed by Advent International and Warburg Pincus, acquired the business capabilities portfolio of its competitor DMI for an undisclosed sum.
 * Audax-backed RIA CW Advisors bought Aspire Wealth Management and Fernwood Investment Management, two wealth management firms based in Massachusetts. The deals added $800 million in client assets to CW’s platform.
 * Paradox, an AI-based conversation platform backed by Thoma Bravo, acquired Eqtble, a human resources analytics platform, for an unknown sum.
 * KKR-backed Cotiviti, a healthcare data company, closed in on a deal to buy competitor Edifecs at a $3.05 billion valuation. 

And there were some key people moves:

 * Former US Senator Joe Manchin joined Apollo as an advisor and was appointed to the board of directors of Athene, a retirement services business that merged with Apollo in 2022.
 * Summit Partners promoted Sergio Mur to partner in the firm’s “Peak Performance Group”, where his job will entail the recruitment of senior executives for portfolio companies.  


Hot Take

Lessons unlearned. The silver lining of the “higher for longer” interest rate environment was supposed to be that private equity dealmakers would ween off their dependency on debt. For a while, that was true – debt-to-equity ratios for leveraged buyouts were at historic lows, with 2023 and 2024 seeing an average of 51 percent and 48 percent equity infusions in PE-backed deals.

Despite 2024 being a banner year, Q4 showed warning signs of this reversal.

According to Pitchbook’s recent US LBO Debt Quarterly Trend Lines Report, the percentage of equity on deals for that period was 47 percent for take-privates (still relatively high) and 42 percent for other PE-backed deals (shockingly low – closer to figures seen before 2022’s rate hikes). 

And, for the first time, more-risky private credit loans are taking the front seat in financing LBOs. Indeed, according to S&P Global, private credit funds financed 77 percent of leveraged buyouts in 2024 (and 83 percent of buyouts between January 1 and January 22 of this year) – a record-setting figure.

Stunted value creation. You can’t have a leveraged buyout without leverage – so why raise the alarm bells? Going beyond the typical bankruptcy risk argument, there’s also a significant restriction to value creation when portcos are saddled with debt, even if it's debt they’re able to repay. Money spent on interest payments could easily be used for R&D for new products, roll-up acquisitions, or talent amelioration.

And furthermore, with dry powder levels still at record highs, it’s not only a bad look to load portcos up with debt and minimize your firm’s skin in the game, but also an ill-advised move. Better to put cash to work than have it sitting while interest payments build at portfolio companies. 


More from Privitas

 * 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)
 * Portco CFOs Key to Successful Roll-Up Strategies (Read)

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

Newsletter

Bain’s $3.3B Tanabe Carve-Out Rewrites Rules for Japanese Pharma

2025 got off to a rough start for crafts retailer JOANN, with the company filing for Chapter 11 bankruptcy for the second time in under 12 months this January.

Michael Prendergast, JOANN’s interim CEO, blamed the second bankruptcy on the “significant and lasting challenges” that have plagued the retail industry over the past several years, coupled with JOANN’s precarious financial position and “constrained” levels of inventory. 

This time around, store closures and inventory auctions are expected for the firm. But that wasn’t the case just 9 months prior when JOANN first filed for Chapter 11 bankruptcy. Then, the retailer claimed there would be no disruption to stores or supplier agreements. 

The company also struck an agreement with lenders to provide $132 million of new financing in exchange for a court-supervised financial restructuring to reduce its $1.1 billion in debt by $505 million. It simultaneously delisted from the New York Stock Exchange, with private equity backer Leonard Green forfeiting its stake.


2011 to 2020: Indebted

It was a bitter end for an asset Leonard Green held for 13 years. The firm first acquired JOANN in a 2011 take-private transaction with an enterprise valuation of $1.6 billion, or $61 per share.

Given that analysts at the time were placing target prices on JOANN stock at around $53 per share, it was a lofty premium to pay – 34 percent over unaffected closing price and a 17.4x multiple on forward earnings. 

This was likely where the debt issues began. The massive leveraged buyout was financed by JPMorgan Chase, Bank of America, and TCW/Crescent Mezzanine. 

For 10 years, JOANN operated as a private company. Over this period, Leonard Green saw it through a rebrand in 2018 – changing its name from “Jo-Ann Fabrics” to JOANN in order to appeal to a broader crafting consumer base – as well as turnover in the company’s c-suite. Over the course of Leonard Green’s ownership, the company saw four CEOs: Travis Smith, Jim Kerr, Jill Soltau, and Wade Miquelon. Soltau was the only external hire for the job.

As all of this was going on, the debt problem kept building. By 2019, JOANN was named a “Tier 2” company on Fitch’s “Loans of Concern” list, which catalogues companies with significant bankruptcy risk. The following year, 2020, Moody’s gave it a C-rating, indicating high default risk.


2021: Mastering the Craft

The pandemic was catastrophic for many retail companies, as people were forced to stay home during lockdown. But for JOANN, it was an opportunity – crafts and DIY projects became all the rage as people searched for something to do.

JOANN experienced a fast influx of new customers. These customers were younger and more affluent, as their spending showed. JOANN claimed it made $174 million in net income, with a total revenue of $1.92 billion, in the first three quarters of 2020 – a massive increase from the period the year prior, when the firm operated at a loss of $188 million with $1.55 billion in revenue.

Riding these tailwinds, Leonard Green launched an initial public offering for JOANN in early 2021 while staying on as majority shareholder. The IPO underperformed by about 30 percent, raising $131 million (as opposed to the targeted $186 million). Proceeds were used to pay off its debts, which had reached $794 million by the end of January 2021.

Many assumed that the explosive income growth it had experienced via these new customers would stick, allowing the company to pay down its sky-high debt. 

Of course, it didn’t. 


2022 to 2023: Cutting Losses

JOANN went on to face a rapid retreat in demand. Fading pandemic tailwinds in 2022 and 2023 coincided with a surge in inflation, higher interest rates, and increased operating costs due to supply chain modifications the firm made in the wake of Chinese tariffs. 

As such, the company went back into the red, reporting a $200.6 million loss on net sales of $2.2 billion for fiscal year 2023. 

And, of course, debt ballooned once more. By the end of January 2023, the company owed $990 million. By the time it filed for bankruptcy in March 2024, that number was $1.1 billion.

After a brief reprieve in 2021, JOANN again found itself on rating agencies’ at-risk lists for 2022 and 2023, though this time in top slots. 

By 2023, Wade Miquelon – the CEO that Leonard Green itself installed – had stepped down. Soon after, the firm underwent layoffs in an attempt to restructure. But it was too little, too late. 


2024 to Now: Over Consumer

By March 2024, JOANN had finally filed for bankruptcy, and Leonard Green gave up ownership of the asset in an attempt to restructure. It didn’t work – last month, another Chapter 11 bankruptcy filing was made on behalf of the retailer.

It’s unclear if Leonard Green took a loss at all on the asset, as the firm did not respond to requests for comment on this piece. What is known is that the vehicle that bought JOANN in 2011, Green Equity Partners V, made an 18.5 percent internal rate of return overall – nothing to scoff at, but below the 28 percent return that Leonard Green was able to garner from funds prior. 

In all likelihood, though, Leonard Green likely made a loss on JOANN. According to a document from the Rhode Island Office of the General Treasurer, Leonard Green capped its initial equity investment for each portfolio company at 10 percent of the fund’s overall value, which was $5.3 billion. As such, it is unlikely that Leonard Green spent more than $530 million in equity when acquiring the asset. 

The firm pulled $5 million a year from the company in management fees until 2021 (when the fee charged was just $1.3 million for one quarter, as the firm listed itself in Q2). As of October 2020, just prior to the IPO, Leonard Green had only taken out $800,000 in debt of its own accord for the asset. 

So, did JOANN’s demise serve as a cautionary tale? Likely not. Leonard Green continues to be active in the retail space, albeit with mixed results. For every tale of bankruptcy like JOANN and Sports Authority, there’s a story like SRS Distribution – one of the largest private equity exits of 2024, pulled off by Leonard Green (and Berkshire Partners) in the retail space, for $18.25 billion.

Case Study

Leonard Green’s Twice-Bankrupt JOANN: A Cautionary Tale?

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

Blare the sirens. Bain Capital has offered to take Surgery Partners private for $25.75 per share, a 21.2 percent premium over its January 27th closing price. The firm already owns a 39 percent stake in the ambulatory surgery operator.

The overall valuation implied by the bid for Surgery Partners is $3.2 billion – though experts say that may not be enough for Bain to stick the landing. 

But perhaps Bain’s history in the ambulatory sector will give it an edge over other interested bidders, a group which reportedly includes UnitedHealth Group and TPG.

Up in the air. Bain acquired Air Medical, the then-largest US provider of emergency air medical services, in 2010 at a valuation of $1 billion. The PE firm exited the company five years later in a transaction with KKR valuing Air Medical at $2 billion, or a 10x EBITDA multiple. 

Bain relied on financial engineering to make a profit. Air Medical was highly leveraged, with Bain taking out a $200 million unsecured loan in 2013 to pay out dividends to shareholders. Air Medical also added on REACH Air ambulance service in 2012, incurring $250 million in debt in the process. 

Another avenue for growth was raised prices – between 2008 and 2017, the cost of emergency air-based medical care nearly tripled, according to a study by the Health Care Cost Institute. 

With interest rates high and cuts unlikely in 2025, the latter growth method would be a more feasible option for Surgery Partners… However, increased scrutiny of medical care prices may throw a wrench in that, too. 

A source close to the deal claimed that “Bain Capital continues to believe Surgery Partners has significant value, and this offer only affirms its conviction in the company’s growth potential.”

Bain Capital declined to comment.


Portco News

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

 * CVC agreed to sell its stake in OANDA, a digital multi-asset trading platform, to FTMO, a corporate training firm, for an unknown sum.
 * CVC sold its majority stake in Hellenic Healthcare Group to PureHealth in a transaction valued at €2.2 billion ($2.26 billion).
 * One Equity Partners sold WW Williams, a diesel engine parts provider and servicer, to Thomas H. Lee Partners for an undisclosed amount.
 * New Mountain Capital bought Amerit Fleet Solutions, a fleet maintenance and repair business, from Brightstar Capital Partners for an unknown sum.
 * Permira offloaded a 12-percent minority stake in luxury fashion brand Golden Goose to Blue Pool Capital. Financial terms were not disclosed.
 * Bain Capital acquired Frontline Road Safety, an American pavement marking services provider, from The Sterling Group for an unknown sum.
 * Monomoy Capital Partners sold Astro Shapes, a manufacturer of aluminum extrusions, to Wynnchurch Capital for an undisclosed amount.

Meanwhile, portco M&A was in full swing:

 * Thoma Bravo’s Sophos, a cybersecurity firm, acquired competitor SecureWorks at a valuation of $859 million.
 * Partners Group’s International Schools Partnership, a coalition of international schools founded by the firm in 2013, acquired its tenth school in the Middle East, the Doha, Qatar-based Durham School for Girls, for an undisclosed sum.
 * Canada Cartage, a trucking firm owned by Mubadala, bought Walmart’s Canadian fleet business for an unknown amount.
 * Thoma Bravo-backed Cority, a provider of environmental, health, and safety software, acquired Meddbase, a provider of occupational health software. Financial terms were not disclosed.
 * Charlesbank Capital Partners’ cybersecurity asset Searchlight Cyber made its first add-on with its A$100 million ($61.8 million) Assetnote deal. Assetnote is an Australian attack surface management provider.
 * Arax, a wealth management firm owned by RedBird Capital, acquired Cedrus Financial, a Colorado-based registered investment advisor with over $1 billion in assets under administration. 

And there were some key people moves:

 * Nordic Capital promoted Henrik Sandreus and Martin Jacobsson, members of the firm’s operating advisory team, to operating partners. 
 * Investcorp hired a new global head of private equity, Daniel Lopez-Cruz, replacing Dave Tayeh, who is leaving the firm to start his own venture. Lopez-Cruz was previously a senior member of Investcorp’s European PE business for 18 years, but he left in 2023 to found Mulhacen Limited, an investment advisory firm. 
 * CVC shook up its US private equity team, moving the previous head of North American PE, Chris Stadler, to a new position as the chair of North America and a member of CVC’s investment committee. Stadler will be replaced by Lorne Somerville and Cathrin Petty, the former London-based heads of CVC’s strategic opportunities advisory strategy and European healthcare strategy, respectively,

And finally, there was one high-profile investor lawsuit. An investor alleged that the $1.7 billion take-private that Zuora, a subscription billing software company, struck with Silver Lake in October 2024 undervalued the firm in order to provide better personal terms for its founder, Tien Tzuo. Those terms included keeping him on as CEO and rolling over most of his equity post-deal – supposedly at the cost of deflating the sale price.


Hot Take

Bated breath. We were all waiting to see how serious President Trump was about a potential trade war. The answer? Very.

While he postponed Mexican tariffs, a 25 percent levy on Canadian goods and a 10 percent tax on Chinese imports will take place starting Tuesday. The EU and the UK are reportedly next.

A taxing affair. Almost no segment of the economy will be unimpacted by the President’s actions – especially not private equity.

Most PE firms, if they’re invested in the United States, likely have exposure in Europe and Canada, too. EU companies represent 55 percent of total investment in the United States, according to the Center for Strategic and International Studies. 

And the subsectors that have been hottest in PE will be the first to feel the pain of tariffs given their highly globalized supply chains. Technology, energy, and pharmaceuticals – all of these subsectors had high PE deal volume in 2024.  

All of this will likely bring downward pressure on valuations. And given how precarious the liquidity situation is now for the entire ecosystem, that spells very, very bad news for the industry.


More from Privitas

 * 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)
 * Portco CFOs Key to Successful Roll-Up Strategies (Read)
 * Technology: Value Creation 2024 (Read)

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

Dissecting Bain’s $3.2B Surgery Partners Bid

2024 saw a slight improvement in private equity exits – especially for larger deals. According to our Intelligence Report: Mega Fund Exit Trends 2025, there was a 14 percent increase in exits of PE-backed companies with enterprise values over $1 billion from 2023 to 2024. 

However, PE firms are still making record use of non-exit liquidity events to return capital to LPs for assets that can’t find a traditional suitor.

Secondaries saw a steep rise in popularity, with the asset class raising a record-breaking $91 billion, according to Preqin. According to Victoria Chernykh, an assistant vice president of research insights at Preqin, this included a rise in continuation vehicles. 

“Continuation funds happen to develop now because a challenge in exits remains, in spite of some signs of improvement during 2024, and a consistent revival of the exit environment still remains to be seen,” explained Chernykh.

She continued: “GPs like continuation funds because if they have difficulty exiting, they'd rather continue to manage their investee company until they find a satisfactory exit route and price, stay invested till then and they'll give this latter opportunity to an investor. And investors equally want them to continue to allocate assets rather than taking a small profit and then reallocate their capital.”

It’s tempting to assume that all assets that couldn’t be exited and had to be rolled into a secondaries vehicle weren’t “exitable” in the traditional sense due to underperformance in value creation. However, according to Chernykh, that’s not the case.

“I wouldn't say [exits in 2024] were [only] the best-performing companies. I think these were the ones that could negotiate the price satisfactory for their managers,” she said.

Nevertheless, plenty of GPs did use continuation funds to hide their less-than-stellar assets. And, according to Chernykh, exactly which companies those are may soon be brought to light.

“GPs, they want to have that possibility to stay within the continuation funds,” she explained. “But you cannot continue like this forever. Sometimes you need to report the profit or take the hit.”

And the cracks may already be starting to show. According to our Mega Funds Exit Trends 2025 report, assets that were held the longest – a period of, on average, six years – were more likely to be sold in a sponsor-to-sponsor transaction and at a lower valuation multiple than their peers.

“We saw a lot of mega fund exits in 2024 that weren’t wild success stories,” says Cooper Smith, managing director of Privitas. “PE firms typically like to see the enterprise value of portfolio companies double over the holding period. However, out of the 143 $1B+ exits last year, 51 companies reported less than double growth to their enterprise value over the holding period, with six companies actually reporting a decline.” 

The report is the fourth research report from Privitas, a business intelligence firm for private equity operations, using its proprietary platform. Subscribers can read the full report here. Future reports will tackle portfolio company benchmarks using our proprietary Portco IQ index, as well as sector-specific and cross-industry trends.

Are All of 2024’s Bad Assets in Continuation Funds?

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

Kantar’s carve-out. HIG Capital announced its intentions to carve out Kantar Media, a media measurement and analytics platform, from its parent company Kantar Group, a global provider of marketing data and analytics.

Kantar Media’s purchase price has been set at $1 billion, to be paid primarily in cash, with additional non-cash considerations including separation-related investments from HIG Capital as well as a potential earn-out.

Around the world. HIG’s previous forays into the European media space tended to hinge on international expansion for their value-creation strategies. 

Take, for example, Brand Addition, a London-based marketing firm that HIG carved out from 4imprint in 2011 at an enterprise valuation of £24 million ($30 million) and sold in 2017 to Elysian Capital for under £50 million. Brand Addition was able to achieve this growth by opening new offices in Turkey, Russia, and China, as well as acquiring the US-based Gateway CDI. 

Similarly, The Engine Group, a global media consultancy acquired by HIG in 2010 for £62.5 million and sold to Lake Capital in 2014 for just over £100 million, also used HIG’s capital injection to fund international expansion, namely into the US and China. 

Kan’t stop. Kantar Media, however, already has a broad global presence, operating in over 60 markets with a swath of offices across the US, Europe, and Latin America, as well as offices in South Africa and southeast Asia. 

There are some noticeable gaps. Kantar Media sold its North American advertising intelligence unit (dubbed Vivvex) in 2023, meaning HIG could build that business arm back out. Additionally, Kantar Media doesn’t have offices in China, the world’s second-largest advertising market with double-digit growth projected through 2030. 

As such, Kantar Media noted international expansion plans in the press release announcing the acquisition by HIG. “This transaction would give us the resources and support to further accelerate our growth trajectory and strengthen our position as the global leader in media measurement and analytics,” stated the firm’s CEO Patrick Béhar.

Chris Jansen, the CEO of the seller, Kantar Group, corroborated this, stating: “We set up Kantar Media to be operationally independent in 2023, to allow it to consolidate its global leadership position in audience measurement. Today's proposed partnership announcement with H.I.G. Capital positions Kantar Media to continue its investments in technological and geographical leadership.”

HIG Capital 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:

 * PS Alliance and Pearl Investment sold their collective 49 percent stake in Star Vision, a Korean manufacturer of colored contact lenses, to CVC. The deal values the company at ₩600 billion ($420 million). 
 * KKR-backed healthcare provider BrightSpring sold its behavioral health business to Sevita, a provider of home-based specialty care, for $835 million. 

Meanwhile, portco M&A was in full swing:

 * Caseware, a cloud-enabled auditor backed by Hg Capital, acquired Extractly.ai, an AI-based data processing solutions provider, for an unknown sum. This is Caseware’s ninth acquisition since Hg bought a majority stake in the firm in 2020.
 * Clearlake Capital’s PrimeSource Brands, a provider of specialized building products, bought KeyLink, an aluminum rail systems manufacturer, for an undisclosed amount. This is the firm’s eighth acquisition since Clearlake bought a majority stake in the firm in 2020.
 * Bluematrix, a financial services research publisher owned by Thoma Bravo, announced the acquisition of Street Context, an email intelligence and analytics platform, for an unknown sum.
 * Canadian insurance broker Navacord Corp, backed by Madison Dearborn, announced plans to merge with Citistar Financial, a life insurance managing general agent. The unified brand will be called Waypoint and will manage over $1 billion in assets.
 * Apax-backed Fibonacci Group, a consumer finance SaaS provider, bought consumer credit software platform Quid Group from Equinox Investments for an unknown sum. The deal doubles Fibonacci’s size to over 1,500 employees and €210 million ($220 million) in revenues.
 * Fresche Solutions, a software company backed by APG, acquired OmniData Insights, an AI-enabled data analytics platform, for an undisclosed amount.
 * Thoma Bravo announced plans to acquire and merge OPEXUS and Casepoint to create a data management platform for the public sector. Financial terms are unknown; what is known is that existing shareholders in both companies will retain minority ownership stakes. 
 * Aptean, an enterprise software company backed by TA Associates, Insight Partners, Charlesbank Capital Partners, and Clearlake Capital, entered into a definitive agreement to take Logility, a provider of supply chain management software, private. The firm will pay $14.30 per share in cash, a 28.4 percent premium to the 30-day volume-weighted average share price as of 23 January, implying a total valuation of about $480 million.

And there were some key people moves:

 * Bain Capital’s customer service specialist VXI Global Solutions appointed Ryan Collins as Chief Operating Officer. Collins previously served as the COO of Conduent, a government payments contractor.
 * Azalea Investment Management, the private equity firm owned by Singaporean state investment firm Temasek, announced that its CEO Margaret Lui will step down from her role at the end of Q1 and be superceded by current CIO Chue En Yaw.
 * Quest Software, backed by Clearlake Capital since 2022, hired Tim Page as its next chief executive, replacing Patrick Nichols, who held the role from 2020 to September of last year and still serves as a board advisor. Page’s most recent position was that of acting CEO at CloudSoda. 
 * PharmaCord, a patient services company for the pharmaceuticals industry owned by Permira, appointed Robert Truckenmiller as CEO. Prior to PharmaCord, Truckenmiller served as the head of US vaccines at global biopharma company GSK. He replaces Nitin Shaney, PharmaCord’s founder and CEO who will continue to sit on the firm’s board.


Hot Take

All about popular. Few industries are as unpopular in America right now as the healthcare industry – according to a Gallup poll from August 2024, 51 percent of Americans have a negative view of the healthcare sector, while 61 percent had a negative opinion of the pharmaceutical sector. 

Add to that the fact that 56 percent of Americans (as of 2022) believe that banks and financial institutions have a negative impact on the country, and we have a recipe for disaster brewing for a major portion of PE portfolio companies.

Taking the pulse. Managers who think the heat might be dialed down with a friendlier administration in place need a reality check. Sure, Trump had a litany of business leaders behind him (quite literally) at his inauguration, amongst them hedge fund founders and financiers alike. But he has openly embraced an anti-establishment health agenda spearheaded by Robert F. Kennedy Jr. that emphasizes the culpability of business interests in denigrating Americans’ health.

Furthermore, there’s no guarantee that the FTC will veer off its current anti-PE path. In fact, the outgoing director of the FTC’s Bureau of Competition, Henry Liu, claimed that anti-merger enforcement has strong bipartisan support which will continue into the incoming administration. He’s not alone in this line of thinking – last week, we covered how Trump’s incoming FTC chair shared similar views to Biden’s Lina Khan when it came to the alleged anticompetitive behavior exhibited by WCA&S in a recent settlement. 

Not to mention, a large amount of the legal threats to PE-backed healthcare and pharma will come from the states. From blue states (New York, Connecticut, Massachusetts) to red states (Indiana), legislation limiting PE-backed healthcare is proliferating. 

All of this is to say: investors might want to get more creative with their value creation strategies in the space – roll ups likely won’t be a viable option in the near future.


More from Privitas

 * Mega Fund Exit Trends 2025 (Read)
 * 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)

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

Business Services

Will HIG’s Old Playbook Work with $1B Kantar Media Carve-Out?

Cooper Smith

Key Findings

Sponsor-to-Sponsor Exits Continue to Dominate: Sponsor-to-sponsor (S2S) exits represented 68 percent of all PE-backed exits with an enterprise value equal to or greater than $1 billion in 2024, tripling in volume over the past two years.

Technology Leads Exit Activity: Technology companies comprised 31 percent of PE-backed exits of companies with enterprise values over $1 billion in 2024, making it the dominant sector, followed by industrials (16 percent) and healthcare (13 percent).

Market Expansion as the Top Value Creation Driver: Market expansion strategies were responsible for 51 percent of exits exceeding $1 billion in 2024, outpacing M&A (15 percent) and performance improvement (12 percent).

North America Remains the Hub for Mega Exits: The US accounted for over 50 percent of PE-backed exits of companies with enterprise values over $1 billion in 2024, cementing its position as the epicenter of private equity activity.




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Intelligence Report

Mega Fund Exit Trends 2025

Happy Tuesday – we hope everyone had a restful 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

Full access. New Mountain Capital agreed to buy Access Healthcare, a Dallas, Texas-based revenue cycle management company for the healthcare sector, at a valuation of $2 billion. According to a press release, the funds will be used to “[advance] its capabilities in artificial intelligence, workflow automation, product development, and expanding into new markets.”

Uphill battle. This isn’t New Mountain’s first foray into the RCM sector. Last August the manager lost a bid to take its portfolio company, R1 RCM, private after having a falling out with co-owner Towerbrook Capital, which was ultimately victorious in acquiring full control of the asset.

New Mountain’s tenure at R1 RCM was a tough one. The company’s stock price plummeted in 2022 after the firm was accused of securities fraud and reported lower-than-expected profits. The following years saw multiple scandals continue to rock the company, from a $45 million fine for breach of fiduciary duty to a massive data breach to accusations of revenue manipulation. 

Do-over? Perhaps New Mountain is looking to do things differently with Access Healthcare. After all, the revenue cycle management space is still red-hot, with relatively low penetration making scale more feasible. 

New Mountain Capital did not provide comment upon request. 


Portco News

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

 * Hg solidified its plans to sell Trackunit to Goldman Sachs’ private equity arm at a valuation over $1 billion, with Hg considering retaining a minority stake. GS initially sold the firm to Hg in 2021 after acquiring it alongside GRO Capital in 2015. Trackunit is a Danish provider of connective software and telematics for the construction industry.
 * News broke that TDR Capital is looking to IPO EG Group, a British firm that operates a line of gas stations. Despite its UK roots, the firm will IPO in the US under the name Cumberland Farms, a chain of convenience stores the company bought in 2019, seeking a valuation of $13 billion.

Meanwhile, portco M&A was in full swing:

 * Bain Capital’s plans to sell the television audience ratings unit of its portico Kantar Group were made public. The buyer, HIG Capital, is said to be ready to spend $1 billion, though Bain was hoping for $1.2 billion. 
 * Data quality and analytics platform Qlik bought Upsolver, a technology-building platform intended for software developers, for an undisclosed amount. Qlik is owned by Thoma Bravo. 
 * Thoma Bravo’s Flexera acquired The Spot from NetApp. The Spot is a financial operations software that will complement Flexera’s core service of IT asset management SaaS. Financial terms were not disclosed.
 * insightsoftware, a company owned by Hg and TA Associates that focuses on CFO-level software solutions,  bought JustPerform, an enterprise performance management platform, for an unknown amount. 
 * Online ticket broker Dice sold its live music events series, Boiler Room, to Superstruct, a music festival operator owned by KKR and CVC, for an undisclosed amount. 
 * Capitol Imaging, a radiology group owned by Clearview Capital, aquired seven regional outpatient centers along the coast of the Gulf of Mexico, making 48 total centers under the firm’s ownership, up from just 20 five years ago. The deal, done with DRH & Associates, was for an undisclosed amount. 

And there were some key people moves:

 * Sparkling beverage manufacturer Spindrift, freshly acquired by Gryphon Investors at a reported valuation of $650 million, brought on a new CEO, Dave Burwick, who most recently served as the head of Boston Beer. Burwick replaces founder and current CEO Bill Creelman, who will stay on at the company as its chairman of the board.
 * KKR appointed Sir Jeremy Darroch to serve as an executive advisor to the firm’s European telecoms business. Darroch previously served as the CEO and executive chairman of Sky for 15 years.
 * Manulife Investment Management hired Ryan Hanna, former co-head of the global client group at GCM Grosvenor, to serve as the global COO for private markets.
 * Bain-backed ExtraHop, a cloud-focused cybersecurity firm, brought on Rob Greer as its next CEO. Greer joins from Broadcom where he served as general manager of the firm’s enterprise security division. Current chief executive Greg Clark will transition to a new role as the executive chair of the board at ExtraHop.


Hot Take

End of an era. Roll-ups can be nuanced, intricate strategies with real benefits for portfolio companies when designed correctly. Sadly, what we’ve seen is that more often than not, add-on acquisitions act as a lazy maneuver on sponsors’ ends to grab more market share.

I don’t doubt that the motivation behind this is not sinister in nature — I think PE firms genuinely have a desire to enact quick portco expansion without getting into the weeds of organic growth. However, this structural need for speed embedded into the closed-fund system has put the US consumer at an inherent disadvantage — quick portfolio company growth has come at the sake of fair competition.

PE firms don’t go to market with monopolies in mind. They do, however, always go to market with a strategy that prioritizes market dominance and optimized profits. The fact that the Federal Trade Commission has come knocking should come as a surprise to no one.

Bipartisan backlash. Given that a right-leaning Texas judge dismissed the case in May, it’s easy to try and blame the FTC’s actions on an overzealous, left-leaning administration headed by the “anti-business” Lina Khan. No matter what your feelings are on her, the reality of the situation is that as America takes a populist swing, the new Republican administration is poised to take a critical view of private equity roll-ups, too — especially those that result in raised prices or curb free speech.

“That Welsh Carson is a private equity firm is irrelevant; the antitrust analysis would be the same if Welsh Carson were, for example, an individual or institutional investor… Welsh Carson made acquisitions. As alleged in the complaint, those acquisitions demonstrably created monopoly power and Welsh Carson wielded that power to raise prices. That is exactly what Section 7 prohibits anyone from doing,” Andrew Ferguson, Khan’s Trump-appointed replacement, wrote of the WCA&S ordeal.

Scott-free. Given the evidence that Texans overpaid for healthcare services by tens of millions of dollars due to the portco’s raised prices, WCA&S got off relatively easy. The firm won’t have to pay any monetary penalties — rather, it just has to agree to freeze its investment at USAP at current levels and reduce its board representation at the firm to a single, non chair seat. WCA&S will also need to obtain approval from the FTC if it wishes to make investments in anesthesiology in the future. 

With scrutiny of private equity ownership of healthcare assets at an all-time high, the next target of the FTC might not be so lucky. To protect themselves against the federal government’s wrath, perhaps it’d do PE firms some good to take the high road. M&A can offer quick market share, but it comes at the cost of competition. Organic growth is more risky and better for American consumers in the long run. 


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

Was New Mountain’s $2B Access Healthcare Deal Worth the Wait?

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

Can Blackstone Continue Citrin Cooperman’s Explosive Growth?

2024 was a bad year for big deals. According to Preqin’s Q3 2024 Private Equity Quarterly Update, despite the number of exits increasing from 550 to 570 year-over-year, the aggregate value of those exits was stagnant, making for smaller exits overall during the period.

“In terms of exits, it's been slow in both 2023 and 2024,” said Victoria Chernykh, an assistant vice president of research insights at Preqin and lead analyst on the report. “Deal makers and GPs are more eager to sell and be satisfied with the price offered by the market in the current environment on the smaller end. So in 2024, we haven't really seen many large exits.”

Not only were there very few large exits, but those that managed to make it to market didn’t exactly pull off the kind of numbers that they needed to. As we explored in our Sponsor-to-Sponsor Exits 2024 report, sponsor-to-sponsor exits were most common amongst exits of companies worth over $100 million in enterprise value and were associated with underperforming assets. 

According to Preqin, these types of transactions constituted the second-most common exit type for the quarter overall, including exits of companies worth under $100 million in enterprise value, increasing from 197 to 205 year-over-year. Sales to strategic acquirers – a strategy Privitas has found to be top-performing in its research – were the most common for the entire population of exits, up 11 percent year-over-year. 

“During 2024, smaller exits were more successful than larger ones, which makes perfect sense. In a persistent higher interest rate environment, smaller exits are easier to execute because of their lower entry point,” explained Chernykh. 

She continued: “Interest rates are high, which limits the value-added creation potential for larger companies and deals because they rely on multiple expansion when interest rates go down. At the smaller end of the market, value can be created anytime regarding what the rates are, although when the rates are higher it's always more challenging.”

However, as interest rates change, this too is due to change. Indeed, at the tail end of 2024, inklings of this became apparent in the market. 

“In 2024 exits also picked up a bit, particularly in the second and third quarters,” explained Chernykh. “Interest rates are going down which is going to help PE players of all sizes, but particularly those larger ones… cuts might help to bring back more large exits from [Q3 2024] on.”

This is a key reason why industry leaders across Wall Street – especially those in private equity – believe mega deals will make a comeback in 2025 as the second Trump administration takes power, according to reporting from Reuters.

Small Exits Outperformed Large Ones in 2024

Happy New Year! 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 happened over the 2024-25 holiday season:


Done Deal

A wrap on 2024. When it comes to memorable years for private markets, 2024 is one for the books. Interest rates seemed to be the influencing factor in nearly all key trends. For example, fewer exits (and fewer deals in general) occurred due to the rise in borrowing costs. This also contributed to smaller deal sizes – the deals that did go through were only those that could afford to have minimal debt financing. 

In fact, megadeals were nearly obsolete this year, with only a few exceptions. 

Another PE staple that waned in popularity was the old method of value creation. Before 2022, most firms played a scale game, financially engineering profits by loading assets up with debt. However, high rates made this nearly impossible. As such, firms have had to rely on their operational “secret sauce” to create alpha. 

As interest rates have gone down, however, we haven’t seen a quick return to the old way of doing things. In fact, operations have retained their importance in the PE value-creation process. Whether or not that sticks in the coming years remains to be seen. 


Portco News

Was 2024 a rough year for exits… until the very end? It’s debatable. The last weeks of December and the first of January were jam-packed with last-minute sales:

 * BC Partners sold Synthon, an international pharmaceutical company, to Goldman Sachs Alternatives’s private equity business for €2 billion ($2.06 billion). BC Partners bought the firm at an EV of €750 million in 2019 and will retain a 25 percent stake post-sale.
 * Madison Dearborn, HPS Investment Partners, and a subsidiary of the Abu Dhabia Investment Authority diluted their stakes in the Ardonagh Group to sell a stake in the company to Stone Point Capital. The deal values the insurance firm at $14 billion. 
 * KKR and Hg diluted their stakes in the Citation Group for Harbourvest to take a minority stake. Financial terms of the deal were not disclosed, but the capital injection will be used to help the compliance tech provider expand into international markets. 
 * Partners Group-backed Vishal Mega Mart, an Indian low cost convenience store chain, IPO’ed on the National Stock Exchange of India and the Bombay Stock Exchange at just under $1 billion. 
 * CD&R sold a majority stake in greeting card maker American Greetings to Elliot Investment Management. CD&R will retain a significant minority stake. Financial terms of the deal were not disclosed, but in August it was reported that CD&R was seeking $1.5 billion for the asset.
 * TDR Capital finalized plans to exit for its Norwegian ferry operator Hurtigruten. The asset is being restructured as it faces a mounting €1.4 billion in debt. The process will force TDR to cede its stake to Hurtigruten’s creditors, which includes Arini Capital Management, AlbaCore Capital, and Barings, at a €300 million loss. 
 * Nordic Capital sold a minority stake in its portco Regnology, a regtech solutions provider, to Canada Pension Plan Investment Board for $690 million.  
 * TPG also brought on a minority investors for its asset Veeam, a data protection software provider for cloud services. New investors include Temasek and Neuberger Berman. The secondary offering totaled at $2 billion and valued the company at $15 billion. 
 * MidEuropa, a midmarket PE player focused on central and eastern Europe, sold its portco Profi, a Romanian chain of grocery stores, to multinational retail and wholesale company Ahold Delhaize for €1.3 billion. The deal is the largest private equity deal in Romania to date.

Meanwhile, portco M&A was in full swing:

 * WHP Global, a brand management firm backed by Oaktree Capital, Ares, Solus, and BlackRock, bought designer brand Vera Wang for an undisclosed sum. 
 * Innova Capital-backed STX Next, an IT services provider, merged with BrainHub, a Polish software development firm.
 * GTCR’s wealth management asset Captrust acquired both Campbell Wealth Management and TruNorth Wealth Partners, adding $2 billion in assets under management. 
 * Sila Services, Goldman Sach Alternatives’ HVAC services provider that manages multiple regional HVAC brands in the US, bought John Nugent & Sons, a provider in the Northern Virginia area, for an unspecified amount.  
 * Summit Partners’ Later, a social media-focused marketing solutions provider, bought Mavely, an influencer marketing platform, for $250 million.

And here are some key people moves:

 * Alexander Fraser, the head of the US at Temasek’s 65 Equity Partners left the firm, which is currently searching for his replacement. Fraser formerly served as co-head of tech at Bridgepoint. 
 * CVC Capital made plans to install Richard Flint, the former chief executive of Sky Betting and Gaming, as the chairman of the board of directors of its new portco, Hargreaves Lansdown, replacing Alison Platt, who has only held the position since October 2023.  
 * Contrary to the headlines, Kim Kardashian has not fully stepped away from the private equity firm she co-founded in 2022 with ex-Carlyle dealmaker Jay Sammons, SKYY. While formerly serving as a managing partner, she has transitioned into the role of a senior operating advisor. Her mother, Kris Jenner, has left the firm, though, stepping down from her role as a senior advisor. 


Hot Take

Crystal ball. We don’t have perfect clarity into what the next year will bring the industry, but here are some key predictions from the Privitas team:

 1. Exitability will remain key: The exit drought of 2024 will lessen greatly in the coming year, and we’re not the first to predict that. However, the pain felt from the backlog created over these past two years will not be soon forgotten. GPs will have to start paying more attention to exitability when making investment decisions – and indeed, large buyout shops including Brookfield have already begun the process of formally integrating this into their acquisition processes. 
    
 2. AI hype will turn into modest implementation: artificial intelligence will definitely have an impact on the value PE firms are able to create on a portfolio level. However, the hype about its short to medium term applicability will die down greatly, which will in turn decrease pressure on portco operations executives to integrate new software into every step of their company’s day-to-day operations. One major reason behind this is that 2025 will highlight the major challenges that stand in the way of widespread AI adoption, the most important being power. 
    
 3. The impact of a new SEC chair will be vast – and unknowable: Trump’s SEC pick Paul Atkins will be friendly towards private markets in 2025 if he’s confirmed. However, it’s his friendliness towards cryptocurrency that will have the biggest impact on PE. As PE players look to retail investors as the next frontier in fundraising, the ability of those in capital formation to create tokenized products that are registered with the SEC and easily tradeable will open up an immense amount of capital. A capital influx could bring more megadeals, higher valuations, and more favorable exit terms for PE firms. 

Those are just some of our 2025 predictions, and only time will tell if they come true. One thing we know to be certain, however, is that Privitas looks forward to covering these topics and more in the new year.


More from Privitas

 * 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)
 * Portco IQ: Technology 2024 (Read)

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

Happy New Year From Privitas!

Our Technology: Value Creation 2024 report showed that while a majority of sampled tech exits from Q1 through Q3 of this year implemented an M&A-based growth strategy, there were mixed results when it came to financial performance. 

In fact, M&A is a common strategy across all PE-backed sectors – and predictability is a challenge. 

"Recently, the realization that ‘roll-up strategies’ have failed or struggled to reach expected valuations when they come to market,” explained Christian Davis, an associate partner at JMAN Group, a Baird Capital-backed data consultancy focused on private equity portfolio companies’ value creation strategies. "[This is] because inconsistent data assets highlight a lack of integration and an inability to determine a clear equity story." 

According to Davis, this doesn’t mean that M&A is a non-viable option for portco-level growth moving forward – but it does mean that a lot more attention needs to be paid to due diligence and valuations. This is especially true given that macroeconomic conditions have created an ecosystem where high competition for assets have artificially inflated valuations.

"Investor expectations on the granularity and fidelity of information to pursue deals are equally as high [as competition for assets is],” he explained. “The previous expectation of what may have been considered reasonable information at the time to make an investment decision is no longer acceptable. CFOs and investment committees are not signing off on investments that don't have high-quality financial and commercial information to support how, why, and where organizations have grown."

According to Davis, a key pitfall he sees companies fall into is a lack of alignment between data teams and the CFO. “The CFO should be the number one consumer of [financial] data as these insights are the most important to ensuring long-term sustainable growth,” he said. 

One reason behind this is that CFOs should be using financial data to determine which add-on deals will be successful. Another reason is that CFOs are typically the main communicators on a portfolio company’s performance to its private equity sponsors. 

“Ultimately, [CFOs] are the core interface on the portfolio company's performance to the private equity firm,” he explained, adding that PE firms that have less operational capacity tend to place more responsibility in that realm on portco leadership.

“Increasingly, particularly in the lower-middle market, investors are looking to CFOs to take a more strategic view of the business,” Davis explained, adding that this includes key data collection and interpretation responsibilities. “However, the scale and complexity of data and the leadership and strategic role that CFOs play in the lower/middle market exerts significant strain.”

Davis concluded that to better equip portco-level CFOs, sponsors should look to invest in sophisticated technology solutions. 

“Nothing is resonating as much as it is as investing in data and technology to support the CFO function,” he said. “We’re just seeing a huge wave of interest and intrigue and capital spent on opportunities and risks associated with AI.”

Portco CFOs Key to Successful Roll-Up Strategies

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

Calculated. CVC Capital Partners is tendering an offer to take CompuGroup, a German healthcare software firm, private. 

The firm is ready to pay €22 per share, or €1.18 billion ($1.2 billion) total for the company, at a 51.1% premium over the three month volume-weighted average stock price and a 33.5% premium over the December 6th closing price.

Systematic. It isn’t CVC’s first foray into healthcare IT – the firm invested in System C, a British healthcare software provider, in 2021. 

Since then, M&A has been the main strategy for growth for the company, with CVC leading add-ons for the firm including Clevermed, a maternity records software provider, and Oxford Computer Consultants, a financial contracts software solutions provider for the public sector, in 2023, CIS Oncology in 2024, and WellSky International in 2021. 

The pursuit of endless cloud growth, though, poses significant risks. Privitas’s August article, “Does PE Ownership Bear Some Blame for the Healthcare Cyberattack Crisis?”, outlined how the practice of piling healthcare data onto cloud-based servers has increased cyberattacks in the industry. System C, to its credit, has not faced any public cybersecurity attacks while being awarded for high financial performance, though financial details have not been disclosed.

Whether or not CVC will be able to replicate growth alongside secure servers at CompuGroup remains to be seen.

CVC and CompuGroup did not respond to requests for comment.

Portco News

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

 * Insurance broker AssuredPartners, owned by GTCR and Apax Partners, is due to be acquired by Arthur J. Gallagher & Co. for $12 billion. 
 * Bain Capital’s Kioxia, a Japanese chip manufacturer, set plans to IPO this week at a valuation of $5.2 billion. 
 * ServiceTitan, a home services software provider owned by Iconiq and Bessemer Venture Partners, IPO'ed last week at a valuation of $10 billion, garnering $1 billion in returns for Iconiq and $800 million for Bessemer.  
 * Nippon Life bought Resolution Life from Blackstone for $8.2 billion (at a valuation of $10.6 billion). 
 * CIC Partners sold McClancy Foods to NovaTaste. Financial terms of the transaction were not disclosed.
 * The Carlyle Group sold its portfolio company 1E, a corporate IT services software provider, to TeamViewer at an enterprise value of $720 million. 
 * Cinven’s Nitel, an enterprise network connectivity service provider, was sold to Comcast Business for an undisclosed amount.

Meanwhile, portco M&A was in full swing:

 * Apollo-backed Novolex, an America packaging company, bought Pactiv Evergreen, a food packaging business, for $3.22 billion. The deal was valued overall at $6.7 billion including debt.
 * PrimeSource Brands, a residential branded products business owned by Clearlake, bought Harney Hardware, a door and bathroom hardware manufacturer and distributor, for an undisclosed amount. 
 * Calabrio, a workforce management platform owned by Thoma Bravo, acquired Echo AI, an AI company focused on customer service and interactions. Financial terms of the deal were not disclosed.
 * Another Thoma Bravo portco, EQS Group, an investment cloud software provider, acquired Daato, an ESG reporting platform, for an unknown sum.
 * And finally Raptor Technologies, a school safety solutions company also owned by – you guessed it – Thoma Bravo, bought edtech company Smartpass for an unknown amount.

And there were some key people moves:

 * Insurity, an insurance company software provider owned by GI Partners and TA Associates, promoted Sylvester Mathis from chief insurance officer to chief revenue officer. 
 * Capitol Meridian Partners appointed Curtis M. Uehlein as an operating executive. 

Hot Take

A legacy. David Bonderman, the legendary co-founder of TPG, died last week. He was 82 years old.

By all accounts, the private markets ecosystem he helped establish is slowly waning. Corporate buyouts have lost a lot of ground to alternative investment products like real assets and private credit. 

However, there is one aspect of his legacy that PE professionals should never forget: his legacy as an operator.

“This was a person that never took a finance class. Didn’t know accounting. And yet he brought that broad experience and problem-solving expertise to the problems of investing, and his ability to use the different experiences he had to solve problems really created his style,” Jim Coulter, Bonderman’s co-founder at TPG, told Bloomberg.

Next gen. Indeed, Bonderman didn’t start his career as an investor until his 40s. Before that, he had a decades-long career in law, serving as a litigator, a special assistant to the US Attorney General during the Johnson administration, and as a law professor at Tulane University. When he got into investing, his first position was that of chief operating officer.

Perhaps most importantly, Bonderman was a strong proponent of ESG, stemming from the conservationist work he did while practicing law.

“The investment community, especially pension funds in the U.S., and Canada, have become interested in environmental and political causes of the sustainable sort,” Bonderman told environmental news outlet Mongabay in 2020. “I think that people, including businesses, will pay attention to issues beyond carbon as they get more familiar with what’s going on.”

He concluded: “This is only the start of what’s going to be a generations-long battle in favor of keeping the environment stable.”

With his passing, Bonderman has indeed passed on this fight to the next generation of investors and operators. Let’s hope they take his words to heart.

More from Privitas

 * Technology: Value Creation 2024 (Read)
 * Could Unhappy Employees Be Good For Tech Exits? (Read)
 * Portco IQ: Technology 2024 (Read)
 * Top Tech Exits in 2024 Were to Strategic Acquirers (Read)
 * Exits Are Back, But Different (Read)

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

Checking the Pulse on CVC’s $1.2B CompuGroup Medical Bid

According to our Portco IQ Index, 53% of technology portfolio companies exited between Q1-Q3 2024 used M&A as their predominant strategy for growth and value creation. The outcomes of these exits, however, were varied.

Privitas’ analysis found that 40% of these companies achieved a “Grade A” exit, meaning they were top performers across financial performance, operational efficiency, market positioning, and talent and governance. Meanwhile, 20% achieved a “Grade B” (moderate performers) and another 40% a “Grade C” (underperformers).

On average, surveyed companies using M&A as a value creation strategy exited at a 3.4x enterprise value expansion – the second highest performing result, behind companies who chose market expansion, which garnered a 3.5x EV expansion on average. 

And market expansion more consistently delivered returns – according to our report, 100% of companies who chose this strategy for value creation achieved a “Grade A” exit. So why was it the least-used strategy alongside restructuring?

The answer could lie in the fact that PE firms see M&A as a means to market expansion. 

“If you're a private equity professional and you want to grow a business, [M&A] is perceived as the easiest to execute approach to get into a new geography, a new product area,” explained Kevin Lehpamer, a partner at law firm Clifford Chance. A large portion of his work focuses on private equity-backed M&A. 

He added: “There's probably some perspective that most of the people running private equity funds are deal professionals. So they're very familiar with an execution strategy of doing add-on M&A. You acquire the portfolio company but you want to get into a new geography, product line, or expand the business. You can add on to the existing business in a way that they'll get and can action pretty easily [using M&A].”

And, according to Lehpamer, this has been a trend he has seen throughout his 20-year career. 

“M&A being the most common, that is not a blip…I think it's probably the most actionable,” he said. "Other strategies may be perceived to take a little bit more time to develop and play out.”

What might be a blip, however, is how strong M&A has been recently. According to Lehpamer, this is due to higher interest rates.

“If you look at the last decade of private equity, you've seen a lot of roll-up, add-on acquisitions,” he noted. “We've been in a higher interest rate environment and it's harder for funds to raise debt financing. It can be easier to build over time with a series of add on acquisitions where you don't necessarily need large debt financing. If you look at the last few years you will have had more add-ons than if you were to look at the data from, let's say, a dozen or more years ago.”

He added the caveat that M&A tends to be less common in subsectors where there are regulatory barriers to mergers or permitting. However, tech is not one of those industries – indeed, most aren’t.

Cooper Smith, managing director of Privitas and the author of the report, anticipates that this will likely be reflected in the findings of future reports: “40% of PE exits across all sectors in our Portco IQ Index pursued an M&A strategy in 2024. We’re excited to share in future reports how value creation strategies differ by industry, geography, and company size.”

The report is the third research report from Privitas, a business intelligence firm for private equity operations, using its proprietary platform. Subscribers can read the full report here. Future reports will tackle portfolio company benchmarks using our proprietary Portco IQ index, as well as sector-specific and cross-industry trends.

M&A Is Risky, But Operating Partners Choose It Anyways

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

It’s textbook. General Atlantic is due to take Learning Technologies Group (LTG) private in a deal valued at £802.4 million (just over $1 billion). Shareholders will receive $1.27 per share, a 34% premium over its 26 September closing price. 

The deal aims to invest in LTG’s product innovation. The firm is a leading provider of corporate training programs and is looking to integrate AI into its solutions.

Learning curve. This isn’t General Atlantic’s first foray into edtech – the firm has a storied history in the sector. Quizlet, Unacademy, Fluency Academy, and Kahoot are all edtech companies currently in General Atlantic’s portfolio. 

The firm’s biggest claim to fame, though, in the edtech sector is Duolingo. The firm invested $10 million in the platform in April 2020 and upped its position in November of that year during a $35 million funding round that valued the company at $2.4 billion. General Atlantic then led the company’s successful IPO the following year, where it closed 36% above its initial asking price within its first day and was valued at $5 billion.

General Atlantic has slowly divested from Duolingo since 2022 and no longer lists it as a portfolio company on its website. 

While General Atlantic’s run was relatively short with Duolingo, it created a good amount of value – the company currently has a market capitalization of $16.21 billion and an enterprise valuation of $15.38 billion. 

Breaking (down) the streak. How did General Atlantic grow Duolingo so quickly? Much like General Atlantic’s plans for LTG, the value came through product innovation.

First, in early 2021 Duolingo professionalized its product by ending its volunteer contributor program. Then, in 2022 it redesigned its user interface and invested more in graphics by acquiring Detroit animation studio Gunner. 

Whether or not this playbook will be repeated with LTG remains to be seen. There is one aspect that may be more difficult to replicate: virality. The firm’s owl has become an internet icon for its absurdist humor, helping to popularize the app with Gen Z. 

Having a corporate learning company publicly shoot its shot at global popstars might not have the same impact. 

LTG and General Atlantic did not respond to requests for comment. 


Portco News

PE portcos saw some full and partial exits last week:

 * Frontenac sold Integris, an IT solutions provider, to OMERS Private Equity for an undisclosed amount.
 * Veriforce, a supply chain risk management platform, was traded from Thoma Bravo to Apax Partners. Financial terms were undisclosed.
 * Insight Partners offloaded some minority stakes in its data resilience portco, Veeam, to a variety of investors including TPG, Neuberger Berman, and Temasek. Insight Partners initially bought the company for $5 billion in 2020. The latest funding round has raised another $2 billion in capital for the firm and values it at $15 billion.

Meanwhile, portco M&A was in full swing:

 * Apollo and Oaktree’s ABC Technologies acquired TI Fluid Systems for $1.92 billion. Both firms are manufacturers in the automotive industry.
 * Astorg took Hamilton Thorne, a reproductive technology company, private in a deal valued at $282 million. It then immediately closed a deal to carve out and merge Cook Medical’s reproductive health business with the asset. The newly combined business will rebrand to ART MedTech in 2025.
 * GTCR’s wealth management portco AssetMark completed its acquisition of Morningstar Wealth’s TAMP (turnkey asset management program) assets. The firm is reportedly paying “upwards of $100 million” for the additional $12 billion in assets under administration. 
 * Advent International’s SYSPRO, a software company focused on the manufacturing and distribution sectors, agreed to pay £36 million ($46 million) to carve out NexSys, another software provider, from K3 Business Technology Group.
 * Eleda, a Swedish infrastructure services provider backed by Bain Capital, bought three companies from Vestum, a Swedish construction engineering company: landscaping firm Marbit and railway service providers Hanell Entreprenad and Flexirail.
 * Mubadala-backed Canada Cartage, a transportation and logistics provider, acquired Coastal Pacific Xpress (CPX), a refrigerated transportation solution provider, for an undisclosed sum.
 * Insurcomm, a disaster restoration construction firm owned by Summit Partners, bought Theraclean Restoration in order to expand its services beyond New England into the mid Atlantic region. 

And finally, there were a few people moves:

 * CD&R named Andy Callahan as an operating advisor. Callahan most recently served as the chief executive of Hostess Brands.
 * The Knot Worldwide, an online wedding registry company owned by Permira, appointed Raina Moskowitz as its next CEO and president. Moskowitz is coming from Etsy, where she was the COO and and CMO, to replace founder Tim Chi. 
 * Alteryx, an AI enterprise analytics platform owned by Clearlake and Insight Partners, appointed Andy MacMillan as its next CEO. MacMillan is currently the CEO of UserTesting. He will replace Mark Anderson, who left the firm in February to join Cloudflare as its president of revenue.
 * Apollo poached Hector Fernandez from Aristocrat Gaming to lead Diversified Gaming Solutions, the combined entity of IGT and Everi, which Apollo merged in July. 
 * Hillhouse Investment hired Tomohiro Kikuta as the head of its Japan operations. Kikuta joins from Bain Capital, where he was a partner on the APAC PE team.


Hot Take

Crazed fans. I will never understand the public aversion to foreign private equity ownership in sports. People will let foreign entities own everything from gas pipelines to digital infrastructure assets – things that are genuinely crucial to national security. But I don’t see those deals getting toppled like sports deals have.

There were two headlines that highlighted the absurdity of the situation to me: Ackerly Sports Group’s failed $75 million attempt to buy 20% of South African rugby team Springbok’s commercial rights, as well as Apollo’s grueling two year bid to buy Liga MX for $1.25 billion. I won’t even mention the NFL negotiations going on right now.

It should come as a surprise to no one that I am not a sports fan. Maybe that’s why I don’t understand the backlash. In private equity, not all capital is created equal… except when it comes to minority investments in sports leagues. I highly doubt that a 20% equity stake won’t result in an operational overhaul. 

But hey, there’s a lot about sports I don’t understand. I have no idea what the rules are to score a touchdown – and evidently, neither did ASG. 


More from Privitas

 * Technology: Value Creation 2024 (Read)
 * Could Unhappy Employees Be Good For Tech Exits? (Read)
 * Portco IQ: Technology 2024 (Read)
 * Top Tech Exits in 2024 Were to Strategic Acquirers (Read)
 * Exits Are Back, But Different (Read)

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

Will General Atlantic Duplicate Duolingo’s Success with $1B LTG Deal?

This 15-page report examines the value creation strategies of PE-backed technology companies that exited in 2024.

Technology: Value Creation 2024 Report

What's Included

 * Portfolio Operations Analysis: Detailed insights into the three most prominent value creation strategies—Mergers & Acquisitions (M&A), Product Innovation, and Market Expansion—employed by PE-backed technology companies, including their effectiveness, holding periods, and risks.
 * Performance Benchmarks: Key metrics such as enterprise value growth, exit grades, and holding periods, derived from the Portco IQ: Technology Index, offering a data-driven look at the outcomes of each strategy across $1B+ technology exits in 2024.
 * Actionable Insights for Operators: Practical recommendations tailored for PE operating partners and portfolio company executives, with case studies and operators' tips to enhance strategic execution and maximize exit outcomes.




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"report": "Technology Value Creation 2024.pdf",
"excerpt": "Technology Value Creation 2024 Excerpt.pdf"
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Published Research

Technology: Value Creation 2024

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

Sky-high for CI. Mubadala Capital, the asset management wing of the Abu Dhabi sovereign wealth fund, announced its intentions to take CI Financial, a Canadian wealth management and consulting firm, private for C$4.7 billion ($3.4 billion). 

At $32 (in cash) per share, the deal represents a 33% premium over CI Financial’s last closing price and a 58% premium over its 60-day volume-weighted average trading price. It values the firm at $8.7 billion.

One reason on CI Financial’s side for the acquisition was that Mubadala will buy it out of a restrictive financing deal it struck with Bain in 2023 to buy Corient Capital. 

Meanwhile, a spokesperson for Mubadala Capital stated that the firm chose to invest in CI Financial due to its “strong franchise built on providing the highest-quality investment products and advice.” 

The spokesperson added, “Bringing together our long-term approach and capital with CI’s strategy and talented team will give management greater ability to reinvest into the overall business and do even more for its clients and stakeholders.”

Hands off? When asked if Mubadala has major operational changes planned for CI Financial, the spokesperson said that “Mubadala Capital is fully aligned with the strategy and direction of the firm,” they explained. “Mubadala Capital’s long-term approach will create a stable, well-funded platform for CI to continue to grow, allowing management greater ability to reinvest into the overall business and strategy.”

When asked which former portfolio companies would influence Mubadala’s ownership of CI Financial, the spokesperson declined to comment. CI Financial will be Mubadala’s only investment in wealth management which is currently in its portfolio.

When it comes to growing other wealth advisory businesses, GTCR demonstrated with its portco CAPTRUST that M&A is key. However, with a cooling of the M&A market due to oversaturation, this may prove hard to pull off for CI Financial. Indeed, the firm hasn’t engaged in much M&A activity since 2021. 


Portco News

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

 * Permira sold the professional services business of British accounting firm Evelyn Partners to Apax for £700 million ($886 million).  
 * Insight Partners sold a portion of its majority equity stake in Tricentis, a software testing company, to GTCR for $1.33 billion (valuing the enterprise at $4.5 billion). The two firms will have equal board representation. 
 * Clearlake sold TEAM Tech, a healthcare supply chain services provider, to Arlington Capital Partners for an undisclosed amount.
 * Blackstone bought JJ Tools, a South Korean industrial cutting tools manufacturer, from domestic PE firm Kamur Private Equity. Financial terms of the deal were not disclosed.
 * Parcel2Go, an eCommerce shipping platform, was sold by its owner EQT to an undisclosed “new investor group.” 
 * TDR Capital exited its majority stake in Norwegian cruise line operator Hurtigruten to a consortium of investors led by Arini Capital Management, AlbaCore Capital, Barings, and Cyrus Capital Partners. The consortium will inject €500 million ($525 million) in new capital into the company while decreasing its debt by over €1 billion to approximately €400 million.
 * Equistone exited French sneaker retailer Groupe Courir to JD Sports Fashion for €520 million ($546 million).

Meanwhile, portco M&A was in full swing:

 * Thoma Bravo’s cloud cybersecurity asset N-able bought competitor Adlumin. 
 * Exclusive Networks, a cybersecurity company in the process of being acquired by CD&R and Permira, bought Cloudrise, a security services provider.  
 * SK AeroSafety, a Bridgepoint-backed British firm offering maintenance, repair, and overhaul services to aircraft, acquired John Cameron Aviation, an Australian engineering consultancy focused on the aviation industry. 
 * Blackstone’s Indian hospital chain, Quality Care India Ltd, plans to merge with competitor Aster DM Healthcare Ltd to create one of India’s largest hospital chains. The new entity will be valued at approximately $5 billion. 


Hot Take

Tin foil hat. Why all the interest in RIAs from private equity? Of course, there are steady, recurring cashflows, but industry growth is projected to stagnate. I can’t help but wonder if there's another reason driving private equity interest.

While private equity has snatched up more and more wealth management assets, wealth managers have, in turn, allocated more and more money to private equity. Since 2023, private wealth has doled out an additional $2 trillion in capital to private equity fundraises. Over the next six years, the growth in fundraising seen from this portion of investors is due to more than double the size of the global private equity industry to $12 trillion.

Could it be a coincidence? Sure. There are other reasons behind the rise in fundraising, such as the proliferation of evergreen vehicles. But it could also be a sign that PE-backed RIAs are more likely to recommend private equity funds to their clients – both funds from their own sponsors, as well as those from other firms.

Fund pushers? This isn’t just happening in theory – in 2022, private credit firm Kennedy Lewis pressured its portco Sanctuary Wealth to recommend its $28 billion private credit fund, KLCC BDC, to its clients. 

Could it happen in PE? There’s nothing stopping it. KKR’s Beacon Pointe Advisors’ policy states that recommending KKR funds to its clients is not off the table, while firms such as Mariner Wealth Advisors (Leonard Green & Partners), Captrust (GTCR and The Carlyle Group), Mercer Advisors (Altas Partners, Harvest Partners, Genstar Capital and Oak Hill Capital), Hightower (Thomas H. Lee Partners), and Waverly Advisors (HGGC) did not make any disclosures to the SEC about conflicts of interest related to recommending their sponsors’ funds.

Of course, there are many other reasons why wealthy individuals want to get in on PE – higher dividends, more diverse portfolios, the list goes on. It can’t all be about fundraising…

But also, maybe part of it is?


More from Privitas

 * Could Unhappy Employees Be Good For Tech Exits? (Read)
 * Portco IQ: Technology 2024 (Read)
 * Top Tech Exits in 2024 Were to Strategic Acquirers (Read)
 * Exits Are Back, But Different (Read)
 * Sponsor-to-Sponsor Exits 2024 (Read)

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

Mubadala Plans 'Long-Term Approach' for $8.7B CI Financial

Privitas published “Portco IQ Report: Technology 2024” on November 22nd, benchmarking a 15-firm sample of the largest PE-backed exits of technology companies worth over $1 billion during the first three quarters of this year.

According to Privitas’ Portco IQ Index, there were four firms in the sample that performed well enough to achieve a “Grade A”, meaning they were top performers across financial performance, operational efficiency, market positioning, and talent and governance: QGenda (Francisco Partners), Exosens (Groupe HLD), Recorded Future (Insight Partners), and AffiniPay (TA Associates). 

One unifying factor between these four firms is that they are all software companies. Another unifying factor? All four of them scored below the index average on employee satisfaction and executive experience.

On the surface, this may indicate that these sponsors pay less attention to human capital, thus highlighting a potential area of improvement for those firms’ value-creation strategies. Indeed, two of the four Grade A companies – QGenda and Recorded Future – remained founder-led throughout the holding period. 

There is also potential for an inverse correlation here, too. Firms that put immense pressure on human capital, hiring and firing people, may also see lower employee satisfaction scores but higher valuations, hence their “Grade A” distinction. Layoffs in the tech space have been positive for valuations in public markets, for example.

For at least one of the four Grade A companies, AffiniPay, employees complain of “frequent layoffs.” 

According to Glassdoor’s 2024 Workplace Trends report, in 2023, employers’ ratings dropped -4% on average in the 30 days after a layoff, with senior management approval and CEO approval faring the worst (falling -8% and -16 percentage points, respectively). Depressed morale was shown in employers’ ratings even 6 months after a layoff, with ratings for culture and work-life balance continuing to drop by another -3% and -4%, respectively, over the long term (other indicators plateaued after the first 30 days post-layoff). 

Cooper Smith, managing director at Privitas and the author of the report, noted the need for nuance in employee satisfaction at the portco level. “Conventional management theory says happy employees are good for business, and growing businesses lead to happier employees,” he said.

“However, this doesn’t appear to be the case in PE-backed companies where sudden or frequent SG&A [selling, general, and administrative expense] cuts can positively impact financial performance but negatively impact employee morale.”

The report is the second research report from Privitas, a business intelligence firm for private equity operations, using its proprietary platform (the first being our report on sponsor-to-sponsor exits). Subscribers can read the full report here. Future reports will tackle portfolio company benchmarks using our proprietary Portco IQ index, as well as sector-specific and cross-industry trends.

Could Unhappy Employees Be Good For Tech Exits?

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

Taken for Grant. The bidding war is over – after launching the process this summer, Cinven has emerged victorious, landing Grant Thornton UK at a valuation of £1.3 billion ($1.63 billion) – far below the £2 billion the firm was hoping for this summer and the revised £1.5 billion figure it floated last month. 

Cinven beat out competitors EQT, Permira, and Grant Thornton US (backed by New Mountain Capital), the latter of which merged with Grant Thornton Ireland last month and was hoping to do the same with its UK counterpart. 

Accounting for the past. Two recent assets Cinven has exited in the financial services sector are Guardian Financial Serves and Premium Credit.

For the former, Cinven bought the asset in 2011 from Aegon at a valuation of £275 million and sold it in 2015 to Admin Re at a valuation of £1.6 billion. The growth came via M&A, with Cinven leading three add-on acquisitions in the four years it owned the asset: Phoenix Group’s in-payment pension annuities and other pension annuities, as well as the life insurer Ark Life. Cinven also brought in new senior management to the firm.

A more recent exit for Cinven’s financial services strategy was its 2022 sale of Premium Credit to Towerbrook at a valuation reportedly over £600 million. It acquired the specialty finance provider from GTCR in 2015 at a valuation of £462 million.

Cinven’s value creation strategy at Premium Credit was mainly to focus on key customers and change leadership at the top. For example, one of the first actions the manager took was to replace Premium Credit's CEO. The firm actually did that twice – once in 2015 and a second time in 2019. Cinven also invested in new products and digital transformations for the company.

The chopping block. Human capital changes have already been put in place at Grant Thornton’s US counterpart, which alerted 1.5% of its workforce (150 employees) that they were to be laid off last week. New Mountain Capital bought Grant Thornton US in May of this year.

Whether or not Grant Thornton UK will implement workforce changes remains to be seen. Cinven partners Maxim Crewe and Rory Neeson commented in a press release that the firm was excited to work with Grant Thornton UK’s existing CEO and partners in its “next phase of growth”, which would be ushered in by a “significant opportunity to support the business in meeting the growing needs of clients, including through investing in technology-enablement, attracting and developing top industry talent and supporting the development of the Grant Thornton International Network.”

Cinven 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… Here are a few:

 * Vista Equity Partners sold stakes in its portfolio company LogicMonitor, an AI cybersecurity platform, for $800 million, valuing the firm at $2.4 billion (including debt). The buyers include PSG and Golub Capital.
 * Arlington Capital sold BlueHalo, a defense technology company, to AeroVironment for $4.1 billion.  
 * Advent International agreed to exit Manjushree Technopack, an Indian packaging firm, to PAG in a deal that values the company at nearly $1 billion.  

Meanwhile, portco M&A was in full swing:

 * Protective Industrial Products Inc., owned by Odyssey Investment Partners, bought Honeywell’s personal protective equipment business for $1.3 billion in cash. 
 * Talan, Towerbrook’s technology consulting group, added on ThinkMax Consulting, a Microsoft Dynamics 365 service provider. 
 * Harrington Process Solutions, one of Bain Capital’s portcos, acquired Fluid Gauge Company to expand its metal control solutions portfolio. 
 * Nordic Capital’s Regnology acquired VERMEG’s regulatory reporting division. Both companies are regulatory software providers.

And here are some key people moves:

 * CD&R appointed Bill Galvin as an operating advisor. Galvin’s most recent post was the chief executive officer of Anixter, a global electronics distributor. He will advise CD&R’s industrials team.
 * Permira replaced the CEO at its cloud cybersecurity portfolio company Sysdig. Suresh Vasudevan, who joined as CEO in 2018 (three years before Permira’s investment), is stepping down, to be replaced by William Welch, the former president and COO of Talldesk. 

There was one restructuring last week: snack maker Hearthside Food Solutions filed for Chapter 11 bankruptcy due to its crippling $1.9 billion in debt. The company makes popular food items like Lucky Charms and Cheetos and was embroiled in a child labor scandal last year after a New York Times investigation. The company has been owned by Partners Group and Charles Bank since 2018.

Speaking of PE food poisoning…


Hot Take

Meal deal? Investors getting into the restaurant business are going to be left with a bitter taste in their mouths.

And this is no shade to Blackstone or its $8 billion Jersey Mike’s Subs deal… I’ve never had their sandwiches, anyway. I don’t know their internal financials. And maybe Blackstone’s Ops team has the chops (or cutlets) to create real value there.

But, I was honestly shocked by the deal – I was under the impression that PE was getting out of chain dining. Bankruptcies are way up in the industry, according to Axios, and two high-profile recent examples – TGI Fridays Chapter 11 filing and Hooters' impending restructuring – are private equity-backed. TriArtisan Capital Advisors and Sentinel Capital Partners own TGI Fridays, while TriArtisan also owns Hooters (alongside Nord Bay Capital). 

Change your order. I was raised in the back kitchen of my mom’s cafe and spent the entirety of my teens bussing tables there, so I know a thing or two about restaurant operations. Heed my warning when I say they’re nearly impossible. 

First, the human capital element is incredibly challenging. According to the Substance Abuse and Mental Health Services Administration, the restaurant industry is the most at risk for employee illicit drug use in the US. This is one of many reasons why employee turnover is so high, at nearly 80% annually for 2023. For the rest of the private sector, that number was 17.3%.

Not only is human capital difficult to deal with, but financial margins are incredibly slim – and getting slimmer. Pre-Covid, margins per venue for franchises averaged at 20%. Now, they’re in the single digits – at least that's what Alix Partners’ Charlie Braley, a managing director in the firm's turnaround and restructuring services practice, told Axios. 

And given that the incoming administration’s tariffs are likely to raise prices for food and alcohol, let’s hope those margins stay even in the single digits. 


More from Privitas

 * Portco IQ: Technology 2024 (Read)
 * Top Tech Exits in 2024 Were to Strategic Acquirers (Read)
 * Exits Are Back, But Different (Read)
 * Sponsor-to-Sponsor Exits 2024 (Read)
 * The Unexpected Impact of Family Offices on PE Portco Operations (Read)

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

Cinven Settles $1.6B Account with Grant Thornton UK

The 2024 Portco IQ: Technology report benchmarks large PE-backed technology companies across four dimensions.

What's Included

 * Proprietary Scoring and Rankings: Graded ranking of 15 companies based on their performance, with in-depth profiles of leaders, underperformers, and insights into what helps or hurts successful exit outcomes.
 * Benchmarking Across Four Key Dimensions: A comprehensive analysis of recently-exited PE-backed technology portfolio companies, assessing their performance in financial growth, operational efficiency, market positioning, and talent and governance.
 * Detailed Value Creation Insights: Examination of the strategies that drove enterprise value growth, including M&A, product innovation, market expansion, and restructuring, with real-world examples from top-performing companies like QGenda and Exosens.




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"report": "Portco IQ Report Technology 2024.pdf",
"excerpt": "Portco IQ Report Technology 2024 Excerpt.pdf"
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Portco IQ: Technology 2024

Privitas will publish its “Portco IQ Report: Technology 2024” report on November 22nd, benchmarking technology companies with total enterprise valuations (TEVs) over $1 billion that private equity firms exited during the first three quarters of this year.

In Privitas’ 15-firm sample of such companies, four firms performed well enough to achieve a “Grade A”, meaning they were top performers across financial performance, operational efficiency, market positioning, and talent and governance: QGenda (Francisco Partners), Exosens (Groupe HLD), Recorded Future (Insight Partners), and AffiniPay (TA Associates). 

All four of these firms are software companies, half of them exited to a strategic acquirer (Exosens exited via an IPO in June and AffiniPay to another sponsor, Genstar, in July) – an interesting phenomenon, given that over 80% of Grade B and Grade C firms exited via a sponsor-to-sponsor transaction, implying both that high-performing firms have more exit options and that exits to strategic acquirers achieve higher TEVs at exit.

“There is a glut of PE-backed companies trying to exit at the moment, and the top performers financially and operationally are more favored by strategic acquirers,” explained Cooper Smith, managing director at Privitas and author of the report.

However, there could also be inverse causality here: perhaps those four firms were the highest performing for TEVs because of the exit route they chose.

“To increase the likelihood of exiting to a strategic acquirer or via a mutually beneficial sponsor-to-sponsor traction, operating partners and portco executives should focus on delivering meaningful value creation during the holding period,” Smith added. 

He stressed that this would be most important for exits to other sponsors: “Financial sponsors on the buying end of a sponsor-to-sponsor transaction will generally approach deal terms with more scrutiny than strategic acquirers.”

Indeed, this was something Smith found in Privitas’ inaugural report, "Sponsor-to-Sponsor Exits 2024", which analyzed a selection of PE-backed firms that were exited in Q1-Q3 2024 with TEVs over $100 million. Amongst other things, Privitas data showed that companies with lower enterprise value expansions across all asset classes were far more likely to follow a sponsor-to-sponsor exit path during this period.

Dubbed the “strategic premium,” large corporations have proven that they’re willing to pay large sums for companies they deem to be strategically necessary for their growth – and given that key market players assume that the number of strategic acquirers will increase by the end of the decade, this phenomenon will likely continue to dominate top exits seen in the PE market. 

The report is the second research report from Privitas, a business intelligence firm for private equity operations. Members will be able to read the full report tomorrow. Future reports will tackle portfolio company benchmarks using our proprietary Portco IQ index, as well as sector-specific and cross-industry trends.

Top Tech Exits in 2024 Were to Strategic Acquirers

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

One for the books. KKR announced its intentions to take Instructure private in July of this year. Last week, that deal finally became a reality.

The firm paid $23.60 per share in an all-cash transaction, valuing Instructure at $4.8 billion and delisting it from the New York Stock Exchange. Dragoneer has joined as a participating investor.  

Instructure owns Canvas, an online learning platform, and Mastery Connect, an online assessment platform. These two products are used in both universities, K-12 classrooms, and even professional education settings. It will complement KKR’s current assets in the edtech space, which include:

 * Teaching Strategies, an American early education-focused online teaching platform that KKR bought from Summit Partners in 2021.
 * Education Perfect, a New Zealand-based learning and analytics platform for grades K-12. KKR also bought its majority stake in 2021 in a deal valued at around $400 million.

A history lesson. One key asset that KKR has exited in the sector is Weld North, an edtech investment company that manages brands including Edgenuity, Generation Ready, and Imagine Learning. KKR established Weld North alongside Jonathan Grayer, former chairman and CEO of Kaplan, in 2010 and exited it in 2018, selling it to Silver Lake for an undisclosed sum.

Weld North’s growth came mainly through M&A (acquiring Education 2020, Learning House, Voxy, Imagine Learning, Truenorthlogic, and Performance Matters under KKR’s leadership) and by investing in expertise (hiring media and technology executives Jonathan Grayer, Richard Sarnoff, and Adam J. Klaber).

M&A is already a strategy that Instructure has implemented, acquiring Mastery Connect, Certica, EesySoft, and Parchment between 2019 and 2024. It has also created new products without M&A, launching Canvas Catalog and Canvas Studio (add-ons to its main product, Canvas) and Bridge during the 2010s. 

Instructure claims it is “committed to broadening its platform and delivering $1 billion in revenue by 2028” in a press release associated with the deal – however, it is uncertain just which value creation strategies KKR plans to implement to get it there. KKR declined to comment. 


Portco News

When it comes to PE portcos, there were some full and partial exits last week, as well as some exits-to-be… Here are a few:

 * Insight Partners, Blackstone, and Clearlake – the joint owners of Diligent, a US corporate governance software maker – are weighing a sale of the asset at $7 billion (including debt). LSEG and S&P Global have been named as potential strategic acquirers, though a sponsor-to-sponsor exit is also a possibility. 
 * Sedgwick, a claims management technology firm, closed a $1 billion minority stake sale to Atlas Partners. Currently, The Carlyle Group is the largest shareholder, with Stone Point, CDPQ, and Onex retaining stakes, too. 
 * Apollo Global Management’s gastroenterology practice management portco, GI Alliance, is selling a majority stake to Cardinal Health. The deal implies an enterprise value of $3.9 billion. 

Meanwhile, portco M&A was in full swing:

 * FourPoint Resources, owned by Quantum Capital and Kayne Anderson, has acquired Ovintiv’s Uinta basin oil assets for $2 billion cash. 
 * New Mountain Capital’s Citrin Cooperman, an accounting advisory firm, bought two competitors for undisclosed amounts: Clearview Group and Signature Analytics. These are the seventh and eighth add-ons for Citrin this year. 
 * CD&R-backed Cloudera is buying Octopai, an Israeli startup that uses AI to manage metadata. Financial terms of the deal were not disclosed. 
 * Orisha, a French software provider owned by TA Associates and Francisco Partners, will acquire Wolfpack DCS, a Dutch commerce technology company, for an undisclosed amount.
 * KKR’s Accountor Software, a payroll and HR outsourcing tool, will expand its Nordics presence via an acquisition of 24SevenOffice’s enterprise resource planning software unit. The sale implies an enterprise value of SEK 2.4 billion ($220 million).  


Hot Take

One-track mind. Last week I turned my radiator on for the first time this season… in mid-November. In New York City. It’s been a warm autumn. 

Between high temperatures and high-stakes headlines from COP 29, I’ve been thinking a lot about climate change and ESG. Throw in some interesting cabinet picks for the incoming administration… Well, let’s just say it's been hard to think of anything else.

Make no mistake – the anti-ESG movement has been gathering steam for years. However, the impending Trump administration would make now the perfect time for sponsors to walk back on their ESG commitments – but that doesn’t mean that they should.

The ESG disclosure rules the SEC has been trying to pass are likely dead on inauguration day, while the Department of Labor’s pro-ESG returns rule for pension funds faces a near-impossible battle to implementation. These structural shifts will not only make it easier for environmentally unfriendly investors to hide anti-ESG investments, but it will also create the perfect cop-out for managers who didn’t want to put the work in, anyways.  

More planet, please. We’re at a critical juncture when it comes to fighting climate change – the Paris goals have likely been missed, and we’re on track to reach 2.7 degrees Celsius (4.9 degrees Fahrenheit) warming by 2100. The private sector needs to step up – not only to fill in the massive funding gap – but also to decarbonize its own portfolio. 

Do you think you could cut your portcos’ emissions -42% by 2030? Because that’s what the entire economy needs to do to get on track to meet the Paris goals. 

Of course, asset managers are fiduciaries. They can’t forgo alpha for the sake of hitting a decarbonization goal that, in all likelihood, the rest of the economy won’t hit. But they also shouldn’t take advantage of this political moment to invest more in carbon-heavy industries – even if there will be short-term upside when it comes to returns. 

Abandoning ESG would be the easy thing to do right now, but not the right thing. Even if it's politically unpopular, it is key to a portfolio’s health and longevity (as well as your grandkids’). 

There are many value-creation tactics that are aligned with ESG that investors can continue to implement, even if they have to give them a new name. Efficiency isn’t political. Cleanliness is never controversial. Let’s not forget that over the next four years.


More from Privitas

 * Exits Are Back, But Different (Read)
 * Sponsor-to-Sponsor Exits 2024 (Read)
 * The Unexpected Impact of Family Offices on PE Portco Operations (Read)
 * Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated. (Read)
 * Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs (Read)

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

KKR’s Next Chapter in EdTech: the $4.8B Instructure Take-Private

Sponsor-to-sponsor exits now account for 68% of PE exit outcomes, up from 35% in 2023.

Exits Are Back, But Different

Privitas published its inaugural report, “Sponsor-to-Sponsor Exits 2024” on November 11th, examining major exit trends for the first three quarters of this year. 

According to Privitas data, sponsor-to-sponsor (S2S) exits have dominated the landscape this season, accounting for 68% of total exit outcomes for PE-backed companies with enterprise values over $100 million between Q1 and Q3 2024, up from 35% during the same period in 2023. The median enterprise value in the dataset was $550 million, showing how S2S exits have become a very common exit outcome for large PE-backed companies

The distinction in exit valuations is important – Matthew Wesley, global head of private capital advisory at Jefferies, told The Financial Times that secondary sale-style exits for the private equity sector overall in 2024 are likely just 14% of total exits, up from 4-5% in 2019 and 2020. 

There are a myriad of reasons behind the phenomenon. First, the enterprise values for companies exited to strategic acquirers are, on the whole, smaller than those exited via sponsor-to-sponsor transactions, according to Pitchbook data. Strategic acquirers are also focusing M&A on acquiring capabilities in specific areas such as AI as they choose to sit on cash rather than spend it. 

“With so many private equity transactions happening in any given year, it’s important to segment portco exits by size to really understand the trends in each part of the market,” said Cooper Smith, founder and managing director at Privitas and author of the report.

Additionally, a weakened IPO market has restricted exit options for large cap players. 

“If the IPO market was stronger, we would likely see more exits to public markets and fewer S2S exits,” Smith added.

The report is the first of many from Privitas, a business intelligence firm for private equity operations. Future reports will tackle portfolio company benchmarks using our proprietary Portco IQ index, as well as sector-specific and cross-industry trends. 

Members can read the full report here. The report breaks down S2S trends by sector, holding periods, enterprise value growth, and different value creation strategies.

What's Included

 * Record Surge in Sponsor-to-Sponsor Exits: Discover why sponsor-to-sponsor (S2S) exits have skyrocketed by 154% in 2024, now representing 68% of total exits for PE-backed companies – more than double last year’s rate.
 * Shorter Holding Periods, Faster Turnarounds: Learn why companies exiting through S2S deals have a shorter holding period than those going public or acquired by strategics, and how it impacts exit strategies.
 * Underperforming Assets in the Spotlight: Uncover why lower-growth companies are more likely to follow S2S exits, with enterprise value (EV) expansion lower than their IPO or strategic exit counterparts.




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"report": "Sponsor-to-Sponsor Exits 2024.pdf",
"excerpt": "Sponsor-to-Sponsor Exits 2024 Excerpt.pdf"
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Sponsor-to-Sponsor Exits 2024

What’s Included

 * Extended Strategic Planning Horizons: Explore how PE firms are adjusting to longer holding periods by extending strategic planning to 5-7 years, enabling deeper value creation and robust risk management strategies that align with market cycles.
 * Focus on Organic Growth and Cash Flow: Understand the increased emphasis on organic growth and strong cash flow generation in the current economic environment, and the operational efficiency measures that PE firms are adopting to support these goals.
 * Demand for Digital Transformation Leadership: Discover the growing need for executives who can drive digital initiatives, with an emphasis on talent acquisition, cultural transformation, and investment in cutting-edge technology across portfolio companies.
 * Integration of ESG in Investment Strategies: Learn how PE operators are incorporating Environmental, Social, and Governance (ESG) factors into their strategies to meet investor expectations, mitigate risks, and drive sustainable value creation.

Operating Trends 2024

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: The Nikkei index has been in decline over the past six months as investors grapple with rising interest rates in Japan. Historically low interest rates made Japan a private equity hotspot for many years with firms such as KKR, Carlyle, Bain Capital, and Blackstone all stationing dedicated funds or teams in the country. Private equity investors will have to learn to navigate a new interest rate regime in Japan. (Read More)


More Insights

 * The Unexpected Impact of Family Offices on PE Portco Operations (Read)
 * Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated. (Read)
 * Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs (Read)
 * Exits Are More Sensitive to Interest Rates Than Buyouts (Read)
 * History Shows Interest Rates Alone Have Marginal Impact on Buyout Activity (Read)


Spotlight

Complex computation. Bain Capital has struck a deal with Aquila Group to acquire an 80% stake in its data center subsidiary, AQ Compute. According to a press release, the investment volume of the deal will be multiple billions of euros.

AQ Compute operates data center portfolios across Europe, which Bain plans to expand to accommodate the AI boom and rising demand from ‘hyperscalers’ or large tech companies. 

While this is Bain’s first European data center deal, it is not its only data center deal. The firm acquired ChinData Group in 2018, a pan-Asian data center with locations in China, India, and Southeast Asia.

Bain’s primary value creation plan at ChinData has been to locate data centers in rising markets. It is expanding ChinData’s presence in Malaysia, for example – a country adjacent to Singapore, an economic hub whose data center capacity has basically been saturated and has only recently lifted a moratorium on new builds. 

It seems that AQ Compute’s value creation plan will also be location-specific but for a very different reason. Bain’s investment in AQ Compute is aiming “to develop and operate sustainable data centers for hyperscale and AI customers across Europe.”

To create truly sustainable data centers – which deep-pocketed customers have a high demand for – the makeup of the electricity grid in the area of operation is key. AQ Compute’s flagship sustainable data center is located in Oslo, Norway – a country that runs on 98% renewable energy due to its vast hydropower resources. 

Get real. Traditionally, data centers have been thought of as a real asset, with infrastructure funds and real estate funds dominating the private markets space. When it comes to Bain’s AQ Compute deal, this holds.

According to a source close to the deal, the capital for the transaction will be coming from Bain’s Special Situation Europe Fund. While this is not Bain’s Real Estate Fund, it is still a real assets-focused strategy with a non-distressed mandate. Special Situations is, according to Bain’s website, a “cross capital structured investment” strategy meant to be “complementary to private equity and credit portfolios.” 

However, according to this source, Bain considers data centers to have a private equity-style risk and return profile rather than infrastructure-style. 

Bain declined to comment on the transaction.

To PE, or not to PE? How traditional buyout funds have cashed in on the data center craze has varied widely between managers. 

Some engage from their infrastructure platforms – notably, Blackstone, KKR, EQT, CVC, Carlyle Macquarie, and Apollo. Warburg Pincus, TPG, and Blue Owl engage from their real estate platforms.

Others without robust real assets platforms have found new pockets of capital. While Bain uses its special situation fund, some managers are cool with considering data centers to be a part of their basic buyout strategies. Silver Lake, Advent International, and Permira are good examples.


Buyout News  

What else has been going on in buyouts?

First, the Buffalo Bills are reportedly in talks with Arctos Partners to sell a minority stake in the franchise. If the deal goes through, the Bills would be the second NFL team to announce its intentions to take on institutional capital following the NFL’s rule change in August, after the Miami Dolphins made its nearing sale with Ares public. 

Additionally, CVC has joined KKR to fund SuperStruct, a European music festival operator, in its expansion. KKR bought the company earlier this year for $1.4 billion.

And finally, Shore Capital and Silver Lake are in discussions to merge Southern Veterinary Partners and Mission Veterinary Partners – both currently owned by Shore. The merger would happen using a recapitalization from Silver Lake, securing $4 billion in new equity and an additional $3 billion in secured debt and preferred equity, making the overall deal worth $8.6 billion.

European Data Centers Have “PE-style Risk-Return” For Bain

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Carlyle’s portfolio operations team stands out for its extensive industry experience. On average, Carlyle’s operating executives bring 34 years of professional expertise, with 29 years specifically in industry roles. In contrast, a managing director at KKR Capstone typically has 21 years of experience, of which only three are industry-based. This highlights Carlyle's emphasis on deep industry tenure in its executives, whereas firms like KKR and Blackstone show more openness to hiring professionals with diverse backgrounds, including MBB consulting or private equity investment experience. (Read More)

More Insights

 * The Unexpected Impact of Family Offices on PE Portco Operations (Read)
 * Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated. (Read)
 * Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs (Read)
 * Exits Are More Sensitive to Interest Rates Than Buyouts (Read)
 * History Shows Interest Rates Alone Have Marginal Impact on Buyout Activity (Read)


Spotlight

EQT’s curriculum. EQT has formed a consortium with the Canada Pension Plan (CPP) Investment Board and Neuberger Berman’s private markets group to buy a majority stake in Nord Anglia, an international private school operator with schools in over 30 countries. 

The deal values Nord Anglia at $14.5 billion, with the total equity put forth by the consortium amounting to about $10 billion. It is possible that more investors join the consortium in the weeks to come. 

CPP is reinvesting a portion of its existing minority stake, while Neuberger Berman is a newcomer to the asset. EQT inherited the asset in 2022 after it spent $7.5 billion to acquire Barings’ Asian private equity unit. Barings initially invested in the asset in 2008, taking it public in 2014 and then took it private again in 2017 with CPP, valuing the business at $4.3 billion.

Nord Anglia is not EQT’s only exposure to education – the asset manager has a long history EQT has a long history in the sector, with existing assets including Codemao, EC Council, ILA Vietnam, VUS English Centers, Wall Street English, IMG Academy, and Universidad Europea (acquired earlier this year).

EQT has also exited multiple education assets: AcadeMedia, Long Spring Education Group, itslearning, and Touhula. 

The road to IPO. Of those four exited assets, half went public:

 * In 2016, AcadeMedia successfully IPO'd on the Nasdaq Stockholm. EQT divested the following year. 
 * In 2021, Long Spring became First High School Education (FHSE) group on the NYSE, with its shares closing 12% below its IPO of $10. 

According to former EQT partner Martin Mok, this was no coincidence, telling Finance Asia in 2018 that, “We [EQT] have experience in managing education-related firms and taking them public, which is the ultimate goal for [Long Spring].”

However, Long Spring’s IPO was disappointing, and the trend recently for private equity companies has been to take public education companies private – not the other way around. This, combined with a softened IPO market, may explain why EQT chose to double down on its private investment by creating a consortium rather than risk a less-than-stellar foray on to the stock market.

Lessons learned? Overall, the education sector shows a great deal of promise for growth. Morgan Stanley estimates that the global education sector will grow to $8 trillion in market cap by 2030, up from 2022’s $6 trillion.

This is one element that has encouraged private markets’ recent bullishness on the sector. Additionally, the disruptive impacts of technology, as well as the highly fragmented nature of the industry. Investors are also attracted to the countercyclical nature of education assets, being able to perform during times of economic boom and bust. 

EQT will have to hope that this projected growth is strong enough to overcome the obstacles facing PE-backed education assets today. Declining birth rates have raised concerns over the long-term viability of education assets. Meanwhile, public scandals such as Antin Infrastructure Partners’ inattention to abuse at its Hesley schools – and eventual divestment from the asset – have placed new scrutiny on PE’s movements in school and education going forward. 

Neuberger Berman did not respond to request for comment, while EQT did not provide a timely response. CPP declined to comment.


Buyout News  

What else is going on in the deal space?

For starters, Thoma Bravo has acquired Secureworks, Dell Technology’s cloud-focused cybersecurity program, via its portco Sophos, a cybersecurity firm, for $859 million in cash. Dell acquired Secureworks in 2011 and listed it on the Nasdaq in 2016. It has been trying to sell the asset since 2019. The transaction is expected to close in early 2025.

Additionally, Vinted, a Lithuanian digital marketplace for second-hand goods, has hit a $5.4 billion valuation after a $367 million funding round led by TPG. Other institutional investors include EQT, Insight Partners, and Lightspeed Venture Partners.

Will EQT Get Schooled on Education? Behind the $14.5B Nord Anglia Deal

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Private equity deals in the consumer retail and services industry were up 31% YoY in Q2 2024, according to a recent Pitchbook report, suggesting the sector’s making a comeback. It’s a good time to revisit one of the most successful turnarounds of a PE-backed retailer: BJ’s Wholesale. Learn how CVC Capital and Leonard Green & Partners helped transform the retailer by expanding its private label offerings and investing in IT and eCommerce. (Read More)


More Insights

 * The Unexpected Impact of Family Offices on PE Portco Operations (Read)
 * Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated. (Read)
 * Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs (Read)
 * Exits Are More Sensitive to Interest Rates Than Buyouts (Read)
 * History Shows Interest Rates Alone Have Marginal Impact on Buyout Activity (Read)


Spotlight

Dueling for Doliprane. The plan to spin out Sanofi’s consumer health business – the world’s third-largest over-the-counter drugmaker – began nearly one year ago to date, when the firm announced its intention to follow in its competitors’ footsteps and spin out the business to raise capital for R&D. 

Since then, the fight between private equity players to take hold of the asset has been strong. Early bidders included Advent International, Blackstone, Bain Capital, CVC Capital Partners, KKR, and Cinven. By September, that pool had narrowed to two leading bids: one from CD&R, and another from a consortium led by PAI Partners with backing from British Columbia Investment Management, the Abu Dhabi Investment Authority, and the Singaporean sovereign wealth fund GIC.

Last week, CD&R emerged victorious, entering into exclusive negotiations to buy the asset for a €16 billion valuation ($17.3 billion), with €1 billion of CD&R’s capital coming from a payment-in-kind loan from private credit funds and another €8.65 billion coming in the form of euro- and dollar-denominated loan and bond financing from a consortium of 22 banks. 

It was a tough deal to negotiate, but its completion hasn’t been met with raucous applause. Rather, the CD&R has faced swift political backlash, pressure to rewrite the terms of the deal, and a “surprising” re-bid from former competitor PAI Partners. 

L’Arc (narratif) de Triomphe. The deal originally struck by Sanofi and CD&R not even two weeks ago entailed a trade-off of a 50% equity stake for €15 billion. French officials from the left, right, and center were quick to denounce it, arguing that foreign capital involvement would threaten the security of France’s domestic medicine production – a key issue in the country since the pandemic caused widespread pharmaceutical shortages. 

And, in true French fashion, strikes followed soon thereafter at the two factories in France that make Doliprane. The rolling strikes, which are currently ongoing, are led by French workers’ unions the CFDT and CGT. The factions were initially opposed to the mere creation of Opella in 2021 because they feared that it would lead to a spinoff and eventual reshoring. 

In the end, CD&R seems to have salvaged the deal despite ongoing labor backlash – but not without a heightened valuation of €16 billion (14x 2024 EBITDA) and major operational concessions. 

For example, France’s state investment bank, Bpifrance, will receive a 2% equity stake and a seat on Opella’s board of directors for €150 million. Additionally, CD&R has agreed to a €100 million fine for every economic layoff of a French worker. Sanofi currently employs 1,700 individuals in the country. 

Opella would also have to pay a €40 million fee if it halts production at either of its two Doliprane manufacturing facilities over the next five years, as well as a €100 million fine if it doesn’t buy the active ingredient in Doliprane from a French supplier (Seqens) by the time it opens up its plant in 2026. 

And finally, CD&R promised to invest €70 million in Opella’s French operations in order to keep its headquarters in the country. 

The new deal is expected to close by Q2 2025 at the earliest. That is if members of parliament don’t block it. Even one of Macron’s own, Charles Rodwell, has claimed that CD&R’s revised deal does not "indicate a commitment for the long term, whether on investment, supply or jobs” and that he would take actions to block the deal if ministers fall short during the oversight process. 

En Marche? Before the Sanofi debacle, CD&R lost out on its bid to acquire German drugmaker Stada to GTCR last month. That’s because the fight for Opella is just one battle in CD&R’s broader campaign to beef up its exposure to pharmaceuticals and consumer healthcare. 

In 2019 CD&R chose Jean-Luc Belingard – the former CEO of bioMérieux, Ipsen Group, and Roche Diagnostics – to serve as an operating advisor to its European healthcare platform. Then, in 2022, Anand Shah – former deputy commissioner of the US Food and Drug Administration – was given the same title in the US. 

None of CD&R’s current healthcare assets play in the consumer healthcare, over-the-counter drug space. However, it did have one asset in the past with a particularly rocky history: High Ridge Brands, which filed for bankruptcy at the end of 2019, three years after CD&R acquired it. As of spring of this year, CD&R still faces legal challenges surrounding fraud allegations from the asset’s liquidation trustee. 

The French Ministry of Finance and CD&R did not respond to requests for comment.


Buyout News  

Another drawn-out deal saw its conclusion last week: Permira’s take-private of Squarespace. The company was officially delisted from the New York Stock Exchange, with Permira’s all-cash transaction valuing the company at $7.2 billion.

Another take-private in the software space from last week was Zuora’s $1.7 billion deal with Silver Lake and GIC. The private equity firm and the Singaporean sovereign wealth fund paid an 18% premium for the billing software provider, and the deal is expected to close in Q1 2025.

And on the flip side, we saw the announcement of a “take-public” last week, too. Platinum Equity filed its intention to IPO hardware manufacturer Ingram Micro. While the firm was hoping for a $10 billion valuation (raising $1 billion) in May, it has since lowered its expectations to a $5.4 billion valuation (raising $428 million). 

And finally, Blackstone and TPG are working on a joint bid for Bausch + Lomb, a contact-lens manufacturer. The deal could value the company at $11.5 billion including debt. The two groups have been trying to buy the business since before its parent company IPO’d in 2022. Now seems the right time to strike again, given that said parent company Bausch Health is facing ever-growing debt troubles. Formal bids are expected as early as the end of the month.

Union Backlash, Regulatory Restrictions: CD&R (Finally) Seals €16B Sanofi Deal

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Private equity deal activity in the consumer sector is up 2.6% YTD through Q3 2024, the first positive growth for the sector since 2021. Many investors grew sour on CPG, retail, and media businesses over the past few years because of shrinking moats and their exposure to cyclical consumer spending. Value Add’s 2024 Consumer Sector Private Equity report has more insights on how PE firms are approaching these types of businesses. (Read More)


More Insights

 * The Unexpected Impact of Family Offices on PE Portco Operations (Read)
 * Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated. (Read)
 * Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs (Read)
 * Exits Are More Sensitive to Interest Rates Than Buyouts (Read)
 * History Shows Interest Rates Alone Have Marginal Impact on Buyout Activity (Read)


Spotlight

To infinity… Last week Apollo Global Management announced its intention to take Barnes Group, an industrial technology and aerospace manufacturer, private for $3.6 billion, or $47.50 per share, a 22% premium over the shares’ closing price of June 25, 2024.

The transaction is an all-cash transaction and is expected to close by the end of Q1 next year.

And beyond. Industrials have become ever-more attractive to PE investors, with the sector being the second-most popular for exits in 2023, according to our Private Equity Exits Report 2024, and accounting for 30% of deal activity in Europe for the same year, according to our Europe Private Equity Report 2024. 

The same level of popularity cannot be found in the aerospace and defense sector for private equity investments. According to Pitchbook, private equity investment in aerospace and defense peaked at $19.8 billion in 2021, dropping to a measly $7.4 billion in 2022.

This is despite the immense opportunity in the sector. Pitchbook notes that defense budgets are increasing due to the growing number of geopolitical conflicts worldwide, while KPMG explains that supply chain consolidation and technological innovations are two key verticals where private equity firms can find value in the sector. 

That isn’t to say that the industry isn’t without its challenges: regulatory compliance and contracting requirements, for example, are hurdles to entry – but they’re hurdles that haven’t impeded the slight comeback seen in dealmaking in the space in Q2 2024.

According to Reuters, the recent interest rate-induced financial turmoil experienced by companies in the industry makes now a perfect time for private equity firms to go on the offense. 

This could be why other blue-chip private equity firms have made moves in the space over the past few years: 

 * Blackstone acquired MB Aerospace for an undisclosed amount in 2015. 
 * KKR acquired Airbus’s defense electronics unit, Hensoldt, for €1.1 billion ($1.2 billion) in 2017.
 * Advent International took Cobham private for £4 billion (then $5 billion) in 2020.
 * The Carlyle Group bought AMCK Aviation’s $4 billion aircraft portfolio in 2022.

The Apollo Space Program. No, not the program that put men on the moon – rather, the array of aerospace industrial companies that Apollo Global Management has in its portfolio. Two other recent acquisitions for the firm include Arconic and Atlas Air Worldwide.

The former is an aerospace supplier based in Pittsburgh that Apollo took private last year. The deal totaled $5.2 billion (about $3 billion of which was equity) or $30 a share.

The latter, Atlas Air Worldwide, was taken private in 2023 by a consortium of investors including Apollo, JF Lehman, and Hill City Capital. The deal was valued at $3 billion or $102.50 per share. 

With both of these assets, Apollo’s value creation plan started with a take-private, much like the Barnes deal. However, the similarities end there. 

Apollo mobilized its capital towards plant and technology upgrades for Arconic and expanding international eCommerce customers for Atlas Air Worldwide. By contrast, Barnes will use Apollo funding to expand the amount of products it provides to its end customers, with Thomas J. Hook, CEO and president of the firm, stating in a press release that, “Under Apollo Funds ownership, we aim to accelerate our transformation, enhance our capabilities, broaden our product offerings and create new opportunities for growth and innovation.”

Apollo Global Management declined to comment on its value creation plan for Barnes.


Buyout News  

After all that space talk, let’s come back down to earth. There were a couple of deals here, too, this past week. 

For example, Duckhorn, a premium wine company, has agreed to be taken private by Butterfly Equity in an all-cash transaction that values the company at $1.95 billion. Butterfly is paying $11.10 per share, a 65.3% premium over the 90-day trading average stock price.

Meanwhile, Vista Outdoor has split itself into two separate companies: an ammunition manufacturer and a sporting goods company. The former line of business will be sold to defense contractor Czechoslovak Group, while the latter unit, Revelyst, will become private equity fodder. Strategic Value Partners will buy the business for $1.1 billion. The deal is expected to close in January. 

And finally, it looks like CD&R has beaten out competitor PAI Partners for a 50% stake in Sanofi’s consumer health business, Opella. The transaction is reportedly in advanced talks and will garner a ticket price of about €15 billion ($16.4 billion) for the business segment.

Apollo Shoots for the Stars with $3.6B Barnes Deal

Family offices have been around for years – longer than private equity firms. However, in recent years the number of family offices has exploded. According to Preqin, the number of family offices in the world tripled between 2019 and 2024, managing upwards of $6 trillion in assets. By 2030, Deloitte Private expects the number of family offices to be larger than the number of hedge funds.

This growth has been positive in many ways for private equity, providing new avenues for fundraising and capital formation. But it is also a double-edged sword.

As the amount of family offices has risen, there has been a parallel trend of family offices increasingly shirking third-party managers for direct investment mandates. According to FINTRX, direct investing from family offices more than doubled between 2010 and 2015. And according to a Deloitte survey in May, the average allocation for direct investments for a family office was 17%, nearly twice the allocation to third-party private equity managers (10%). 

Private equity firms aren’t strangers to increased competition – there were 4,300 new private equity funds launched in 2021 alone. While the market has contracted and growth has stalled, it is still growing: 2023 saw 1,300 funds enter the scene. 

However, the competition from a family office differs greatly from another buyout fund in the market.


A different model

“[Family offices] don’t have to follow the fund model that requires a sale every five years or so. This [model] forces PE owners to be more short-term focused — something that turns off a lot of entrepreneurs,” said Bryan Graiff, a partner at consultancy Armanino.

Speaking from a seller’s point of view, Katherine Hill Ritchie, a director and board member of Nottingham Spirk, an innovation firm with a family office, explained on an EY podcast: “Who’s going to be my investor, and what is my purpose? Do I care if it’s sold again in five to seven years, or does this family’s portfolio of companies really have great overlap with mine and maybe I don’t mind if they keep it for 20 or 30 years? Or maybe I’m just looking for an exit and I want the highest price.”

More often than not, sellers are more interested in the investment relationship than the ticket price. According to the National Center for the Middle Market, in 2022, 76% of portco owners said it was an “extremely/very important consideration relative to the sale” to be able to stay involved with their company post-facto. Additionally, more than half of them listed family legacy and maintenance of their organization’s culture during the sale process as key concerns.

What this means is that it's more important for private equity firms to woo portco leaders. 

“The rise of the family office has really changed how PE firms go to market,” Graiff explained. “New competition from family offices has forced some PE firms to take a closer look at human capital and leadership.”

As we reported in July, the rise in human capital projects for third-party PE advisors has been stark. BluWave, a value creation and due diligence consultancy focused on midmarket PE, has seen interest in human capital-based projects for value creation more than double since Covid, making up 48.4% of all value creation projects requested by their clients between Q1 2020 and Q2 2024 – the number one most-requested type of project.


Hold on…

And it’s not just human capital – lengthier holding periods could also be a part of the fallout. One study of European private equity firms has found that the average holding period there has grown from four to five years to a solid six years. In the US and Canada, the average hold time is now over seven years.

The study says that the challenging exit environment alone cannot explain the phenomenon, at least when it comes to European PE – what might be able to, though, is the increase in competition in the European private equity market.

The Unexpected Impact of Family Offices on PE Portco Operations

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Outside of consulting, the most common pathway to a private equity operating partner role is through corporates that have well-established leadership development programs, according to research from Value Add. However, as the data shows, representation from corporates is quite fragmented among operating partners. This makes sense given that different PE firms value different types of industry experience depending on their own investment theses. (Read More)


More Insights

 * Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated. (Read)
 * Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs (Read)
 * Exits Are More Sensitive to Interest Rates Than Buyouts (Read)
 * History Shows Interest Rates Alone Have Marginal Impact on Buyout Activity (Read)
 * “We’ve Moved Downmarket”: Behind Riverside’s Unique Roll-Up Strategy (Read)


Spotlight

I stream, you stream. TPG first bought a stake in DirecTV in 2021, when it bought a 30% stake in the business for $1.8 billion as parent company AT&T spun it out, giving the new business a $16 billion total valuation.

Now, three years later, TPG is taking the remaining 70% stake in the company – again, from AT&T, and for $7.6 billion. The deal is expected to close late next year. AT&T will receive a payment of $2 billion upfront from TPG, and then incur more payments through 2029 totaling $7.6 billion. Current CEO Bill Murrow is expected to maintain his leadership position at DirecTV.

The two transactions are a far cry from the $48.5 billion AT&T agreed to pay Comcast-Time Warner for the business in 2014, implying a total business valuation of $67 billion. That’s likely because AT&T’s ownership of the company was hampered by high debts and dwindling cable subscriptions due to the rise of streaming services. 

Dish it out. Distribution payments to DirecTV were down year-over-year in 2023, at $2.04 billion (compared to 2022’s $2.65 billion). Lucky for TPG, though, 2024 is due to be a better year, with projected distributions totaling $3 billion.

And that’s due to grow with DirecTV’s acquisition of competitor Dish, a cornerstone in TPG’s value creation plan. 

DirecTV announced at the end of September that it was going to acquire its competitor, Dish, from Echostar, a satellite communications company. The price tag might seem low – just $1 – but it comes with the stipulation that DirecTV will assume Dish’s $9.75 billion in debt. As such, TPG and DirecTV are giving Dish a $2.5 billion loan to pay off its debt maturity by the end of November. 

The deal will nearly double DirecTV’s current 11 million subscribers to 20 million – just shy of the all-time-high of 20.3 million subscribers that DirecTV had in 2015 when AT&T bought it. It will make the combined company the US’s largest pay-TV provider. 

Subscriber growth is key to this merger: “We believe a combined DirecTV and Dish will be better positioned to work with programmers to allow us to deliver smaller, more flexible packages at lower price points, providing more choices and better value to consumers,” DirecTV’s chief advertising and sales officer, Amy Leifer, said in a LinkedIn post. 

The two companies attempted to merge in a $19 billion deal in 2002, but it was struck down by antitrust regulators. Now that we have streaming and other mechanisms for watching content, it is likely that the deal can finally go through. 

TPG did not respond to request for comment.


Buyout News  

It’s been a busy week for TPG. Alongside its AT&T deal, it is also battling EQT and DigitalBridge (via their joint portfolio company Zayo Group) for Crown Castle’s fiber and wireless assets. The carve-out could be valued between $8 billion and $10 billion. It is possible that Crown Castle will sell just its fiber or just its wireless assets, with both subsidiaries being valued at less than $5 billion, or decide not to sell at all. 

TPG is also looking to take a majority stake in Surescripts, a digital prescription service currently owned by CVS, Cigna subsidiary Express Scripts, and two pharmacist trade groups, all of whom will stay on as minority shareholders. The deal values the company at over $1.5 billion.

And finally, TPG is partnering with Singaporean sovereign wealth fund GIC to purchase Techem, a digital solutions provider for the construction industry, for €6.7 billion ($7.35 billion). The sellers are current majority shareholder Partners Group alongside minority shareholders CDPQ and OTPP. The deal will close in the first half of next year. 

Also in the software space but not including the omnipresent TPG, Clearlake Capital and Francisco Partners have agreed to acquire Synopsys Software Integrity Group for $2.1 billion. The Massachusetts-based provider of application security services will be renamed to Black Duck Software.  

Our last deal of the week comes out of left field when compared to the TPG- and software-centric deals above. Or comes out of… left winger?

Ares Management has become the first private equity group to throw its hat in the ring to buy a minority stake in an NFL team – the Miami Dolphins, to be exact. The NFL only recently allowed such transactions to take place this August. The deal, which would entail Ares buying a 10% stake in the team, its stadium, and the operating rights to the Miami Grand Prix and half of the Miami Open, implies an overall enterprise value of $8.1 billion.

TPG’s $7.6B Acquisition of AT&T’s DirecTV Creates Cable Giant

Most anti-private equity activists will cite a famous 2019 study by California State Polytechnic University researchers Rastad and Ayash that finds that private equity-owned companies are 10x more likely than their non-private equity-owned counterparts to go bankrupt.

The study uses data from LBOs that occurred between 1980 and 2006, pre-Global Financial Crisis. These were the days of private equity deals like Nabisco and Toys R Us – deals that quite publicly played out in a bad light. And their findings were accurate for deals of that era.

Post-GFC, however, bankruptcy has been used by private equity owners in a much different way. 

“Since the financial crisis, leverage has been limited due to cost, and many PE firms have adopted a mindset that it’s better to grow or negotiate out of debt issues when possible rather than to rely on bankruptcy. Bankruptcy can be time-consuming and expensive, making it more of a last resort,” explained Bryan Graiff, a partner at consultancy Armanino. “Bankruptcy can be disruptive, expensive, and often lead to no recovery for the investors unless they want to deploy new capital.”

This held true in the post-GFC, pre-Covid economy. For example, in 2021, private equity firms managed about 20% of total US corporate equity. However, it only made up around 10% of US bankruptcy filings that year. 

Things changed, though, once the Fed raised interest rates. Suddenly, private equity-backed companies accounted for 19.3% of bankruptcies in 2023 and 19.2% of bankruptcies in Q1 2024 – record highs, though still proportionally lower than PE’s share of total US corporate equity. 

“The explosion of private equity over the last five to seven years has been pretty pronounced,” said Brian Lohan, the head of law firm Clifford Chance’s US restructuring and insolvency practice. “There were a lot of operational issues and a lot of companies that maybe should not have been surviving got a second wind when everyone was dumping in money.”

“In 2021 you had companies in private equity portfolios that were benefiting from higher multiples being attributed to deals. And it made it easier for private equity portfolio companies to raise capital during those times when maybe those companies weren't as strong and they otherwise would have benefited from restructuring,” he continued. “Private equity companies raised capital and increased debt to try to institute either a turnaround or wait for a better deal after Covid. Covid passed and now a lot of the debt is due for repayment.”

Lohan sees struggles to repay Covid-era debt impacting private equity portfolio companies across the board: small-cap firms, large-cap firms, established firms, and new upstarts. 

“They have a bad investment in their portfolio and they have to deal with it. And sometimes Chapter 11 bankruptcy makes sense,” he explained.


Sector-specific

The largest jumps in bankruptcies for private equity-owned portfolio companies can be seen in two sectors: retail and healthcare.

In healthcare, private equity-owned companies comprise only 4% of the US market but represented over 20% of total bankruptcies in the sector last year. 

“Healthcare is just always very tough. While it's a very attractive asset to own because there's always customers, you are subject to reimbursement rate risk. And cutting healthcare costs for the individual patient is always a political win for a politician,” explained Lohan.

When it comes to retail, the Private Equity Stakeholder Project reports that 10 of the 14 largest retail bankruptcies between 2012 and 2019 were PE-backed. Additionally, two-thirds of the Chapter 11 bankruptcies filed for in 2016 and 2017 by retail stores had private equity ownership. 

“On the retail side, historically what we've seen is private shops don't buy a single brand. They try to buy multiple brands, essentially roll-ups, and sometimes they overpay and sometimes consumer trends get way out of whack compared to the PE firm’s expectations at the time of the initial investment,” Lohan added.

As such, PE-backed consumer buyouts are set to decline, as we outlined in our May 2024 Consumer Sector Private Equity Report. 


Are we going back?

Lohan doesn’t see heightened levels of bankruptcies for PE portcos stopping any time soon.

“I don't think the uptick in bankruptcies for PE portcos is going to go away. While I don't think it's going to subside, I don't know whether it's going to grow either. But it is possible that we are on a plateau. I think we're going to continue to see bankruptcies for right now primarily because of all the prior debt financing transactions that have upcoming maturities,” he explained.

He added: “You need a way to refinance all the debt that was incurred in the Covid era. A lot will depend on the September interest rate cut, the election, and how much liquidity is available.”

Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated.

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: A newly released study by KPMG found that the leading factor in the current slowdown in M&A activity among PE-backed companies is the decision to prioritize organic growth. The suggestion is that, in the current economic environment, operational improvements have become more important in PE-backed companies than other forms of value creation. (Read More)


More Insights

 * Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs (Read)
 * Exits Are More Sensitive to Interest Rates Than Buyouts (Read)
 * History Shows Interest Rates Alone Have Marginal Impact on Buyout Activity (Read)
 * “We’ve Moved Downmarket”: Behind Riverside’s Unique Roll-Up Strategy (Read)
 * US PE’s Outperformance of European PE is Structural, Not Operational (Read)


Spotlight

Minority stakes... Last week news broke that TPG has eyes on minority stakes in two wealth management businesses: Homrich Berg and Creative Planning.

While financial details of the first deal are not available, what is known is that TPG, along with New Mountain Capital, will retain minority stakes that value the Atlanta-based firm at $1 billion. Homrich Berg currently supervises over $18 billion in assets.

With Creative Planning, TPG beat out competitors including CVC and Permira for the minority stake in the Midwestern firm. TPG’s stake is reportedly worth $2 billion, valuing the business overall at $15 billion. Creative Planning currently supervises over $300 billion in assets. General Atlantic is also a minority investor as of 2020 and is looking to offload a percentage of its stake in the transaction. 

… for major shifts? Both acquisitions will be minority stakes that allow management to maintain control over day-to-day operations. But that doesn’t mean that there isn’t an operational component to the deals.

Homrich Berg, for example, plans to use the capital injection to invest in human capital, which will in turn allow the company to offer better customer service and expand its range of client offerings.

With Creative Planning, the main purpose of the transaction is to help General Atlantic offload a portion of its stake. However, it is also likely that the firm will use this capital to continue its strategy of growth through acquisition as roll-ups and scale plays are very common in PE wealth management deals. 

Over the past year, the firm has acquired:

 * Goldman Sachs’ personal finance management business (August 2023)
 * Mesirow’s $13 billion retirement plan business (October 2023)
 * ML&R Wealth Management for $2.2 billion (April 2024) 

Off-trend. TPG hasn’t been active in the wealth management space for over a decade, when it exited its only wealth management asset to date, LPL Financial. TPG bought the asset in 2005 alongside Hellman & Friedman, taking it public with a successful IPO in 2010. 

TPG’s comeback to the space is relatively late. As we reported a few weeks ago, some industry executives think private equity has hit the ceiling when it comes to the amount of M&A the sector can support. Given that M&A plays a key role in the sector’s attractiveness to PE (alongside the attractiveness of steady fees), that could pose a problem. 

Indeed, in its January 2024 report, McKinsey noted a significant market contraction of $6.2 trillion in AUA for 2022, signaling intense market competition for clients in the years to come. 

TPG, Creative Planning, and Homrich Berg did not respond to requests for comment.


Buyout News 

What else was going on in the world of buyouts?

First, it looks like we spoke too soon last week – Vista and Blackstone upped the price on Smartsheet again. At least this price tag is the final one. At $8.4 billion – or $56.50 a share, a 41% premium over the average price for the 90 days before the sale process was announced on 17 July – the deal is finally set to close in Q4 of this year. 

Additionally, LVMH-owned L Catterton acquired [solidcore], a US-based chain of pilates studios. The deal values the company between $600 million and $700 million, according to Reuters. It’s not L Catterton’s first foray into the luxury workout space: it also has invested in Equinox and Pure Barre. 

There are also many deals coming through the pipeline. Here’s what’s dominating the rumor mill:

Enfusion, a financial software provider for asset managers, is launching a sale process and interviewing investment banks in the process. The firm is worth $1.1 billion and is publicly traded. It fielded investment interest last year, too, with players including Francisco Partners, Vista, and Irenic Capital Management expressing interest.

Meanwhile, Sanofi is wrapping up its sale process for its over-the-counter medication division. CD&R and PAI Partners have reportedly both placed binding bids that could value the business at €15 billion ($16.7 billion) or more. PAI’s bid will include a consortium of investors (British Columbia Investment Management, the Abu Dhabi Investment Authority, and the Singaporean sovereign wealth fund GIC have all been contacted). 

Apollo Global Management is mulling a $5 billion investment in Intel, a stalwart American chip maker that has had trouble keeping up with the competition during the past few years of the AI boom. Apollo’s potential offer would be in direct competition with the friendly takeover floated earlier this month by Intel’s direct competitor, Qualcomm. 

Another American institution also fielding PE interest? Forbes. The media mainstay is reportedly being eyed by Koch Inc.’s private equity arm, Koch Equity Development. An $800 million bid to take over the company fell through last year. 

TPG Launches Wealth Management Comeback with $2B+ Shopping Spree

Despite the growing divide between LPs on the value of ESG in operations, Apollo has maintained an ESG-focused team within its greater operational business. According to Apollo, despite the headlines that may suggest otherwise, the firm’s LPs want to see action on ESG. 

“Overall, LPs don’t all have the same demands or expectations on ESG. However, in aggregate the direction of travel with investor expectations on ESG has only been in one direction over the last several years,” Ben Saunders, a principal in sustainability for Apollo’s portfolio performance solutions business, explained. 

Saunders co-authored Apollo’s August 2024 white paper, “Building Better Businesses: How Apollo Equity Helps Drive Value Through Portfolio Company Decarbonization,” which laid out how the firm’s operational team leverages ESG to create concrete financial value.

According to Saunders, Apollo tracks ESG outreach from LPs on a quarterly basis. Year-over-year, LP outreach for Q2 of this year was 40% higher than outreach in Q2 2023. When compared to Apollo’s Q2 2022 figure, outreach was up over 130%, and when compared to its Q2 2021 figure, it was up over 200%.

And, according to Saunders, 95% of LP engagement last quarter was on climate. Apollo’s goals there include its $1.7 billion AUM impact platform and its $4 billion clean transition capital strategy. Additionally, the firm aims to invest $100 billion across asset classes by 2030 as a part of its sustainable investment platform. 

Nevertheless, Apollo does not impose science-based targets for every company in its portfolios. Rather, the decarbonization targets Apollo sets are more company-specific and set at a fund level. 

Apollo’s most recent flagship fund, for example, has a goal to decarbonize the portfolio by 15% on a median basis during its typical investment period. That is despite the United Nations stressing a need for global decarbonization to be reduced by 45% over a similar time frame (by 2030) in order to reach net zero by 2050. As such, Apollo has not made a net zero by 2050 pledge. 

Saunders argues that this allows the firm greater flexibility to seek concrete returns in relation to its ESG strategies – a “materiality-based” approach. 


Down to the portcos

This approach also gives Apollo the flexibility to include harder-to-abate assets in its portfolios, so long as the portfolios’ decarbonization median holds steady. 

“The decarbonization target alone does not have an impact on whether or not we invest in certain industries, which is, I think, part of what makes the goal a bold commitment and a commitment to rigorous decarbonization planning and action with these companies,” said Saunders.

“One of our focuses early in the investment period is usually getting the right cross-functional team members involved,” he continued. “Building that functional internal team that meets regularly and has defined ownership roles is really important. Process integration typically includes embedding ESG KPIs throughout the decision-making process for those stakeholders.”

But those KPIs have to be communicated intentionally to portco executives, Saunders stresses: “When you go speak to a CFO, you can't talk in the ESG, alphabet-soup jargon. You have to talk in terms of ROI and costs and benefits of initiatives.”

Through those conversations, Apollo has uncovered that the greatest difficulties for portcos in regard to sustainability at the end of 2022 were a lack of accurate data, unclear returns on investments for ESG initiatives, and a lack of budget to carry out decarbonization plans.

“If you don't have good data, then you can't build a business case for an initiative. And if you can't build a business case and prove the ROI, you can't get a budget. So a lot of our focus early in our engagement with companies is getting that data in place and building a business case for these initiatives,” Saunders explained. 

He concluded that to do truly impactful work at the portfolio level, data has to be at the center of the conversation.

“Integrating ESG data into financial and operational data, that's a big gap right now in the market for many companies: understanding how their operational decisions will impact KPIs like emissions reduction, for example, or a product’s carbon footprint,” he said.

Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: PE-backed exits are more sensitive to interest rates than buyouts, according to a new analysis by Value Add. This is understandable, considering that over 50% of private equity-backed exits involve sales to strategic acquirers, while around 30% are secondary buyouts (sales to other PE firms). With private equity firms holding record amounts of dry powder, many have stayed active in buyouts and secondary transactions, whereas strategic acquirers have likely been waiting for more favorable borrowing conditions (hence driving more exits for PE). (Read More)

More Insights

 * Exits Are More Sensitive to Interest Rates Than Buyouts (Read)
 * History Shows Interest Rates Alone Have Marginal Impact on Buyout Activity (Read)
 * “We’ve Moved Downmarket”: Behind Riverside’s Unique Roll-Up Strategy (Read)
 * US PE’s Outperformance of European PE is Structural, Not Operational (Read)
 * These Are the Top Feeder Companies for PE Operating Partners (Read)


Spotlight

Put your records on. Not everyone knew that music legend Irving Azoff – the former CEO of Ticketmaster and Live Nation – was looking to sell his music licensing business, Global Music Rights. But, that’s exactly what happened, with current minority stakeholder TPG agreeing to sell its equity in GMR to Hellman & Friedman, with additional equity being transferred from Azoff to Hellman & Friedman.

GMR was established in 2013 by Azoff. It owns the rights to the works of artists including Bruce Springsteen, Bruno Mars, George Harrison, John Lennon, Metallica, and Pearl Jam.

It is unclear what the size of the total stake that Hellman & Friedman will walk away with is and if it is a majority control stake. What is known is that Hellman & Friedman has valued GMR at $3.3 billion and is taking all of TPG’s stake and part of Azoff’s, too. 

TPG acquired an unknown stake in the company in 2022. Other institutional investors at that time were Ares, AustralianSuper, and Redwood Partners – as of June 30, Ares remained invested in the firm, as did Australian Super, though it is unclear if Redwood retains its investment. GMR did not respond to requests for clarification. 

A familiar tune? This isn’t Hellman & Friedman’s first foray into media licensing – in 2008, the firm took Getty Images, a global marketplace for image licensing, private. 

While Getty Images had been quite aggressive with add-ons pre-acquisition, buying around 15 of its competitors between 1995 and 2008. Nevertheless, the firm made only two add-ons under Hellman & Friedman’s leadership, both in 2008 – Redferns Music Picture Library and Jupitermedia.

This, combined with legal controversies the asset faced, could explain why Hellman & Friedman ultimately sold it for just $3.3 billion – short of the $4 billion it was hoping for – in 2012 to the Carlyle Group. 

In rhythm. When it comes to GMR, hopefully, Hellman & Friedman will sing a different song. There are many tailwinds for the intellectual property licensing sector currently, with Goldman Sachs reporting that industry growth exceeded expectations in 2023, rising 15% year-over-year. GS expects the industry to maintain a yearly growth rate between 7% and 8% from 2024 to 2030.

And other private equity firms are taking notice. Here are some other recent transactions in the space:

 * Apollo-backed investment firm Harbourview has a portfolio that includes works of artists including Nelly, Wiz Khalifa, and Pat Benatar. The firm values its portfolio at $1.6 billion. 
 * Shamrock Capital paid $300 million for Taylor Swift’s first six albums alone in 2020. 
 * The Carlyle Group launched Litmus Music in 2022 with a $500 million credit commitment.
 * Brookfield bought a minority stake in Primary Wave Music for $1.7 billion in 2022. 
 * Francisco Partners bought a majority stake in music publisher Kobalt for $833 million in 2022. 
 * Blackstone paid $1.6 billion earlier this year for Hipgnosis, which owns the rights to songs by artists such as Blondie, the Kaiser Chiefs, and the Red Hot Chili Peppers.
 * Broadcast Music, Inc. (BMI) was acquired by New Mountain Capital and CapitalG earlier this year, too, for about $1.7 billion.
 * And finally, TPG has invested in a litany of media rights firms, including Spotify ($1 billion), Creative Artists Agency ($1.1 billion), and a seed investment in Musixmatch.

… All of that makes the $3.3 billion valuation on the GMR deal one of the largest PE music licensing valuations to date.

GMR and TPG did not respond to requests for comment. Hellman & Friedman declined to comment.


Buyout News 

Before we get to last week’s buyouts, we should take a look at the week’s buybacks:

KKR is breaking up Axel Springer. The firm took the media giant private in 2019 alongside CPPIB. The two owned a 48.5% stake in the company, which had a total valuation of €6.7 billion at the time. This current deal will value Axel Springer at €13.5 billion, with KKR and CPPIB retaining control of the company’s €10 billion classifieds business. 

Energy company Vistra is buying out the minority investors in its Vistra Vision platform, which includes its nuclear generation sites, its renewable power sites, and its energy storage and retail businesses. Nuveen and Avenue Capital currently own a 15% stake, which Vistra will buy back for just over $3 billion, to be paid in installments over the course of two years.

When it comes to multi-billion dollar buyouts, British home builder Cala Group has been sold to Sixth Street for £1.35 billion (nearly $1.8 billion). Legal & General, a UK life insurer, is the seller. The deal is expected to close in Q4 of this year.

Hellman & Friedman’s $3.3B Valuation of GMR Among Largest PE Music Plays

The Federal Reserve has finally cut interest rates, shifting from monetary tightening to easing as inflation slows and the US economy softens. While dealmakers have been anticipating that lower rates will spur M&A activity, our recent analysis suggests that buyout activity tends to actually decline as interest rates fall, highlighting that borrowing costs are only one of many factors affecting private markets. One would expect buyouts and exits to go hand-in-hand – but does exit activity respond to changes in interest rates in the same way?

Shockingly, no. The Pearson correlation between private equity exit activity and the Fed Funds rate is approximately -0.24, signaling a weak but statistically significant negative correlation. In simpler terms, as interest rates drop, private equity exits tend to increase slightly. 

An analysis of M&A data from 2006 to 2024 shows a clear pattern: private equity exits climbed steadily during the low-interest rate environment from 2009 to 2016, flatlined between 2017 and 2019 as rates rose, and then surged again when the Fed slashed rates following the Covid pandemic between 2020 and 2021. While the Fed may not reduce rates to previous lows, we should expect an uptick in exit activity compared to the last two years.

What makes these findings particularly interesting is that buyout activity, based on the same analysis, tends to follow the same direction as interest rates — buyouts decrease as rates decrease — contrary to how exits behave. This suggests that private equity exits are more sensitive to interest rate changes than buyouts.

This makes sense, given that more than 50% of PE-backed exits in 2023 were sales to strategic acquirers (which were crippled by high interest rates) while about 30% were secondary buyouts (i.e. sales to other PE firms). With private equity firms sitting on record levels of dry powder, many have remained active in buyouts and secondaries, while strategic acquirers have likely been waiting for more favorable borrowing costs.

That said, high valuations remain a challenge. The S&P 500 is currently trading at a price-to-earnings ratio of 28.6, well above its historical average of 16.1. These high valuations, coupled with a potential economic slowdown — which spurred this month's interest rate cut — could still dampen both buyout and exit activity in the near future.

Interest Rate Cuts to Spur Exit Activity

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Interest rates are often thought to significantly impact private equity buyouts, but statistical analysis suggests a weak correlation between interest rates and buyout activity in the US. Research from Value Add finds a Pearson correlation of 0.20 between buyout activity and the Fed Funds rate, indicating that lower rates might actually reduce buyout activity, as other factors such as economic growth, valuations, and access to capital also play a role in private market activity. (Read More)


More Insights

 * History Shows Interest Rates Alone Have Marginal Impact on Buyout Activity (Read)
 * “We’ve Moved Downmarket”: Behind Riverside’s Unique Roll-Up Strategy (Read)
 * US PE’s Outperformance of European PE is Structural, Not Operational (Read)
 * These Are the Top Feeder Companies for PE Operating Partners (Read)
 * Why Do Smaller Buyouts Outperform Large Caps? Operations. (Read)


Spotlight

Work smarter. What was a $7 billion ticket price a little over a week ago has now jumped to $8 billion – Vista and Blackstone must really want Smartsheet, a cloud-based coworking software for spreadsheets. The two will reportedly pay about $56 a share. Share prices shot up 16% from July 18th's price, when the sale process was announced, from $45.35. Vista already has a 4.7% stake in the company. 

The price of the asset wasn’t always agreed upon. When the sale process was announced, Reuters reported the firm was valued at $6.6 billion. 

$3.2 billion of the deal’s financing will come in the form of private debt. Direct lenders will provide a $2.9 billion recurring revenue loan and a $300 million revolving credit facility, priced 6.25 to 6.5 percentage points over SOFR. Additionally, the loans would stipulate that once Smartsheet starts churning a profit, the interest rate would change to 5.75 percentage points over SOFR. 

The deal is expected to close in the coming weeks.

And harder. Profit is the sore spot for Smartsheet, as it has yet to turn one. However, things are looking up for the company – its earnings per share forecast states that in the next 12 months, the firm will increase its earnings per share by $0.03, up from September 5th's decrease of $0.21.

This quarter, however, Smartsheet managed to deliver $0.06 in earnings per share increases – likely a key reason behind the price increase from $6.6 billion to $7 billion to $8 billion. 

And it also helps that the company’s revenue growth rate is beating out its competitors, according to Benzinga, measuring 19.6% as of April 30. And given the company’s subscription-based model, this revenue is relatively stable and predictable. 

With this tailwind, there are two other operational paths Vista and Blackstone can take:

 1. Cost management: Benzinga also shows that Smartsheet’s net margins are below industry averages, at -3.37%. Effective cost management could strengthen profitability.
 2. Scale: Benzinga also notes that Smartsheet’s market capitalization is “a reduced size compared to peers,” which could be caused by “growth expectations or operational capacity.” MarketBeat thinks Smartsheet can grow into small- and medium-sized businesses that will be looking to cut costs and streamline operations with new technology as the economy contracts.

Blackstone and Vista did not respond to requests for comment.


Buyout News 

And now, a look at last week’s deals and deals-to-be…

… or not to be. Looks like CVC’s bid for Deutsche Bahn’s logistics unit DB Schenker went off the rails. Last week, CVC’s whopping €16 billion bid was beaten out by DSV’s €14.3 billion offer. DSV did not have union backing like CVC – so Axios warns that CVC may “continue pressing its case” to DB’s supervisory board and the German government. 

Speaking of workers’ claims, Carlyle-owned Sedgwick – a business claims management solutions provider – has received a capital injection of $1 billion from Atlas Partners, bumping its valuation up to $13.2 billion, just short of double the $6.7 billion valuation it garnered when Carlyle initially invested in 2018. Carlyle and Store Point Capital will remain on as investors.

Meanwhile, in the software space, Vista is additionally teaming up with Warburg Pincus to buy Redwood Software, a task automation software company. While financial terms of the deal were not disclosed, Turn/River Capital sought a $2.5 billion valuation when it launched the sale process earlier this year. 

Vista wasn’t the only software specialist having a busy week – Insight Partners was also all over the market, but on the sell-side.

Insight Partners has reportedly enlisted Evercore to bring its developer applications software platform, Tricentis, to market. Insight is seeking a deal to value the asset at $4 billion and is also considering retaining a minority stake in the company. It first acquired a stake in the company in 2017, when it led a $165 million financing round.

Insight Partners has also solidified the sale of its cyber security asset, Recorded Future, to Mastercard for $2.7 billion. The acquisition is expected to close in Q1 2025. Mastercard plans to use the software to help prevent identity theft and fraud. 

And finally, Permira has finally wrapped up its Squarespace deal, ultimately taking the company private for $7.2 billion – up from the agreed-upon price of just under $7 billion set in May. 

Not a soft week in software. 

Why Did Vista, Blackstone Up the Price on Smartsheet to $8B?

However, overall deal size does see a major impact from shifts in the Federal Funds Rate.

Interest rates are often cited as having a major impact on M&A activity, so it makes sense that private equity buyouts would be correlated with borrowing costs. However, statistical analysis of data from 2006 to 2024 shows that interest rates alone likely have little impact on private equity dealmaking (at least, in the US).

The Pearson correlation coefficient of buyout activity and the Fed Funds rate is approximately 0.20, suggesting a weak but positive correlation between the two. However, the correlation is not statistically significant – indicating that as interest rates decline, the impact to be had on overall buyout activity will be marginal. 

Meanwhile, the Pearson correlation between the size of buyout investments and the Fed Funds rate is approximately 0.40, indicating a moderately positive correlation. This suggests that as interest rates decline, the size of buyout investments also tends to decline. This relationship is statistically significant.

The findings are counterintuitive, as lower borrowing costs should increase both buyout activity and investment. However, the data suggests that factors other than interest rates – such as economic growth, valuations, and access to capital – have much greater influence over private equity buyouts. Indeed, private equity firms are currently sitting on an all-time high level of dry powder and the Philadelphia Fed is forecasting US GDP to grow 2% to 2.5% in 2024.

Lower interest rates may simply be a minor catalyst that enables these other tailwinds to accelerate buyout activity. Or, perhaps high valuations will continue to dampen buyout activity, despite the anticipation of lower interest rates. Financial markets are forecasting that the Federal Reserve will cut interest rates by 0.25 in September, but the S&P 500 is currently trading at a price-to-earnings ratio of 28.6, compared to a historical average of 16.1.

Interest Rates Alone Have Marginal Impact on Buyout Activity

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: One of the best examples of private equity supporting digital transformation in a portfolio company is Leonard Green & Partners and CVC Capital’s ownership of BJ’s Wholesale between 2011 and 2018. Digital was a key component of the value creation plan. For example, BJ’s launched a B2B eCommerce platform in 2017 that helped the company appeal to higher-paying business customers. The company also launched a mobile app around this time and hired a new Chief Information Officer as well as its first Chief Digital Officer. (Read More)


More Insights

 * “We’ve Moved Downmarket”: Behind Riverside’s Unique Roll-Up Strategy (Read)
 * US PE’s Outperformance of European PE is Structural, Not Operational (Read)
 * These Are the Top Feeder Companies for PE Operating Partners (Read)
 * Why Do Smaller Buyouts Outperform Large Caps? Operations. (Read)
 * How the Unwinding of the Yen Carry Trade Affects Private Equity (Read)


Spotlight

On your mark… GTCR, a Chicago-based private equity firm with significant backing from Blackstone, acquired AssetMark, an online wealth management platform, for $2.7 billion last week, making it one of the asset manager’s largest deals to date. 

GTCR agreed to the deal’s terms in April, while rumors of the deal first started swirling in December of last year. The take-private entailed payouts of $35.25 per share to existing shareholders, the largest being Huatai Securities, a Chinese securities brokerage and trading firm that made $796 million off of its $1.8 billion sale of its majority stake. GTCR now owns a 100% stake in the firm.

Get set… Key to GTCR’s growth plan for AssetMark is implementing Lou Maiuri, the former president, COO, and head of investment servicing at State Street Bank, as the chairman and chief executive of the parent group of AssetMark, AssetMark Financial Holdings. Current president and CEO Michael Kim will continue in his roles, running the business conjointly with Mr. Maiuri. 

Also key to its growth will be the offering of new product capabilities, though it is unclear what this will entail precisely, as AssetMark and GTCR did not respond to requests for comment.

The firm had only $60 million in its 2024 budget for technological growth, up from $45 million in 2023. 

The growth strategy differs from that of GTCR’s other wealth management asset, CAPTRUST, which it acquired a 25% stake in in June 2020 implying a $1.3 billion overall valuation. At that point, CAPTRUST had $390 billion in assets under advisement. At the end of July 2024, that number surpassed $1 trillion. 

For context, AssetMark’s AUA as of 30 June 2024 is $119 billion. 

The majority of CAPTRUST’s growth strategy has focused on gaining market share nationwide. Since GTCR was brought on, the firm has made add-ons in the following markets:

 * 2020: in Chesterton, IN; Michigan; and Denver.
 * 2021: in Phoenix; Pittsburgh; Sacramento (x2); Boston (x2); Georgia; Greenville, SC; Chicago; Texas; New Orleans; and Nashville.
 * 2022: New Jersey; the Midwest; Greenville, SC; Boston; Kansas City; Des Moines, IA; and Orlando.
 * 2023: Nashville; Houston; Boston; Dallas-Forth Worth; San Antonio; Indianapolis; Sanford, NC; and Seattle.
 * 2024: Houston.

The Carlyle Group was brought on in late 2023 as another minority equity investor to assist in CAPTRUST’s M&A strategy, implying a $3.7 billion overall asset valuation. 

…Go? It’s not off the table for GTCR to employ a similar M&A strategy when it comes to technological advancements for AssetMark. In the past, AssetMark has utilized M&A to expand its capabilities in turnkey asset management (Morningstar’s TAMP platform, 2024) and financial planning software (Voyant, 2021).

In fact, roll-ups and scale plays are quite common in PE wealth management deals. 

And PE interest in wealth management is rising, mainly due to the allure of steady fees the assets offer, alongside their ability to be scaled via roll-ups and add-ons. According to a report by Fidelity, private equity acquisitions of wealth management firms tripled between 2020 and 2023, now making up 78% of wealth management M&A.

However, some industry executives think private equity has hit the ceiling when it comes to the amount of M&A the sector can support. 

"So, despite these record numbers of mergers and acquisitions over the last couple years, we've only recently hit a point which I think is the steady state of M&A,” David DeVoe, chief executive and founder of consulting firm and investment bank DeVoe & Co., said in a 2022 interview with S&P Global.

“Extreme growth in M&A is something that's not super-scalable. It actually creates a risk of having some unhealthy M&A," he continued.

Indeed, 2023 saw 178 PE-backed deals, up from 171 in 2022 and 61 in 2020. The growth has slowed down, as has the average size of deals. In its January 2024 report, McKinsey noted significant market contraction of $6.2 trillion in AUA for 2022, signaling intense market competition for clients in the years to come. 

AssetMark’s path will surely be much more challenging than that of its fellow GTCR portco, CAPTRUST.


Buyout News 

Last weekend signaled the unofficial end of summer, so the pacemaking on deals picked up a good amount last week. 

For example, TPG acquired a majority stake in Altimetrik, a digital business services company, via its Asia capital platform. According to the India Economic Times, the deal values the company at $1.5 billion, making the majority stake of 60% that the firm is selling about $900 million.

Additionally, 26North Partners, the new firm launched by Apollo Global Management’s co-founder Josh Harris, inked its first deal at $1 billion (including debt). The firm bought ArchKey Solutions from One Rock Capital Partners. The asset provides electric system solutions and is based out of Missouri. 

Meanwhile, Harris’ former company, Apollo Global Management, acquired Beequip, a Dutch equipment leasing firm spun out from NIBC Bank, a Dutch asset financier. While the financial terms of the deal were not disclosed, Beequip’s portfolio currently totals €1.4 billion.

Finally, Birch Hill Equity Partners bought Rexall, a chain of retail pharmacies in Canada, and Well.ca, a Canadian online health and wellness retailer, from McKesson, an American healthcare conglomerate operating in the pharmaceutical and medical supplies spaces. Financial terms were not disclosed, though McKesson bought Rexall alone in 2016 for nearly $3 billion. 

And those are just the large-cap deals – not bad for a four-day workweek, hey?

Can GTCR’s $2.7B AssetMark Deal Weather a Wealth Management Slowdown?

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Cybersecurity companies have become popular targets for private equity due to their increasing importance to IT departments across industries. Approximately 18% to 28% of all IT budgets in the UK and US are now dedicated to improving technology resilience, according to B2B research firm Vanson Bourne and S-RM. For a deeper dive into cybersecurity through the lens of private equity, check out Value Add’s recent report. (Read More)


More Insights

 * “We’ve Moved Downmarket”: Behind Riverside’s Unique Roll-Up Strategy (Read)
 * US PE’s Outperformance of European PE is Structural, Not Operational (Read)
 * These Are the Top Feeder Companies for PE Operating Partners (Read)
 * Why Do Smaller Buyouts Outperform Large Caps? Operations. (Read)
 * How the Unwinding of the Yen Carry Trade Affects Private Equity (Read)


Spotlight

All aboard? CVC Capital Partners is one of two finalists left in a bidding war for Deutsche Bahn’s logistics unit, DB Schenker. CVC is not alone in its bid, having taken on the Abu Dhabi Investment Authority and Singapore’s sovereign wealth fund GIC as co-investors. 

The other party standing is the Danish transport group DSV A/S. 

Both groups have submitted bids of €14 billion ($15.6 billion) for the asset, though CVC is willing to go up to €16 billion if the German government reinvests in the company for a 25% stake. Both bids are binding and represent the final bids in the sale process. They fall below the previously reported valuations for DB Schenker of €15 billion to €20 billion. A winner is expected to be chosen by the end of this year, with the deal’s completion coming in 2025.

The sale process for DB Schenker, which made up over a third of Deutsche Bahn’s overall sales in 2022, began in December 2023 in an effort by the company to pay down its debts and focus on its “core business.” Twenty bidders and consideration of an IPO were immediately on the table. 

Eventually, that whittled down to seven non-binding bids. Maersk, a Danish shipping group, and Bahri, the national shipping company of Saudi Arabia which placed the largest bid, were the last to pull their bids in July, leaving CVC and DSV to battle it out. 

CVC’s bid is currently the favorite amongst Germany’s most powerful labor union, Verdi. Verdi fears DSV would cut jobs during the integration process – more specifically, Verdi fears it would cut 5,300 of the 15,000 people it employs in Germany. In turn, DSV has claimed that it will place employment guarantees for two years post-acquisition at the company, while investing €1 billion over three to five years to improve the company’s profits.

On track, or off the rails? Operating profit for DB Schenker last year was €1 billion, down from €1.8 billion in 2022. There has been a further decrease in H1 2024, with operating profit totaling €520 million, down 17% from the €626 million of H1 2023. Recent poor performance is blamed on reductions in air and sea freight turnover as well as losses associated with exchange rates.

How can CVC improve profits? According to Deutsche Bahn itself, Schenker is already cutting costs and decreasing its workforce – PE’s stereotypical playbook. But despite that already being put to work, there is still more to be done. A report states that, if selected as the buyer, CVC plans to list DB Schenker on the Frankfurt Stock Exchange while maintaining the company’s branding and German headquarters.

Additionally, CVC will want to help DB Schenker cash in on the e-commerce boom – something it has yet to benefit from, as its related volumes were only up 1% in H1 2024. 

This isn’t the only tailwind CVC could ride – provided it is able to keep up with the steep competition and high operational costs that plague the global logistics sector. For example, Statista estimates that the European third-party logistics market is estimated to grow at 2.61% between 2024 and 2028 to over $310 billion.

As such, many financial institutions are positive on European logistics:

 * Real estate manager AEW revised its growth projections for the sector upwards in light of Europe’s macroeconomic resurgence (a phenomenon that has boosted broad PE investment on the continent, as we explored in our European Private Equity Report 2024). 
 * CBRE Investment Management cites the stabilization of demand to pre-pandemic levels, alongside the rise in “reverse logistics” (returning purchased items) as a boost to demand.
 * Franklin Templeton maintains its conviction in European logistics, noting that rental rates for logistics have recently plateaued while the market’s growth fundamentals remain strong. Its subsidiary, Clarion Partners, also notes this, adding that e-commerce, shifting globalization, and more resilient supply chains are also due to add pockets of opportunity in the sector. 

CVC does have operational experience with e-commerce and logistics. Its current overall portfolio includes Scan Global Logistics, a Nordic cargo company the firm invested in last year; WWEX Group, a merger CVC spearheaded between two logistics solutions providers, Worldwide Express and GlobalTranz Enterprises, in 2021; Packeta Group, a Czech/Slovakian e-commerce delivery service the firm bought a minority stake in at the end of last year; and Fast Group, a Filipino end-to-end logistics group the firm invested in at the end of 2020. CVC is reportedly looking to exit its minority holding of Fast Group as of June of last year.

CVC did not provide a timely response to request for comment.


Buyout News 

Again, deals were sparse last week. 

However, one deal included Wynnchurch Capital-backed M2S Group buying Iconex’s label solutions group. The acquisition is reportedly part of a push to diversify the asset’s lines of business. Financial terms of the deal were not disclosed.

Despite the slow week, there are many interesting deals in the pipeline – particularly in sports. 

We won’t be the first to tell you that the National Football League has finally allowed institutional investors to take minority stakes in all teams but the Green Bay Packers. Reportedly $12 billion in capital has already been committed by players Ares, Sixth Street, Arctos, and consortium “The Avengers” which consists of Blackstone, Carlyle, CVC, Dynasty Equity, and Ludis.

Deutsche Bahn’s Logistics Unit Is Flailing – Can CVC’s €14B Bid Save It?

Add-on acquisitions have consistently made up the bulk of buyout transactions since 2016, according to Pitchbook data. In 2022 alone, they accounted for 77% of all buyout activity. And for good reasons – add-ons are cheaper, easier, and a solid way to deploy capital in a less-than-stellar dealmaking environment.

Despite the popularity of the model, The Riverside Company has found a way to put its own spin on it by thinking small.

“We are a pretty unique animal. Most people, when they raise more money, they just continue to move upmarket and write bigger checks because it's easier. In many ways, we've come downmarket,” said Jeremy Holland, managing partner in origination for The Riverside Company. 

Holland explained that of Riverside’s current portfolio companies, most initial assets in a roll-up strategy were valued at between $1 million and $2 million upon acquisition, as are most of the secondary assets. 

“By the third or fourth add-on, we find something with some scale. But due to deep industry specialization, we don't need to wait for that $5 million EBITDA threshold,” Holland added. He explained that while the multiples on those initial smaller companies are lower, the ultimate acquisition of an asset of scale brings the multiples up. In essence, patience is key.

“It is a much more efficient way for us to grow the business, to buy them smaller and bring in all those tier-one resources,” he said. “It's a very active part of our investment thesis. I'd say about half of our portfolio companies are very active with add-ons.”


An International Appeal

Holland says a lot of Riverside’s add-ons come through the skilled trade sector, such as fire safety technician services. He also says there are opportunities in the software sector. 

“Many of those are really a customer acquisition play. These are often vertical B2B SaaS where it's about capturing market share before somebody else comes up with a competing technology. It varies quite a bit based on industry,” he said.

One such example of a software roll-up Riverside has done is Energy Exemplar. According to Holland, the firm started as a much smaller business out of Australia. Then, via an acquisition in Utah, Riverside was able to open up a whole new customer base in the United States – and a whole new market of buyers. The firm was bought by Blackstone and Vista Equity Partners for an undisclosed amount at the end of 2023. 

“People think the add-on acquisition world is about efficiencies only. And for many of us, it's really about growth. And so leveraging our global footprint, we've been able to really make some transformative add-on acquisitions,” Holland said.

He pointed out that US-based assets typically have more intense bidding wars than assets overseas – however, few low- to mid-market players have the global presence that the assets’ off-takers (large-cap PE firms and multinational corporations) typically have.


The Importance of Integration

And of course, none of this nuanced approach would be possible without a dedicated operations team.

“The pure roll-up folks that are not integrating, that was very common in the heyday a couple of years ago because there was somebody else willing to pay you a full price for the asset and take on that integration risk. Increasingly, if you want to get a full multiple, you need to do that integration work,” Holland said. “Operational depth to handle all the integration work is critical. Of the 300+ people at Riverside, dozens are operating folks.”

These operating folks typically have a CFO’s background, so they can work better with Riverside’s portfolio companies. 

“A lot of global giant strategic buyers don't think you need two CFOs, so if they were not kept around, we jumped at the opportunity to bring some of those home to Riverside and help out our portfolio companies because they have walked in CFOs’ shoes,” Holland said.

Holland says that is key when it comes to building trust with portcos’ leadership – something crucial for success in the mid-market.

“We're going to hold your hand through this. We're not just going to tell you to switch systems; we're going to help you directly to convert to a more robust system,” Holland explained.

“We’ve Moved Downmarket”: Behind Riverside’s Unique Roll-Up Strategy

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Thirty-six percent of private equity operating partners have consulting experience, according to a recent analysis by Value Add, making it the most common path to such roles. However, PE firms are increasingly emphasizing functional specialties, such as finance and technology, which is broadening the range of industries and companies they recruit from to fill operations roles. (Read More)


More Insights

 * US PE’s Outperformance of European PE is Structural, Not Operational (Read)
 * These Are the Top Feeder Companies for PE Operating Partners (Read)
 * Why Do Smaller Buyouts Outperform Large Caps? Operations. (Read)
 * How the Unwinding of the Yen Carry Trade Affects Private Equity (Read)
 * PE Ownership Bears Some Blame for the Healthcare Cyberattack Crisis (Read)


Spotlight

Back to Baxter. Baxter International first announced plans to spin off its kidney care unit in January 2023, the company's largest business unit. Given that, Baxter was keen to find the right price for the newly dubbed spinoff firm, Vantive.

The firm was prepared to take Vantive private. Then, the Carlyle Group came in.

The two entities struck a deal for Carlyle to acquire Vantive for $3.8 billion, $3.5 billion in cash. Vantive generates $4.5 billion of annual revenue, though Forbes estimates $4 billion as Vantive’s fair-market value or 10x EBITDA. Carlyle’s deal likely represents a 9.5x EBITDA, then – slightly higher than the industry average.

The deal is expected to close in late 2024 or early 2025.

Carlyle’s health kick. Carlyle currently has 37 healthcare-related assets in its portfolio, though this acquisition marks the firm’s first kidney care investment in decades. That’s despite Anthony Welters, former chairman of kidney care company Somatus, being on Carlyle’s board.

Healthcare has been an important vertical for Carlyle, with Steve Wise, former global head of healthcare, being promoted to co-head of private equity, Americas in June. 

Additionally, Carlyle created Atmas Health, an operational partnership funded by Carlyle, in 2022. The partnership is led by long-time industry executives Kieren Gallahue, Jim Hinrichs, and Jim Prutow, whose collective experience will be “leveraged to build real value” in Carlyle’s healthcare portfolio, according to Gallahue.

Both Gallahue and Hinrichs are ex-Care Fusion, a med tech company acquired by BD in 2015, while Prutow is a former partner at PwC specializing in healthcare M&A due diligence.

No time to flatline. This partnership with Atmas will be an important strategy for growth, as Gallahue will serve as Vantive’s chairman to oversee the asset along the way. 

“We look forward to working together to build upon Vantive’s track record of patient-focused innovation and create long-term value in this next phase of the company’s development,” Gallahue stated in a press release on the transaction. 

PE carve-outs typically prove to be difficult when it comes to replacing the business functions that were formally centralized. However, there is evidence that the strategy can succeed in the healthcare space – KKR, for example, sold Capsugel to Lonza for a whopping $5.5 billion in 2016, a firm which it carved out from Pfizer for $2.38 billion in 2011. 

There are also strong tailwinds in the kidney care space. Baxter claimed that Vantive will operate in markets totaling $15 billion and believes it can grow at a rate between 4% and 5%. This is something that is mirrored in Vantive’s competitors – DaVita, for instance, increased its 2024 profit forecast this month due to an uptick in dialysis demand.

Carlyle did not respond to request for comment.


Buyout News 

Thoma Bravo has exited Trader Corp, a Canadian online auto marketplace, to Hellman & Friedman-backed AutoScout24, a European peer company. Financial terms of the deal, to close in Q4 2024, were undisclosed, though Bloomberg reported the firm’s estimated value as C$4 billion ($2.9 billion) in June. Thoma Bravo acquired the asset from Apax Partners in 2016 for about C$1.57 billion. 

And that’s about it for large cap deals that closed last week… bankers need a vacation too, right? We are in the dog days of summer, after all. Despite that, many firms are launching sales processes that are sure to get going once everyone returns to the office (sunburns and all). 

For starters, Turn/River Capital is looking to sell Redwood Software, a task automation software platform. Partnering with Goldman Sachs for the sale process, the San Francisco-based software investment firm is looking for a deal that values the asset at $2.5 billion inclusive of debt, or 25x its $100 million EBITDA. 

Also, Carlyle, Blackstone, Permira, CVC, Cinven, New Mountain Capital, and Bridgepoint are amongst the potential buyers for Grant Thornton, a British mid-tier accountancy firm valued between £1 billion and £1.5 billion ($1.32 billion and $1.98 billion). New Mountain Capital is seeking the asset to merge its American, British, and Irish businesses, as it holds a majority stake in the firm’s US business. Deadlines for proposals are due in September. 

And finally, Evolent Health, a healthcare software provider, is considering a take-private. It has a current market valuation of $3.8 billion. TPG, KKR, and CD&R are amongst the bidders, with TPG being an early investor in Evolent. Elevance Health, an insurance provider, is reportedly seeking to partner with a PE firm to launch its own bid. A deal is expected to be announced in the coming weeks.

$3.8B for Vantive’s $4.5B Revenue – Behind Carlyle’s Dialysis Deal

According to Fabien Chen, head of benchmarks at Preqin, North American buyouts have outperformed European buyouts since June 2009. Based on Preqin’s buyout index, North American PE has delivered 806% returns net of fees, while European PE has returned 697%.

Given Europeans’ reputation for strict labor laws and love of vacation time, alongside their abundance of red tape, it’s tempting to blame operational frictions as the cause of this underperformance. However, according to Chen’s colleague Victoria Chernykh, an assistant vice president of research insights at Preqin, the blame is more due to the structural differences in North American and European PE markets.

“North America is a much more homogenous market. It's the largest market as well. You get deals of all sizes [that are] larger in aggregate. That will potentially give you differentiation in performance — if there are more deals within small and mid [market], they will outperform the mega deals,” she explained.

Indeed, mid-market and lower mid-market PE strategies have performed much better than large-cap strategies, as we explored in a recent article, “Why Do Smaller Buyouts Outperform Large Caps? Operations.” Over the past ten years, the average returns in terms of quarterly NAVs and distributions were 387% for small- and mid-cap strategies and 286% for large-cap strategies.

Europe, by contrast, is a more fragmented market, according to Chernykh. This geographic focus also has a negative impact on performance. The same can be said for sector fragmentation – which Western Europe experiences a lot of, as we explored in our Q3 2023 analysis. 

“You get different splits in sectors and sector returns [between geographies]. The European technology sector, for example, has had better returns because it's not that homogeneous. It's different companies and it's very entrepreneurial,” Chernykh explained.

Technology has far outperformed other sectors in PE globally, garnering an 848% return gross of fees over the past ten years, the second highest performing sector after raw materials and natural resources (852%). Telecoms and Media, by contrast, garnered just a 197% return gross of fees for the same period.

Chernykh added the caveat that since other sectors have different weights in the European market, there is overall underperformance. Preqin expects this trend to continue through 2029.

And finally, there are more opportunities for exits in the US market. 

“There are opportunities to exit mega deals in the American market; even the IPO market, the public market, is more active at the moment and more popular,” said Chernykh. “[American portcos] just have a bit of an advantage and freedom of movement to receive valuations that they want to receive when they exit and they do exit.”

In fact, Q2 2023 was the first time in recent history that Europe ever produced more PE exits than the US. Chernykh attributed this to a myriad of reasons, one of which being the stunted IPO market in the US, which has limited the avenues PE firms can take for larger exits. 

She expects that when the IPO market normalizes, large-cap exits for PE firms will, too – which will, again, favor US-focused strategies. 

US PE’s Outperformance of European PE Is Structural, Not Operational

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Recession indicators are starting to flash in the US, prompting private equity investors to evaluate potential risks in their portfolios. Consumer businesses, such as retail, are generally seen as riskier during economic downturns, but there are segments that can actually outperform during recessions. For example, our recent case study of BJ’s Wholesale (which was owned by Leonard Green & Partners between 2011-2018) saw its average monthly customer spend increase 25% during the 2020 recession. (Read More)


More Insights

 * Why Do Smaller Buyouts Outperform Large Caps? Operations. (Read)
 * How the Unwinding of the Yen Carry Trade Affects Private Equity (Read)
 * PE Ownership Bears Some Blame for the Healthcare Cyberattack Crisis (Read)
 * The Midmarket’s People Problem (Read)
 * Private Equity Case Study: Catalent (Read)


Spotlight

On the double. Initial reports that Cinven was looking to offload JAGGAER, a B2B supply chain management software platform, were announced in May. A deal has ultimately been struck with Vista Equity Partners to offtake the asset. 

While the exact financial terms were not disclosed, sources said that the deal Cinven sought would value the asset at $3 billion including debt – double the $1.5 billion valuation Cinven gave JAGGAER when it bought a majority stake in the company in 2019 from Accel-KKR. 

The valuation has garnered over a 20x multiple on its EBITDA from the 12 months preceding the announcement of the sale process, which was $125 million. For that same period, JAGGAER had an overall revenue of $300 million.

Moves like JAGGAER. Cinven’s offloading of the asset wouldn’t be possible without five years of value creation. 

Human capital played a key role in Cinven’s strategy, with JAGGAER’s c-suite undertaking a massive overhaul:

 * Andy Hovancik joined the firm as CEO in June of last year. Before that, he served as the president and chief executive of Sovos Compliance – a reporting software – for a little over a decade. Before Hovancik, the role was held by Jim Bureau, who was promoted internally when Cinven first acquired the asset in 2019. He stepped down in the wake of mass layoffs just three months before Hovancik joined.
 * Dan Corazzi joined as CRO in 2021 after holding multiple senior positions at SAP. Before his appointment, the position of chief revenue officer did not exist at the company.
 * Jeff Laborde was brought on as CFO and executive ESG sponsor in 2020. He previously served as chief financial officer of five different companies before taking on the role, and before that was a managing director at Goldman Sachs. 

Laborde’s hiring was not the only major move for JAGGAER in the ESG space. In 2022, the company released its first-ever ESG report, describing the realignment of its core goals under Cinven’s leadership to prioritize ESG best practices. One such goal includes a plan to reach net zero emissions by 2040. 

Finally, under Cinven’s leadership, JAGGAER launched JAGGAER One, a cloud platform that allows customers to collaborate on procurements across spend categories.

The view from Vista. Vista Equity Partners did not respond to requests for comment. However, as a software specialist, it’s likely that the firm’s value creation strategy for JAGGAER won’t differ much from those of its past assets. Beyond its famous “101 Best Practices” playbook, Vista also boasts synergies between its network of 85+ software companies as a key method of value creation. 

“JAGGAER is led by a high-performing leadership team with a demonstrated commitment to operational excellence and a bright vision for the future of AI-powered spend management,” Sam Payton, senior vice president at Vista, stated in a press release.


Buyout News 

Apollo Global Management and Rettig have together purchased a 94.5% stake in Purmo Group, a Finnish sustainable heating and cooling company. The firms have formed a joint venture where Apollo owns 80% and Rettig 20%. The joint venture plans to acquire the remaining stake in Purmo Group and take it private in the coming months. 

Apollo wasn’t the only PE firm looking to make sustainable deals in Europe last week. EQT is looking to acquire a majority stake in AMCS, an Irish software company focused on the waste management sector. Financial details have not yet been made publicly available, but the deal is expected to close in Q1 2025. 

More details are available on EQT’s bid for Property Guru, a Singapore-based online real estate platform. The take-private plan includes paying $1.1 billion cumulatively for outstanding shares, at a 52% premium over the closing price before rumors of an acquisition started swirling in May. Current minority shareholders include KKR and TPG, who are supportive of the deal.

And the software deals don’t stop there – Francisco Partners has managed to sell QGenda, a healthcare workforce management software provider, to media giant Hearst for over $2 billion, meaning it has made a 15x return on its eight-year-old investment. 

And finally, large corporate Carrier Global has sold its commercial residential fire business to Lone Star for $3 billion. The deal is expected to close by year-end and represents one of many deals carried out for Carrier’s divestiture program, which also saw the sale of its industrial fire business to Sentinel Capital Partners for $1.4 billion in March. 

Cinven Sells JAGGAER to Vista, Doubles EV

Small- and mid-market buyout firms with dedicated operational teams are rare. Yet, counterintuitively, those same firms’ funds tend to outperform their larger peers despite their lack of resources. 

According to Fabien Chen, head of benchmarks at Preqin, smaller buyout funds in the US have outperformed their large-cap peers by a good margin in recent years. Over the past year, Preqin’s small index buyouts have had an average return in terms of quarterly NAVs and distributions of 11.6%, while its mega index buyouts have had one of 7.8%. Over the past five years, that gap jumps from 138% versus 105%. And finally, over the past 10 years, that gap jumps from 387% versus 286%.

There are many reasons for this stark difference in performance – first and foremost, exit opportunities are more robust in smaller markets. “Valuations are high and [large cap PE firms] cannot exit. There are very limited exit routes for them,” explained Chen’s colleague Victoria Chernykh, an assistant vice president of research insights at Preqin. “[Lack of exits] is significant in the mid-market and smaller markets, but it's less dramatic.”

PE exits were at a 10-year low in Q3 2023, according to our October 2023 report.

Chernykh added that one of the key differentiators is operational, though – because smaller companies rely less on the multiplier effect for capital to create scale and therefore value, small caps’ operational improvements are more pronounced and more important. 

"When you're a smaller company, things tend to be less efficient. So if you have help and if you scale up and grow and somebody is helping you with that, bringing capital in and expertise, you're going to become more efficient as a large or mid company,” she explained. “Larger companies tend to be very inert.”

This could be why private equity has been embracing smaller deals in recent months. As we previously reported, deal sizes are at all-time lows since the financial crisis while the amount of money raised for the mid market was reportedly half of all fundraising in Q1 2024.

And it’s not like industry players haven’t taken notice: Schroders Capital, for example, notes that large cap deals have grown at a much slower rate than large-cap fundraising over the past decade (a 1.6x rise in deals versus a 14.9x growth in fundraising) while small- to mid-sized deals (between $50 million to $2 billion) are growing more quickly than fundraising for the sector (a 2.7x rise in deals versus a 2.4x growth in fundraising). 

Meanwhile, PineBridge Investments thinks that middle market firms are “nimbler and better positioned to adapt swiftly to market changes, capitalize on niche opportunities, and drive value creation through operational enhancements.”

Given their limited resources to provide portfolio support, many of these smaller firms ask their investment teams to night shift as operating partners. Whether or not operations-driven alpha for smaller buyouts turns into dedicated operations teams becoming the norm, however, remains to be seen. 

Why Do Smaller Buyouts Outperform Large Caps? Operations.

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Japan has been a rare bright spot for private equity activity over the past two years. Buyout firms invested nearly $40 billion in Japan in 2023, up 48% year-over-year. A recent interest rate hike by the Bank of Japan could now dampen buyout activity in the country; although, as we discuss in today’s Spotlight, some firms such as KKR see no reason to stray from their buyout strategy in the region. (Read)

More Insights

 * How the Unwinding of the Yen Carry Trade Affects Private Equity (Read)
 * PE Ownership Bears Some Blame for the Healthcare Cyberattack Crisis (Read)
 * The Midmarket’s People Problem (Read)
 * Private Equity Case Study: Catalent (Read)
 * Operations Are at the Core of Edison Partners’ Energy AI Deal (Read)


Spotlight

Full steam ahead. Last week raised alarm bells for most investors with exposure to Japan as the Bank of Japan raised interest rates for the first time since the Global Financial Crisis. Down went the Nikkei 225, and with it, the Yen carry trade, signaling the beginning of an economic slowdown in the country.

Private equity was bullish on Japan pre-rate hike. In 2023, Japan’s share of global buyouts was 12%, the highest in its history, leading to firms investing big in Japan-focused strategies, such as Carlyle’s $2.8 billion Japanese buyout fund it raised in May of this year. 

In the face of volatility, many investors pulled back from the region. But not KKR. 

The firm announced a deal to take Fuji Soft, a software provider for both IT and operational technology, private for ¥600 billion ($4.1 billion), or ¥8,800 per share. That represents a 110.3% premium over the average closing price over the 12 months preceding October 2023, when discussions became public, and approximately 20x EBITDA on the firm’s projected 2025 earnings. The median EBITDA for its peers is just over 8x, though KKR reportedly sees additional value in Fuji’s real estate portfolio.

The possibility of a take-private was unearthed when majority shareholder 3D, a Singaporean investment firm currently holding a 21% stake in the company, started looking into the option in the fall of 2023. Its offer was a mere ¥75 billion. 

KKR’s offer is higher than the stock has ever traded. Value Add understands that recent macroeconomic shocks in Japan did not cause KKR to revise its offer, given that the firm will enter into long-term hedges for the deal and KKR does not base investment decisions on entry-level FX rates. 

A source close to the deal divulged that KKR’s offer is high because it is attracted by the strong growth potential of Japan’s IT services, especially as the government encourages digital transformation in the economy. Also, KKR sees significant value in Fuji Soft’s real estate portfolio.

KKR expects the deal to close in the coming months.

The asset manager has long been bullish on Japan, its largest exposure in APAC, entering the market in 2006 and deploying over $8 billion to accumulate $18 billion in assets under management in the region. According to KKR’s 2024 Investor Day presentation, those assets have performed well, producing a 40% gross IRR for traditional Japanese PE investments. Scott Nuttall, KKR’s CEO, labeled it the “most interesting” market for buyouts. Its stellar run with chip maker Kokusai Electric is one recent example of this.

Headwinds or Tailwinds? KKR is not the only financial institution to remain optimistic about Japanese buyouts. 

 * PWC foresees strong growth in the sector, given there is ample room for penetration – the ratio of private equity investment to GDP in the US is 2%, for example, while in Japan it is only 0.2%. 
 * Capital Group says that Japanese companies have a lot of cash on their balance sheets, and are finally ready to allocate that cash to shareholders. It also pinpoints software as one sector poised to grow once volatility subsides. 
 * HSBC’s outlook on Japanese equities is positive, given reasonable P/E ratios and the ability of the rebounded Yen to spur domestic economic growth.
 * M&G Investments thinks that strong earnings and structural improvements in corporate reporting are headwinds for Japanese companies. 

Still, to create the most value during economically troubled times, KKR would be prudent to reduce selling costs, improve budget transparency, and shift to a variable spending model when it comes to Fuji Soft, as outlined in our March 2023 Survival Guide for Tech Firms in an Economic Downturn. 

KKR declined to comment. 


Buyout News 

Neuberger Berman is aiming to buy a minority stake in Nord Anglia Education, an international private school operator, from EQT. The deal will value the operator at $15 billion, including debt. The massive transaction is a huge win for EQT, which inherited Nord Anglia via its acquisition of PE firm and then-owner, Baring Private Equity Asia, for $7.5 billion in 2022. 

Meanwhile, EQT plans to buy a majority stake in Acronis, a Swiss cybersecurity and backup provider, from Springcoast, BlackRock, and CVC. The latter two firms raised $250 million for Acronis’ last round of funding, valuing the firm at $3.5 billion. All three firms will remain minority investors. EQT has only disclosed that its valuation is above $3.5 billion.

Cinven is buying a majority stake in Vitamin Well, a Swedish beverage producer, from Bridgepoint for an undisclosed amount. Bridgepoint bought Vitamin Well in 2016 in a deal valuing the firm at €100 million including debt. This current transaction will value the firm at €3 billion ($3.3 billion) including debt and is expected to close in the coming months.

Apax is taking IT consultancy Thoughtworks private – just three years post-IPO – for $1.75 billion total at $4.40 a share, a 30% premium on its 2 August closing. Apax has held the asset since 2017 and says the take-private is to “re-focus on growth.” The stock has dropped 87% since January 2022 and Q2 2024 saw a 12.4% drop in the firm’s revenue year-over-year.

Finally, Bansk Group is taking pet health provider PetIQ private for $1.5 billion total at $31 a share, or a 51% premium. The transaction will be an all-cash transaction and is expected to close in Q4 of this year. 

Behind Fuji Soft: Why KKR Keeps a Steady Hand on Japan

Volatility is high in Japan’s public equity markets. The Nikkei 225 index lost 4,451 points on Monday, its largest single-day decline since 1987. The sell-off was sparked by a surprise interest rate hike by the Bank of Japan, which strengthened the value of the Yen thereby decreasing its attractiveness in carry trades (i.e. borrowing in Yen to invest in high-yield assets elsewhere). 

Japan has had negative interest rates since 2016, making the Yen one of the most popular carry trades in foreign exchange markets. It’s also what has made the country a rare bright spot for PE buyout activity over the past several years, with KKR’s Scott Nuttall calling it the “most interesting” market for traditional buyouts earlier this year. Firms such as KKR, Bain Capital, Carlyle Group, and Blackstone all have dedicated Japan-focused funds or significant investments in Japanese companies. Collectively, buyout firms invested nearly $40 billion in Japan in 2023, up 48% year-over-year, according to data from Mergermarket.

But the party can’t go on forever – and the Bank of Japan may have just turned the lights on.  

Negative sentiment

First and foremost, higher interest rates can slow down economic growth. If Japan’s economic outlook deteriorates, it could impact the performance of portfolio companies, leading to lower revenues and profitability. This affects the ability of private equity firms to generate returns.

This could, in turn, damper the excitement that investors feel for Japan, leading to a reduction in investment flows into Japanese assets, including private equity investments. Lower capital inflows can reduce liquidity and increase competition for quality deals.

Negative market sentiment has already led to a significant sell-off in public equity markets, like the Nikkei 225 – and this can spill over into private markets. Negative market sentiment can lead to valuation discounts, affecting existing portfolio companies and making it more challenging to exit investments at favorable valuations. On the exit front, public market volatility can also reduce the likelihood of successful IPOs, and strategic buyers may be less willing to engage in M&A activity at attractive valuations.

Portfolio pressures

At the portco level, the cost of borrowing has increased for companies in Japan. This can lead to higher financing costs for private equity firms, straining the financial health of portfolio companies, especially those with significant debt on their balance sheets, and impacting companies’ ability to invest in growth and expansion initiatives. 

The strengthening of the Yen can also lead to increased currency volatility. Private equity firms with investments in Japan may face exchange rate risks, impacting the value of their foreign-denominated assets and liabilities. Hedging these risks can add to the cost and complexity of managing investments.

The unwinding of the Yen carry trade

Finally, LPs in private equity funds might demand redemptions to free up cash to cover losses if they had exposure to the Yen carry trade. This would put further pressure on PE firms to exit portfolio companies – even if it means doing so at depressed valuations.

While the unwinding of the Yen carry trade poses direct risks to the Japanese market and private equity investments in Japan, it also has the potential to create ripple effects across global private equity markets. Investors exiting positions to cover losses can lead to liquidity issues, forced sales, increased redemption requests, and negative market sentiment, all of which can compound the challenges faced by private equity firms in managing their portfolios and achieving desired returns.

How Will a Strong Yen Affect Private Equity?

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends.


Insights

Chart of the Week: The sector with the most PE exits in 2023? Technology. The sector with the largest decline in exits? Also technology… In our Private Equity Exits Report we examine exit trends across sectors and why PE firms are delaying exits – and holding on to technology companies in particular – for longer periods of time. (Read More) 

More Insights

 * PE Ownership Bears Some Blame for the Healthcare Cyberattack Crisis (Read)
 * The Midmarket’s People Problem (Read)
 * Private Equity Case Study: Catalent (Read)
 * Operations Are at the Core of Edison Partners’ Energy AI Deal (Read)
 * Europe Private Equity Report 2024 (Read)


Spotlight

Dissolving an unhappy marriage. New Mountain Capital and TCP-ASC, an investment vehicle jointly held by Towerbrook Capital Partners and Ascension Health Alliance, have been the two largest shareholders in R1 RCM, a healthcare revenue cycle management company, since the company was formed in 2017. In February, New Mountain owns a 32.4% stake, while TCP-ASC owns a 29.6% stake. As of 31 July, Towerbrook's stake has jumped to 35.7%.

In February, both private equity firms were considering an all-cash buyout at $13.75 per share, or $5.8 billion total, to acquire the remaining outstanding shares in the companies. Shareholders immediately came out against the acquisition, arguing that $5.8 billion undervalued the company. In March, R1 RCM told the two firms to halt their buyout discussions. By May, New Mountain reversed the tide by proclaiming that it would only pursue a joint bid with Towerbrook. 

But that bid never came to fruition. The following month, it was reported that the two firms had failed to reach an agreement for the joint venture, and stock prices fell by 9.2% in response. For a while, it looked like New Mountain Capital was going to go it alone, putting in an even lower bid of $13.25 per share, or $5.58 billion, all-cash.

That was July. But last week, Towerbrook came out victorious, clinching the asset alongside co-investor CD&R (Clayton, Dubilier & Rice) for $8.9 billion, with a mix of both debt and equity. This values R1 RCM at $14.30 per share, an 11% premium from its closing price on 31 July, and a 29% premium over the closing price that existed before New Mountain’s take-private hopes went public.

The proposal has been unanimously approved by the special committee that ordered New Mountain and Towerbrook to halt their buyout discussions in March – that approval, though, has already sparked a lawsuit from shareholders against the board for breach of fiduciary duty.

The problem child. For all the drama and back-and-forth, one would expect R1 RCM to be a jewel in both managers’ portfolios. In reality, the firm has a years-long history of shaky revenue and legal issues. 

First, the company’s stock price took a major hit at the end of 2022, as poor profits and allegations of securities fraud spooked investors. The firm immediately replaced its CCO and CFO in January 2023, leading to a slight recovery in stock price, though it still has not returned to its 2021 high. 

The firm has also been accused of revenue manipulation by an activist short-seller, leading to yet another legal investigation at the end of last year. Around the same time, TCP-ASC had to shoulder the brunt of a $45.4 million payout over another lawsuit alleging a breach of fiduciary duties in regard to recapitalization. New Mountain Capital only paid $2 million of the $45.4 million sum, while the R1 RCM board paid $3.6 million.

There is also the issue of cybersecurity. It’s no secret that healthcare is one of the most vulnerable industries to cyberattacks – and, as our recent article reveals, PE ownership has some culpability in the cyberattack crisis for pushing independent offices onto platforms like R1 RCM. 

R1 RCM’s major data breach in March has rumors of a class action lawsuit swirling. Additionally, the cyberattack on direct competitor Change Healthcare negatively impacted R1 RCM’s own revenue and adjusted EBITDA by $9.5 million for Q1 2024. Keybanc then downgraded the stock in April.

Room for improvement. However, there are still major tailwinds for the health tech sector that likely influenced both parties’ zeal for the take-private. 

For example, software companies tend to outperform other healthcare sector companies during economic downturns due to their more predictable revenue streams. There has also been an uptick in the need for RCM software, as labor shortages have forced healthcare providers to outsource such functions. The market is currently only at 30% penetration, meaning there’s still room to scale. 

There is also the competitive advantage that R1 RCM has from its multiple acquisitions of its direct competitors. In 2020, for example, it acquired Cerner’s revenue cycle business “RevWorks” for $30 million. Then, in 2022, it acquired Cloudmed for $4.1 billion in an all-stock transaction. Finally, this year it acquired Providence-based Acclara for $675 million cash.

Towerbrook Capital Partners declined to comment, while R1 RCM and CD&R did not respond to requests for comment.


Buyout News 

Sixth Street has acquired insurer Enstar in a $5.1 billion take-private. The firm currently holds 4.7% of shares and is offering $338 per share for the insurer, or a 3% discount from the stock’s closing price at the end of the week prior, which sent shares down 6%. Enstar’s “go-shop” period will end on September 2. 

Apollo Global Management also had a take-private last week for US Silica. The Manager paid $15.50 per share in cash, or $1.85 billion total, for the firm, a minerals and logistics company serving the oil and gas industry. The deal represented an 18.7% premium over the stock’s closing price on April 25 ($13.06), the day before the deal was announced.

HPS Investment Partners is buying the regional aircraft leasing segment of Chorus Aviation for $1.9 billion. The deal consists of $814 million in equity and about $1.1 billion in debt and will close at the end of this year. 

Berkshire Partners and Leonard Green and Partners have teamed up to invest in Vital Care, a franchiser of infusion therapy pharmacies. While the financial details of the deal were not disclosed, what is known is that initial investor Linden Capital Partners will stick around for the ride, managing the firm alongside Berkshire, Leonard Green, and the family of the firm’s founder. 

Towerbrook Victorious in Battle with New Mountain for R1 RCM

The number of cyberattacks on healthcare systems has risen dramatically in recent years, with the ID Theft Center’s 2023 Data Breach Report showing that healthcare was the top industry for cyberattacks in 2023, having seen its number of breaches more than double year-over-year from 2022.

At the same time, private equity involvement in healthcare has also risen. According to the Lown Institute, a healthcare-focused think tank, private equity buyouts of physician practices were six times higher in 2021 than in 2012. Additionally, about 30% of for-profit hospitals are currently owned by private equity. 

Could these two trends be linked?

“The biggest theoretical issue [in PE-backed healthcare] is really around network and cybersecurity,” said Duff Bourassa, a managing director for consultancy E78’s healthcare division. “A lot of these smaller clinics use on-premise servers. So when private equity gets involved, they want to get them to the cloud as quickly as possible so they can have easier access to the [clinic’s] data.”

Todd Zigrang, president of Health Capital Consultants, a St. Louis-based advisory firm that works with a number of private equity firms during healthcare acquisitions, has also noticed this trend: “[Smaller companies] would have the billing in-house. There’s typically a server on-site,” he explained. “The ability of [private equity] to bring them into their IT systems to transfer their data so they can participate in value-based [operations assessments]… is important.”

And the cloud may be the key – in 2022, for example, 61% of healthcare respondents encountered a cloud infrastructure breach, according to KMS Healthcare.


What is the cloud?

The cloud is an umbrella term for the servers hosted by a variety of different companies that allow users to access their data and files without physically saving them to their hard drives. 

As Bourassa mentioned, the cloud provides private equity firms with much-needed data to make informed business decisions in real-time, across assets. The same could not be done with numerous internal IT servers — scraping data from them regularly would be labor-intensive and slow.

“It's operational,” explained Bourassa. “I want to know: how many patients came in today… how many different procedures did I do? If I'm behind, then I need to allocate resources to either increase scheduling or maybe I need to change marketing.”

“All of those numbers and metrics are key indicators for private equity and they want to know as quickly as they can,” he continued.

Whether or not the cloud is more secure for firms to move to is highly debated. Bourassa also explained that cloud-based servers offer more insight into who is accessing data, where they’re accessing it from, and when they’re accessing it. While one small internal server can be subject to phishing and ransomware, he added, they are overall more difficult to hack.

“There's a benefit to having a local server because you're less likely to be broken into; it's much harder to get information out of,” explained Bourassa. “They're local; they're usually more protected because they're inside an office.”

And furthermore, there’s less incentive to hack a small, singular server, as the “reward” for doing so is much smaller than the “reward” that would be reaped from hacking multiple healthcare sites all on one server.

While Bourassa did not go as far as to link the growing number of cyberattacks to private equity ownership or the cloud, he did maintain that the security of cloud systems has become a major issue for investors.

However, the rise in cloud-related cyberattack incidents and the integrality of the cloud to PE's healthcare operations is hard to ignore, especially when PE ownership of healthcare is increasing.


A larger trend

Migration to the cloud is not exclusive to private equity. Large corporate healthcare conglomerations and mergers are on the rise and also have a need for quick analytics — and they, too, move their clinics to the cloud.

However, the cloud-based IT needed for large-scale healthcare operations is crucial to most private equity firms when it comes to value creation in healthcare. Add-on deals make up a majority of private equity-related healthcare deals, according to PitchBook.

In fact, if it weren’t for private equity or corporate ownership, it is unlikely that these firms would make the decision themselves to move to the cloud.

“Most of the local firms [aren’t on the cloud], just because it's a heavy cost and they don't have the resources,” explained Bourassa. “They've got a firm that handles their IT and they maybe have five or six laptops, and that's it. They just don't have the infrastructure. When private equity gets involved, they have the money; they have the infrastructure.”

The security issues associated with the cloud, alongside cost issues, have led to a growing IT repatriation movement across sectors. A 2024 survey from Citrix, a cloud computing company, found that 94% of respondents had been involved in cloud repatriation in the past three years. 

This is a strategy that may not be realistic for many private equity operators. What PE firms can do, however, is keep a dedicated chief information security officer on staff – especially in lower- and middle-markets. As we outlined in our February 2024 Cybersecurity Playbook in Private Equity Report, such an individual can put in place operational excellence tools like portfolio-wide diagnostics, proper insurance, dedicated cybersecurity staff, and training modules to non-IT staff to keep data safe.

Does PE Ownership Bear Some Blame for the Healthcare Cyberattack Crisis?

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends.


Insights

Chart of the Week: A distinctive characteristic of Carlyle’s portfolio operations team is its extensive experience. On average, a Carlyle operating executive has 35 years of professional experience, with 29 years specifically in industry roles. In comparison, a management director at KKR Capstone usually has 21 years of experience, including only three years in industry. This highlights Carlyle’s preference for executives with significant industry tenure. (Read More)


More Insights

 * The Midmarket’s People Problem (Read)
 * Private Equity Case Study: Catalent (Read)
 * Operations Are at the Core of Edison Partners’ Energy AI Deal (Read)
 * Europe Private Equity Report 2024 (Read)
 * Consumer Sector Private Equity Report (Read)


Spotlight

Learning from the past, or gambler’s fallacy? Apollo Global Management is rolling the dice yet again on the gambling industry, betting $6.3 billion in an all-cash transaction to acquire the gaming and digital business of International Game Technology (IGT) and merge it with Everi Holdings, a slot machine maker and casino service provider.

Apollo will be taking both businesses private in the process, with Everi shareholders receiving $14.25 per share (a 56% markup from July 25th’s closing price) and IGT receiving a lump sum of $4.05 billion. De Agostini, the majority shareholder of IGT, will retain a minority stake in Apollo’s new venture.

It’s not Apollo’s first bet on the betting space. Just two years ago, Apollo exited PlayAGS after nearly a decade of ups and downs with the company. Apollo acquired what was then American Gaming Systems, a slot machine and casino equipment manufacturer, in 2013 for $215 million, sinking another $100 million in its PlayAGS rebrand and expansion. 

In stark contrast to the firm’s IGT-Everi deal, Apollo made the decision to IPO PlayAGS in January 2018. The initial asking price per share was between $16 and $18, though it quickly surged to $18.50, with Apollo in line to make a 2.8x return on its investment. By August, shares were trading at a high of $32. 

Then, it all came crashing down. Over the course of 2019, share prices dropped from upwards of $25 to the $10 to $12 range. Covid then sped along the death spiral; by October 2020, shares were closing around $2.70. Apollo exited the company for good at the end of 2022, when its stock was closing at $6.35, valuing its total stake at just $52 million. In May, Brightstar Capital Partners launched a $1.1 billion bid to take PlayAGS private, which is still ongoing.

Perhaps the private play with IGT-Everi will save Apollo from repeating those highs and lows, but even that was a shaky strategy in the past for the firm. In 2008, Apollo and TPG infamously spent $27.8 billion to take Harrah’s Entertainment private. By 2015, Harrah’s had become Caesar’s Entertainment and was filing for Chapter 11 bankruptcy. In 2017, when Caesar’s exited bankruptcy, Apollo and TPG held a minor 16 percent stake that it later sold off for $323 million in 2019. 

Why buy? Despite Apollo’s poor performance in the past with gaming, there are still key avenues for growth for IGT-Everi. The deal includes IGT’s digital sports betting business, which is a booming industry. Online sports betting revenue is slated to increase by 10.7% per year over the next five years, making its projected 2029 market volume $23.8 billion.

Also, the B2B nature of Everi’s slot machine business makes the acquisition a more reliable buy. Slot machines are typically leased, creating steady and high cash flows that amounted to 70% of Everi’s sales as of March 2023. 

Apollo isn’t alone in its bullishness on gambling and gaming – many of its competitors are getting in on the action, too. Here are some key deals since 2023:

 1. Parthenon Capital Partners: In February 2023, Parthenon spent $415 million on Global Payments’ gaming solutions business.
 2. Silver Lake: In April of this year, Silver Lake spent $13 billion taking Endeavor, an entertainment company with a major gambling platform, private. Silver Lake paid $27.50 per share, at a 55% premium from the firm’s October share price – not too far off from the 56% markup Apollo is paying for IGT-Everi. 
 3. Standard General: Just four days ago, the hedge fund agreed to pay $18.25 per share, at a 71% premium, to take global casino operator Bally’s private, valuing the company at $4.6 billion.

Apollo declined to comment.


Buyout News 

Not to be confused with the Everi deal, Apollo also bought Evri last week, a British delivery company. Former owner, Advent International, is slated to get £2.7 billion ($3.47 billion) for the firm, which it bought for €1 billion (about $1.28 billion) in 2020 when it was the UK branch of Hermes delivery group, rebranding it as Evri in 2022.

KKR also had a busy week, buying ed-tech company Instructure for $4.8 billion. The buyout is a take-private for the NYSE-listed company that will see current majority shareholder Thoma Bravo and other stakeholders receive $23.60 per share, in cash – a 16% premium over its May 2024 share price. Thoma Bravo took Instructure public in 2021. 

KKR also made headlines in its deal to buy Janney Montgomery Scott, the wealth management subsidiary of Penn Mutual Life Insurance, for an undisclosed amount. Janney currently manages over $150 billion in assets. Once the transaction closes in Q4 of this year, Janney will operate as a private company. 

Permira, conversely, is looking to sell its wealth management asset, seeking a buyer for its £1.5 billion ($1.93 billion) stake majority stake (56%) in Evelyn Partners, a private British firm Permira acquired in 2014 managing over £60 million in assets. Permira is reportedly considering a sell-down of its stake, an outright sale of its entire stake, or even a spin-out of Evelyn’s accounting practice. 

The Abu Dhabi Investment Authority (ADIA) is considering a €1 billion (about $1.1 billion) investment in a continuation fund for PAI Partners’ Froneri ice cream business, a joint venture launched in 2016 between PAI-backed R&R and Nestle. The deal could value Froneri at over $10 billion.

Finally, Hamilton Lane has acquired a large stake in the New Jersey-based Cosette Pharmaceuticals for an undisclosed amount. The seller, Avista Capital Partners, will retain a portion of its stake and jointly manage the drug manufacturer with Hamilton Lane moving forward.

Gambler’s Fallacy? Behind Apollo’s $6.3B IGT-Everi Take-Private

The midmarket is back in 2024. Refinitiv data shows that the average PE deal value is currently $65.9 million, the lowest since the financial crisis. Buyout activity for deal sizes under $1 billion has held up much stronger than in other areas of the market.

Moreover, nearly half of PE capital raised in Q1 2024 was for midmarket-focused funds. It’s safe to say, the midmarket is having a moment.

However, to land deals and drive value creation in this segment of buyouts, collaboration with talent at the portco level is key. The midmarket has unique human capital challenges that larger-cap buyouts do not face. 

According to Kyle Johnson, a managing director and the head of marketing at BluWave, a value creation and due diligence consultancy focused on midmarket PE, interest in human capital-based projects for value creation has more than doubled since Covid. 

“As we went through the Covid era… what we found was that human capital-initiated projects continued to be the number one most-requested type of project that BluWave supports our clients with, specifically on the value creation side,” he said.

On average, human capital made up 48.4% of all value creation projects requested by PE firms from BlueWave between Q1 2020 and Q2 2024. It beat out finance, technology, sales and marketing, operations, and strategy. Operations-related projects were the second-most requested type, at 14.2%.


Understanding midmarket portco execs

The effort to invest in human capital at the portco level is an important one — the friction between PE operator and portco executive often comes down to a lack of understanding. 

For example, Alix Partners’ 2024 PE Leadership Survey found that 26% of PE leaders and 11% of portco executives think a lack of strategy and vision is an obstacle to growth. Nearly half of PE executives chalk this up to leadership’s “lack of urgency and unfocused execution,” whereas portco executives reject this. They say the biggest cause is investors lacking operational expertise, with clashes in work style and lack of sufficient capital from PE firms also being two major concerns. 

Additionally, the survey found that 49% of PE leaders say their relationships with portcos are trusting, versus 38% of portcos — this discrepancy wouldn’t be too bad if it weren’t for the fact that 21% of portcos said the relationship was untrusting, versus just 8% of PE executives.

It’s important to understand the portco executive’s mindset — especially during the sale process, as it could tank the ship. The sale process is a stressful one for portco executives. According to the National Center for the Middle Market, in 2022, seven out of 10 owners said the sale process to PE was difficult to manage emotionally, with three in 10 saying it was extremely difficult. 

This could be because midmarket portco owners tend to be more concerned with the intangible aspects of a business. The report states that 76% of portco owners said it was an “extremely/very important consideration relative to the sale” to be able to stay involved with their company post-facto. Additionally, 53% of midmarket executives worried about family legacy, and 52% worried about maintaining their organization’s culture during the sale process. 


Pressure from both sides

It’s no wonder, then, that some midmarket companies are turning away from PE altogether.

“We would field those requests [from independent companies] when they came in, historically, through word of mouth… And as we saw an increasing demand for that, we said, ‘This is something that we should maybe be more intentional about going to market with,’” explained Johnson.

Johnson says BluWave has seen an uptick in independent businesses coming to the table, looking to get the operational expertise of private equity without having to bring in a third-party investor. 

“This is a lever that, from our perspective, independent companies can and absolutely should be pulling and leaning into,” he said. “There are so many levers and playbooks and things that private equity firms do that oftentimes these independent companies, either they don't have the experience or it's just not on their radar.”

Johnson says he sees a broad swath of non-PE clientele at BluWave, with independent midmarket firms in manufacturing, software, and healthcare sectors being key players.

It’s not just the portco side of things that demands attention to human capital — the pressure is coming from LPs, too. LPs care more and more about how private equity takes care of portco employees. Take this week, for example — the American Federation of Teachers publishing a bombshell report lambasting the GPs its member pension funds work with for its failure to follow proper labor laws.

As more LPs look to allocate to the midmarket space (according to the Rede Liquidity Index for 1H 2024, over half of allocators are looking to increase exposure to the midmarket and lower midmarket), it’s likely that even more attention will be paid to human capital in the sector moving forward.

The Midmarket’s People Problem

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: When Catalent was acquired by Blackstone in a $3.3 billion carve-out deal, the company was underperforming other pharmaceutical manufacturers. By hiring a new management team and opening new production facilities to increase capacity, Blackstone helped Catalent increase its adjusted EBITDA by 24% during the holding period. Even more impressive, the operational improvements helped Catalent sustain long-term growth, culminating in the company being acquired by Novo Holdings for $16.5 billion in 2024. (Read More)

More Insights

 * Private Equity Case Study: Catalent (Read)
 * Operations Are at the Core of Edison Partners’ Energy AI Deal (Read)
 * Europe Private Equity Report 2024 (Read)
 * Consumer Sector Private Equity Report (Read)
 * Private Equity Case Study: BJ’s Wholesale (Read)


Spotlight

What’s the deal? Private equity firm KKR is set to sell approximately half of its 43% stake in Kokusai Electric, a Japanese chip equipment manufacturer, in a follow-on public market offering. Based on recent market prices, the 21.5% stake is valued at about $1.6 billion. 

KKR acquired Kokusai in 2017, back when it was the semiconductor manufacturing arm of Hitachi, for $2.2 billion. It wasn’t always the PE firm’s plan to hold Kokusai for nearly seven years – although its patience turned out for the best. In 2019, KKR attempted to capitalize by selling Kokusai to a U.S. competitor, Applied Materials. However, the sale was ultimately blocked by regulatory challenges in China and fell through in 2021.

Following the failed sale, KKR led Kokusai to an IPO on the Tokyo Stock Exchange in October 2023. The IPO reduced KKR’s stake from 73.2% to 47.7%. The IPO was the largest Japan had seen in five years and raked in $724 million, valuing the company at $3.6 billion.

Kokusai’s shares experienced a slight decline since KKR announced the substantial sale of their stake, including the largest single-day drop (12%) in Kokusai's share price since its IPO. Despite this, KKR’s investment has appreciated substantially and tripled in value as compared to the IPO share price. Kokusai is set to buy back shares in the market after the sale is complete.

Why is KKR selling? KKR is selling half of its stake primarily to capitalize on Kokusai’s strong market performance. It’s not hard to be a well-performing semiconductor manufacturer nowadays, as the global demand for chips is projected to skyrocket as generative AI takes off, with Deloitte estimating that global sales will reach an all-time high of $588 billion in 2024. 

In addition, KKR is just one of many private equity companies looking to capitalize on investors’ interest in Japan. According to our March 2024 report, Japan makes up 12% of global PE buyouts and secondaries, second only to the US. It’s an all-time high for the country as investors seek to capitalize on its dynamic tech sector.

Let’s take a closer look at Japan’s current PE market trends and the potential opportunities for investment firms:

 1. Exit backlog: According to McKinsey, Japan has seen nine PE exits with a valuation over $1 billion since 2010, compared with the US’s 464 during the same time period. No wonder KKR had to take Kokusai public…
 2. Non-core asset carve outs: McKinsey also notes that over half of the largest PE deals in Japan since 2020 have been carve outs of non-core assets from larger parent companies. In fact, the two largest deals were for other Hitachi businesses: KKR’s 2022 acquisition of Hitachi’s Transport System, and Bain’s 2022 acquisition of Hitachi Metals. 
 3. Tech sector buyouts: According to our March 2024 report, Japan’s technology sector is second only to the US. Of the 500 PE-led buyouts and secondary deals that occurred in the country in 2023, 389 were in the technology sector.

KKR did not give a timely response to request for comment.


Buyout News 

Platinum Equity Partners has agreed to acquire Héroux-Devtek, an aircraft landing gear maker based in Quebec, for C$1.35 billion ($980 million), or C$32.50 in cash per share. The firm is currently trading on the Toronto Stock Exchange, closing at C$31.12 on Monday. The deal is expected to close before March 31, 2025.

Madison Dearborn Partners has sold LinQuest, an engineering and data analytics company, to government contractor KBR for $737 million. One reason KBR bought the firm was the high portion – two-thirds – of LinQuest’s employees that hold government security clearances. The deal is expected to close by the end of the year.

Qatalyst Partners is scoping out PE interest for Smartsheet, a collaboration software platform used by 85% of Fortune 500 companies. The firm has a reported market value of $6.6 billion and is currently traded on the New York Stock Exchange. Its stock closed at $48.55 on Monday.

Online ticket platform Dice is also courting a PE buyer. According to Bloomberg, the buyer will take a significant stake worth “hundreds of millions of dollars.” Current investor Softbank will be selling its stake in the transaction, which it bought in 2021 during a $122 million series C fundraise alongside coinvestors.

KKR Cashes In on Historic Run for Japanese Chipmaker Kokusai Electric

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Macy’s stock fell 12% on Monday after the company announced it was no longer in talks with private equity about a potential buyout. Private equity firms have grown cautious of consumer businesses. Rising credit card debt, higher-than-expected inflation, and eroding barriers to entry in eCommerce have made consumer goods and retail companies risky sectors for investment for buyout firms. According to our March report, consumer businesses accounted for 15% of PE-backed exits in 2023, but only 5% of buyouts.

More Insights

 * Operations Are at the Core of Edison Partners’ Energy AI Deal (Read)
 * Europe Private Equity Report 2024 (Read)
 * Consumer Sector Private Equity Report (Read)
 * Private Equity Case Study: BJ’s Wholesale (Read)
 * Energy Sector Private Equity Report (Read)


Spotlight

What’s the deal? Bain Capital and Reverence Capital will take Envestnet private in an acquisition valued at $4.5 billion. While the two firms have led the deal, it is not clear who will hold what percentage of share and what the equity breakdown will be between both them and the additional minority shareholders in the consortium: BlackRock, Fidelity, Franklin Templeton, and State Street. 

It is also not clear how much capital each firm has mobilized for their respective shares. Nevertheless, shareholders expect to receive $63.15 per share in cash with the transaction totaling $4.5 billion. The acquisition will be financed with $2 billion of debt, with a portion of that financing coming from large banks (the Royal Bank of Canada, BMO, Barclays, and Goldman Sachs), and another coming from a loan backed by a consortium of private-credit lenders (Ares Management, Blue Owl, and Franklin Templeton-owned Benefit Street Partners). 

The deal is on track to close in Q4 2024, pending regulatory requirements and shareholder approval. 

A deep dive into Envestnet. The firm was founded in 1999, making it a rather mature acquisition target, especially when it comes to fintech. The firm provides wealth management software to financial advisors and institutions, managing over $6 trillion in assets and 20 million accounts while supporting 109,000 advisers.

The firm has been publicly traded since 2010. Let's take a closer look: 

 * 2010: Envestnet IPOs on the NYSE, raising $63 million at $9 per share. 
 * 2012: Envestnet acquires Tamarac, a portfolio management technology provider for RIAs, for $54 million.
 * 2015: Envestnet acquires Yodlee, a cloud-based analytics company that specializes in financial services, for $660M. Envestnet also acquires Upside for an undisclosed amount and Finance Logix for $24 million in cash and $6.5 million in stock. Both are investment advice-centered platforms.
 * 2018: BlackRock invests $123M into Envestnet for a minority, 4.9% equity stake.
 * 2019: Envestnet’s co-founder and CEO, Jud Bergman, dies in a car crash. His co-founder, Bill Crager, takes over the position.
 * 2020: Envestnet and Yodlee are sued for data privacy violations, to much controversy. Yodlee’s legal issues are still ongoing. 
 * 2024: Bill Crager announces in April that he will step down from the role of CEO, with chairman of the board James L. Fox replacing him in the interim. Meanwhile, Envestnet reports for Q1 that its total revenue is $345.0 million, up 9% year-over-year, while its asset-based recurring revenue was up 15% and represented 62% of total revenue for the quarter, compared to 59% of total revenue for Q1 2023. Also, adjusted EBITDA had increased 30% to $70.4 million for the quarter, compared to $54.0 million for Q1 2023.

What will the future of Envestnet look like? 2023 was a tough year for Envestnet. The firm intentionally reduced its EBITDA that year to “move data to the cloud, integrate the technology pieces, and to choose the next generation of leadership for the company,” according to former CEO Crager, which caused the firm’s stock price to plummet -20%.

Meanwhile, in 2023 the firm took a $190 million tax write-off for Yodlee, a poorly performing data aggregation business the firm bought in 2015 that analysts now largely call “obsolete.”

Moving forward, one expert – registered investment advisor Doug Fritz – thinks it’s time for Envestnet to drop both Yodlee and Taramac to focus on its more profitable lines of business – even if those sales happen at a loss.

Bain reportedly plans to support Envestnet's development both organically and via acquisition, with an emphasis on upgrading its platform with greater functionality. Expect the company to amplify its reach and adaptability of its platform by offering clients more customized products.

Bain and Reverence Capital did not give timely responses to requests for comment.


Buyout News 

Vista Equity Partners, TCV, and KKR have bought a majority stake in Nasuni, a cloud data platform. While the sizes of the stakes are undisclosed, the transaction places Nasuni’s overall market valuation at $1.2 billion. Nasuni boasts a consistent 30% growth rate and a user market expanding over 850 companies and 70 countries.

Blackstone has finally bought Hipgnosis for $1.6 billion, or $1.24 per share. They’re the winner in a well-publicized bidding war against Concord Music, backed by Apollo Global Management. Said bidding war drove Hipgnosis’ stock price up about 80 percent. Concord nearly placed the winning bid in April for $1.4 billion ($1.16 per share).

The Carlyle Group is looking to buy Vantive, the kidney care unit of Baxter International, for $4 billion (including debt). Baxter announced plans to spin off the unit and take it public in 2023, though launched the possibility of a PE buyout in March 2024. Carlyle also owns medtech companies QuidelOrtho and Medline and has an outsized operations experience when compared to its direct competitors.

CD&R and Permira are looking to take Exclusive Networks, a French cybersecurity company, private. They will accomplish the transaction by buying out various minority shareholders for €2.2 billion ($2.4 billion), or €24 ($26.15) per share. It’s nowhere close to the $23 billion Google is looking to pay for Wiz, but it’s another example that shows how hot cybersecurity is right now for investors. 

Bain and Reverence Pay $4.5B to Take Envestnet Private

Casey Myers joined Edison Partners — a nearly 40-year-old growth equity firm based out of Princeton, N.J. and Nashville, T.N. — in November 2022 to oversee and evolve the firm’s operations platform, Edison Edge. Before that, portfolio company operations were left in the hands of the firm’s investment partners, as is typical for a growth equity fund of its size.

Since then, the $1.6 billion AUM manager has inked a number of deals in the lower mid-market space, the latest of which being a $15 million minority stake in Seismos, an AI tool used for oil and gas production and exploration. The investment came from the firm’s tenth flagship fund, Edison Partners X. The firm declined to comment on the post-deal valuation of Seismos after the investment.

“Not all capital is created equal. [My belief in that comes] from my living on the ‘other side of the table.’ We didn't need just money. We needed help and understanding what was around the next curve, what was around the next corner,” said Myers. 

The ‘we’ in question is Myers' former company, software start-up SundaySky, where he worked in operations from 2013 through 2023. His resume boasts over two decades of operational experience across the software sector in total.

“[Edison Partners is] bringing actual operators to help actual operators,” he explained.

According to Myers, most PE firms rely on implementing a singular operations model from the Vista Equity Partners Playbook onto a number of different portcos. Edison, however, tries to take a more varied, personalized approach. 

“One of the fundamental principles for us is a people-first approach. We want to meet these portfolio companies where they are,” he said. “Most of the operators that these private equity firms would put across the table from me [in my previous role] had no relevant experience in my space at my size.”

It’s not just an opinion that Myers holds — other CEOs, notably that of Seismos, also prioritize operations when it comes to sourcing capital, even at the lower mid-market level. 

“Oil and gas markets are moving to a state of autonomous, intelligent, AI-driven operations. With Edison, we’ve partnered with a great operating team to help us grow exponentially as this modernization takes hold,” Panos Adamopoulos, founder and CEO of Seismos, said in a statement.

“Especially in more technical and specialized areas, put yourself in the shoes of the operator and the CEO. Do I want someone who's going to give me better terms on capital? Or do I want somebody who's got industry expertise and is going to put in place an independent seat [on the board of directors] and help me manage my board to a strategic level?” Myers explained.

Boarded up

Such a relationship with a tech company’s leadership is unique for a PE firm, as one-third of PE firms replace CEOs at technology portcos in less than a year as of 2023. 

The firm believes this distinguishes it from the value creation strategies at other PE firms, especially those at the lower mid-market level. 

“When they say ‘value creation’ … it's typical playbook stuff around pricing and packaging and talent. Let's rip and replace butts in seats. And let's shove some significant finance and accounting and reporting processes down their throats,” said Myers. “That is not what we do. When we talk about people development and leadership development, we’re helping founders by scaling their people and developing their team’s effectiveness."

When it comes to boards of directors, Myers has found that typically, Edison’s portcos have boards mainly filled with family members and purveyors of small seed capital, meaning Edison’s operational expertise is essential.

“We actually convert the board into a strategic weapon. We bring in independents. We run boards like they are public companies, in a private, controllable manner,” he explained.

And Edison’s beefing up of leadership doesn’t stop there. “When we think about lower mid-market, almost all of our CEOs or founders are first-time CEOs … Most of these folks have never really seen a strategic CFO,” he said. “[It’s not about] changing butts in seats, it's more about what the organization needs, and specifically what the combination of CEO and CFO needs to look like. And most of these founder CEOs have never really experienced that power dynamic. Same thing with CROs and CMOs.”

Another dynamic Edison Edge prioritizes is the one that exists between product and engineering teams. At the lower mid-market level, those teams [in tech companies] are usually combined. 

“We work a lot to get those two organizations separate and establish a product management ethos and a product management process,” he says, adding that Edison is looking for an ‘outside-in’ approach that can ‘drive the right trade-offs and priorities’ when it comes to its portcos.

Furthermore, Edison Edge releases a yearly index indicating its key KPIs for growth. Its 2024 iteration includes revenue forecast accuracy as its top metric. Other mechanisms Edison implements are forming customer success teams, helping manage and find the right partnerships to stimulate growth, and implementing marketing strategies and branding.

When it comes to Seismos, this value creation strategy will be used to expand across the company’s existing oil and gas user base, and then expand said base further into the geothermal and mining industries. According to Myers, there won’t be any major changes required in the software to expand into these markets. 

And, according to Myers, the game plan with Seismos is in line with the overall AI investment thesis of Edison Partners. 

“AI for us is more about helping humans go further faster,” he explained. “If you think strategically about what this industry [energy] is going through, it's going from analog to digital.”

Myers expects Seismos to reside in Edison’s portfolio for three to six years, Thereafter, he expects industry strategics or large PE firms will be natural buyers for the asset.

Operations Are at the Core of Edison Partners’ Energy AI Deal

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from new insights for PE-backed executives and portco news to recent buyouts and investment trends.


Insights

Chart of the Week: In a recent case study, Value Add explored why operating as a private company was critical to the turnaround of Dell Technologies. “We can go faster on the transformation journey in a private setting,” said Dell’s former-CFO Tom Sweet. “We’re also making better investment decisions on a longer time horizon. We’re thinking about what’s the right three-to-five-year answer, versus how this affects us in the next 90 days relative to an earnings-per-share target.” Read the full case study.

More Insights

 * Europe Private Equity Report 2024 (Read)
 * Consumer Sector Private Equity Report (Read)
 * Private Equity Case Study: BJ’s Wholesale (Read)
 * Energy Sector Private Equity Report (Read)
 * CEO Turnover is Highest in PE-backed Tech Buyouts (Read)


Spotlight

What’s the deal? PE firm KKR is acquiring Varsity Brands from Bain Capital for $4.8 billion. Bain acquired Varsity Brands in 2018 for $2.5 billion from PE firms Charlesbank Capital Partners and Partners Group, and was considering a sale or possible IPO of the company in 2023. Varsity employees are set to receive equity, a perk that is typically reserved for senior portco executives, as KKR is a sponsor of the Ownership Works movement. The company consists of two separate businesses: the first being BSN Sports, which distributes custom sporting equipment and apparel through partnered brands such as Nike and Underarmour. The other division is Varsity Spirit, which sells cheerleader apparel and uniforms, hosts camps and competitions, and produces school yearbooks. In 2023, Varsity made the decision to sell its Herff Jones graduation division to Atlas Holdings. Despite the sale, the company chose to retain the yearbook segment of the business. This strategic move underlines a continued and focused approach to continue investing in and developing its yearbook operations.

A closer look at Varsity Brands. It’s worth noting that Varsity experienced legal troubles over the years, which have likely put financial and operational strain on the company. Since Bain acquired Varsity in 2018, the company has faced many extreme controversies, such as allegations of operating as an illegal cartel and creating a culture of sexual-abuse and cover-up in the cheerleading industry. Let’s take a closer look: 

 1. May 2020: Varsity faces a consolidated lawsuit over monopoly control in the cheerleading apparel industry.
 2. September 2022: Varsity faces two lawsuits regarding sexual assault charges related to Varsity-Brands-connected coaches.
 3. March 2023: Varsity settles a $43.5 million antitrust lawsuit with all-star cheerleading gyms. Another antitrust case, American Spirit and Cheer Essentials, was dismissed on procedural grounds
 4. May 2024: Varsity and previous owners agreed to pay $82.5 million to settle a class-action lawsuit accusing them of monopolizing cheerleading competitions, camps, and apparel markets. Key elements of the settlement included:
    1. Removing requirements for cheerleaders to attend Varsity-run camps for championship eligibility
    2. Ending information sharing with the U.S. All Star Federation
    3. Discontinuing the practice of requiring participants to stay at Varsity-approved hotels

How does KKR fit in? PE firms are showing increased interest in sports apparel businesses — primarily due to consistent demand and steady cash flow. However, there are a number of factors that make Varsity in particular an attractive target. 

 1. Control in a niche market: Varsity has a dominant market position in cheerleading and school merchandising through its various divisions. These divisions offer consistent and stable revenue with potential for growth.
 2. Brand loyalty: Varsity has built customer loyalty in target markets across the United States such as schools, sports teams, and universities all of whom have used Varsity and its divisions for years.
 3. Innovation potential: The core business has various opportunities for growth such as expanding product offering and/or digital presence, which would align nicely with KKR’s portfolio strategy.
 4. Financial performance: Over the years, Varsity has demonstrated financial strength and resilience. The company raised $150 million in its latest funding round (June 2020), and was last valued at $2.5 billion in June 2018.

Despite legal challenges and reputational hurdles, Varsity’s strong market presence and potential make it an attractive target for a firm like KKR, aligning with its strategy of enhancing value in well established companies.


Buyout News 

Bain Capital and Cinven are planning a joint bid for the consumer health division of Sanofi SA, a French pharmaceutical company. Advent International and the Abu Dhabi Investment Authority are similarly planning a joint bid. While the dollar amount of both bids remains unknown, the division has an estimated value of $20 billion, according to reporting from Bloomberg. (Source)

KKR, CVC and PAI Partners have all bid between €3.2 billion and €3.3 billion for B&B Hotels – slightly below owner Goldman Sachs’ €3.5 billion asking price, according to the Times. GS bought the firm from one of the bidders, PAI Partners, in 2019 for €1.9 billion, and has since grown B&B’s portfolio from 468 to 770 locations. (Source) 

L Catterton, French luxury fashion house LVMH’s PE firm, is working with UBS to sell its 20% stake in Bateel, a Saudi Arabian restaurant chain and gourmet food producer, which it acquired in 2015 for an undisclosed amount. The Al Sudairy family owns a majority stake in Badeel and is reportedly also looking to offload equity to potential new investors. (Source)

Permira has hired a new partner and co-head of climate, Anish Patel, joining from Kerogen Capital. Patel will share the role with Kush Patel, who joined Permira last year from Blackstone. Permira launched its climate investing team in March of this year, becoming yet another example of a PE firm beefing up its clean energy investment team – a theme which, according to our Energy Sector Private Equity Report for 2024, is becoming ever-more prevalent. (Source) 

Questions? Email us: editor@valueaddpe.com

Bain Capital Exits Varsity Brands After Six Years, Doubles EV

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from new insights for PE-backed executives and portco news to recent buyouts and investment trends.


Insights

Chart of the Week: One-third of PE-backed technology buyouts last year have already replaced their CEOs, according to an analysis by Value Add. Excluding tech companies, only 11% of PE-backed CEOs have been replaced over the same time period, which is on par with CEO turnover in publicly traded companies. The data suggests that management changes are still very much a value-creation tactic used by PE firms but not as broadly across industries as one might expect. (Read More)

More Insights

 * Europe Private Equity Report 2024 (Read)
 * Consumer Sector Private Equity Report (Read)
 * Private Equity Case Study: BJ’s Wholesale (Read)
 * Energy Sector Private Equity Report (Read)
 * CEO Turnover is Highest in PE-backed Tech Buyouts (Read)


Spotlight

What’s the deal? Bapcor, an Australian retailer specializing in automotive parts, has received a takeover bid from Bain Capital valued at A$1.83 billion ($1.2 billion). The offer, made at A$5.40 per share, represents a 23.9% premium over Bapcor's last closing price before the announcement. This proposal comes amidst challenging times for Bapcor, which has faced significant financial and management difficulties in recent years .

In 2023, Bapcor reported revenues of A$763 million, a +11% increase year-over-year, and an EBITDA of A$124 million, marking a +7% rise. Despite these positive figures, the company's stock price has dropped -21% year-to-date due to a profit warning issued earlier this year. Bapcor forecasted a decline in its second-half profits for 2024, projecting a full-year result between A$93 million and A$97 million, down from A$103 million in 2023. This downturn is attributed to weak retail performance, competitive pricing pressures, and rising operational costs .

Bapcor has been navigating a turbulent period. The company's recent history includes the departure of CEO Noel Meehan in February 2024 and the subsequent withdrawal of Paul Dumbrell, who was set to replace him. Mark Bernhard, a non-executive director, has stepped in as interim CEO while a search for a permanent leader is underway. Additionally, board chair Margie Haseltine announced she would not seek re-election, further signaling instability at the top levels of management .

Market Positioning. Bapcor is a leading provider of automotive parts, accessories, and services in the Asia-Pacific region. It operates several well-known brands, including Autobarn, Burson, Autopro, and Midas, and has a network of over 1,100 stores. Despite its strong market presence, Bapcor has struggled to maintain its competitive edge due to rising competition from rivals like Super Retail Group and the pressures of a declining retail environment due to high interest rates and credit card debt which is putting pressure on consumer spending.

Bain Capital's bid is seen as an opportunity to stabilize Bapcor and potentially unlock value through strategic improvements. Analysts believe the private equity firm's involvement could bring much-needed operational expertise and capital to revitalize the company. However, some major investors, including Burson co-founder Garry Johnson, argue that the offer undervalues Bapcor given its potential if managed effectively. This sentiment reflects a broader skepticism about whether Bain's offer represents the best outcome for shareholders .


Buyout News 

Famed venture capital firm Andreessen Horowitz is launching a private equity fund to invest in mature companies. Not much has been said about the fund’s strategy, but given how active established PE firms have been investing in the tech sector over the past five years, Andreessen Horowitz is probably looking to tap its industry connections to invest in companies that have graduated beyond the startup phase. (Source)

KPS Capital Partners has sold packaging business Eviosys for $4 billion to Sonoco Products, which manufactures cans such as those used by Pringles. KPS paid $2.7 billion for the business in 2021, marking one of the first exits from a PE deal that year. (Source)

Questions? Email us: editor@valueaddpe.com

Can Bain's $1.2B Bid Fix Up Aussie Auto Retailer Bapcor?

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from new insights for PE-backed executives and portco news to recent buyouts and investment trends. 

Insights

Chart of the Week: CEOs of companies in private equity buyouts face nearly double the risk of losing their jobs compared to their counterparts in publicly traded companies. This heightened risk is often due to private equity firms having specific operational strategies and preferring CEOs who can align with and achieve these new objectives. Additionally, new shareholders may lack confidence in the incumbent management or view a CEO change as a clear signal of a new strategic direction. (Read More)

More Insights

 * Consumer Sector Private Equity Report (Read)
 * Private Equity Case Study: BJ’s Wholesale (Read)
 * Energy Sector Private Equity Report (Read)
 * CEO Turnover is Highest in PE-backed Tech Buyouts (Read)
 * Japan’s Share of Global Buyouts Reaches All-Time High (Read)


Spotlight

What’s the deal? Bain Capital has agreed to acquire PowerSchool for $5.6 billion. The company makes software solutions for schools, such as teacher assessment forms, hiring management tools, and teaching plans. PowerSchool has been previously owned by Apple, Pearson, and Vista Equity Partners – the latter of which will retain a minority stake in the company.

Path to profitability. PowerSchool has reported strong topline growth over the years, with annual revenues nearly doubling since 2019. Nevertheless, net income has consistently been negative. That said, adjusted EBITDA grew +69% to $130 million in 2023. This – combined with the company’s lackluster stock performance, which has been relatively flat since IPO’ing in 2021 – made the company a prime takeover target. PowerSchool has set an aggressive focus on profitability improvement going forward, forecasting 2024’s EBITDA to be between $268 million to $273 million.

Expanding in a large market. PowerSchool is in growth mode, signing its largest customer deal yet with the Indiana Department of Education and expanding into the Middle East and Latin America. The company was also quick to apply AI to its software products by introducing PowerBuddy, an AI-powered learning assistant. The combination of PowerSchool’s high-margin software business model in a recession-proof industry with large institutional customers is attractive to private equity. The company is already making some changes as it prepares to be taken private, such as hiring Jon Scrimshaw as Chief Accounting Officer.


Buyout News 

Bapcor, an Australian retailer that sells auto parts, has received a takeover bid of $1.2 billion from Bain Capital. The company reported $763 million of revenues in 2023, up +11% YoY, and $124 million of EBITDA, up +7% YoY, but its stock price is down -21% YTD after warning investors about a profit decline. (Source)

AE Industrial Partners is exiting Belcan, a digital engineering service provider, for $1.3 billion to Cognizant. AE acquired the company in 2015. (Source)

Questions? Email us: editor@valueaddpe.com

Bain Bets on EdTech with $5.6B PowerSchool Deal

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from new insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: In our 2024 Consumer Sector Private Equity Report, we examine why PE firms have pulled back on consumer businesses over the past two years. Some buyout firms have even decided to exit the sector entirely, while others are simply holding existing investments for longer as they wait out the current inflationary, high-interest environment which has burdened consumer spending. (Read More)

More Insights

 * Consumer Sector Private Equity Report (Read)
 * Private Equity Case Study: BJ’s Wholesale (Read)
 * Energy Sector Private Equity Report (Read)
 * CEO Turnover is Highest in PE-backed Tech Buyouts (Read)
 * Japan’s Share of Global Buyouts Reaches All-Time High (Read)


Spotlight

What’s the deal? Squarespace plans to go private in an all-cash deal valued at just under $7 billion. Permira is leading the buyout, with long-term investors General Atlantic and Accel intending to reinvest. This will be the second-largest LBO of 2024. Squarespace stockholders will receive $44 per share which represents a +29% premium over the company’s average stock price over the past 90 days. Squarespace CEO Anthony Casalena is expected to stay with the company post-transaction. The deal was approved unanimously by Squarespace’s board of directors and, pending regulatory and shareholder approval, is expected to close by Q4 2024.

Here is a brief company timeline:

 * 2016: Squarespace achieves profitability for the first time while continuing to grow topline in typical high-growth startup fashion. 
 * 2020: The company surpasses $620 million in revenues and 3.7 million subscribers. However, net income begins to reverse and actually declines -47% YoY to just $31 million, driven by excessive operational spending.
 * 2021: Squarespace raises $300 million at a $10 billion valuation and then files to go public via a direct listing. The company registered 40 million shares and closed trading on its first day near $50 a share.
 * 2022: Squarespace reports continued topline improvement as revenues increased +10% to $867 million. Its net loss of -$252 million widened but was driven by a massive -$225 million non-cash goodwill impairment charge.
 * 2023: The company surpasses $1 billion in revenues, reflecting a +17% increase YoY. Its net loss shrinks to -$7 million for the year, but its stock price lags competitors and trades at one-third the price of its initial public listing.

Squarespace’s consistent YoY topline growth reflects its success with core offerings, which include website and domain services, eCommerce enablement, and customer management tools. The company has an estimated 44% share of the website-builder market, but increased competition from Google, GoDaddy, Wix, Salesforce, Adobe, and Shopify has increased customer acquisition costs and squeezed margins.

To help with customer acquisition, Squarespace bought Google’s domain registration business in 2023. The move will help Squarespace convert new domain owners into customers of its other web and eCommerce services.

Why Permira? The UK-based PE firm specializes in investments across various sectors but is particularly well-known for its technology holdings which include McAfee, Klarna, and Zendesk – which it acquired for $10 billion in 2022. Permira’s value creation plan for Zendesk, which includes using AI across its product offerings, is an indicator of how the firm will likely approach working with Squarespace. 

In addition to Permira’s guidance on using technology to improve operations, the PE firm will also likely place a heavy emphasis on helping Squarespace return to profitability. Operating as a private company will allow Squarespace to test new business models while cutting costs in existing service lines without the pressure of public market investors. That said, Squarespace is not a traditional PE-backed turnaround in need of drastic reform. 

The acquisition reflects a growing trend in the tech industry, where successful companies opt for private ownership in order to achieve the company’s strategic goals. Other PE firms, such as Thoma Bravo and Vista Equity, have also recently scooped up companies in a series of billion-dollar take-private deals. The move could inspire other firms to consider similar paths, reshaping the tech industry landscape. It also highlights the strong and significant role private equity firms play in helping push innovation in the tech sector.


Buyout News 

Warburg Pincus and Bain Capital are each vying to take PowerSchool private. The education software company has a public market valuation of $3.3 billion but a buyout deal could reach $6 billion. PowerSchool IPO’ed in 2021, but its stock price has not kept up with peers in the tech industry, increasing just +10% over the past two and a half years. (Source)

EQT is trying to acquire Keywords Studios, which develops services and software for video game developers, for $2.8 billion. The company's stock was trading at an all-time low before doubling after news of a potential buyout became public. (Source)

TA Associates is looking to exit AffiniPay, an online payments company for accounts and lawyers, for $2 billion. The company was acquired for $600 million in 2020 and has 4x’ed EBITDA since then to $100 million. (Source)

Thoma Bravo is selling cybersecurity firm Venafi to a strategic acquirer for $1.5 billion. The company helps prevent identity theft of image recognition technology (such as those used by airport security lines). Thoma Bravo acquired Venafi for $1.2 billion in 2020. (Source)

Audax Private Equity has decided to exit five portfolio companies: electronics distributor EIS, tools distributor Colony Hardware, local transport provider Beacon Mobility, waste management company Liquid Environment Solutions, and safety products manufacturer Justrite Manufacturing. (Source)

Questions? Email us: editor@valueaddpe.com

Behind Permira's $7B Squarespace Deal

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Value Add’s latest PE case study profiles BJ’s Wholesale, which was owned by Leonard Green & Partners and CVC Capital between 2011 and 2019. During those years, the retailer more than doubled EBITDA by expanding its line of high-margin private brand offerings, more careful expansion of new stores, and hiring several experienced executives with experience in eCommerce and operations. (Read More)

More Insights

 * Private Equity Case Study: BJ’s Wholesale (Read)
 * Energy Sector Private Equity Report (Read)
 * CEO Turnover is Highest in PE-backed Tech Buyouts (Read)
 * Japan’s Share of Global Buyouts Reaches All-Time High (Read)
 * PE Firms are Getting Out of Consumer Businesses (Read)


Spotlight

What’s the deal? Multiple PE firms are reportedly interested in acquiring Peloton, as the business looks to refinance its debt ($1.7 billion in total debt with significant amounts coming due in 2025 and 2026) and right the ship after experiencing 13 straight quarters of losses. The company has announced plans to restructure and reduce annual expenses by over $200 million by the end of fiscal year 2025. Amidst continued earnings struggles, CEO Barry McCarthy has recently announced his decision to step down after two years at the helm. Simultaneously, Peloton announced plans to cut its employee base by 15% (approximately 400 employees) as part of its cost-cutting efforts. Peloton’s market cap has seen a tremendous loss of value, from $49 billion in 2021 to $1.5 billion today. 

Is Peloton undervalued? Peloton reported varying results for Q1 2024. Revenue declined -6% year-over-year to $744 million. Forward-looking guidance for Q2 came in between $700 million and $725 million, while analysts were expecting over $750 million. Peloton’s original business, selling premium stationary bikes and other workout equipment is in freefall. Last year, Peloton’s revenue from product sales declined -50% to $1.1 billion.

However, there is a bright spot in Peloton’s business. Revenue from subscriptions was up +15% last year to $1.7 billion, and for the first time, subscriptions accounted for the majority of company revenues. A PE buyout could help Peloton continue transitioning from being a product-centric company to a subscription-based services company. 

Peloton’s most recent annual shareholder letter outlines the bull case:

 1. Market Share: Peloton continues to lead in the fitness category, ending Q3 2023 with 3 million paid subscribers, and a monthly churn rate of just 1.2%, indicating very strong loyalty among users. 
 2. Financials: Peloton has achieved positive free cash flow for the first time in 3+ years and announced a restructuring program that aims to decrease annual expenses by over $200 million. 
 3. Operations: Operationally, the company plans to reduce its overall retail showroom footprint as well as increase its focus on international markets. 
 4. Partnerships: Peloton is partnering with Hyatt hotels to put its workout equipment in 800+ hotels, which could open doors to more B2B sales. What’s more, Peloton has opened up distribution outside direct-to-consumer to other channels such as Amazon.


Buyout News

Permira will acquire Squarespace for $6.6 billion. The company helps small businesses build their own websites with easy-to-use development tools. Squarespace also owns Google’s former domain registration business, which it acquired for $180 million in 2023. Squarespace’s stock has lagged behind its peers in the tech sector; its share price is down -13% since IPO’ing in 2021. That said, financial performance has improved recently, with revenues up +17% to $1 billion in 2023, and EBITDA up +200% to $124 million. (Source)

KKR inked several buyouts in Asia this week including $1.4 billion for Australian fund manager Perpetual, a 33% stake in Japan’s Alps Logistics Co., and a partnership with Marriott to acquire Unizo Hotel – also in Japan. (Source)

Everstone Capital and Goldman Sachs’ PE arm are looking to exit Omega Healthcare for $1.7 billion. The company has attracted interest from Blackstone. Omega helps US healthcare companies outsource functions, such as IT and administrative, to lower-cost labor markets. (Source)

CVC Capital is orchestrating an IPO for portfolio company FineToday Holdings. CVC is targeting a valuation of $2 billion to $3 billion for the personal care business based in Japan. (Source)

Questions? Email us: editor@valueaddpe.com

Can Private Equity Fix Peloton?

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from new insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: While North America still leads in PE-backed energy deals, its global share has decreased from 50% to 40% since 2018, contrasting with Europe's rise from 25% to 35%, bolstered in part by robust renewable energy policies and strong government incentives. Asia's share has stayed consistent at around 16%, with a temporary spike to 21% in 2020. The growth in private equity investments in Europe is driven by aggressive renewable initiatives, a mature market, societal emphasis on sustainability, and a tradition of socially responsible investing, making it a more attractive environment for private equity. (Read More)

More Insights

 * Energy Sector Private Equity Report 2024 (Read)
 * CEO Turnover is Highest in PE-backed Tech Buyouts (Read)
 * Japan’s Share of Global Buyouts Reaches All-Time High (Read)
 * PE Firms are Getting Out of Consumer Businesses (Read)
 * What Carlyle Group Looks for in Operating Executives (Read)


Spotlight

Shot in the dark. Thoma Bravo is acquiring Darktrace, a UK-based cybersecurity company, for $5.3 billion. The all-cash offer represents a +44% premium to its three-month volume-weighted average price and a +20% premium to its most recent closing price. Darktrace initially denied previous bids made by Thoma Bravo, but the PE firm was persistent and kept increasing its offer. The transaction is expected to close by the end of 2024.

The company was founded in Cambridge, UK in 2013, and is well-known for its cybersecurity solutions, some of the first to utilize self-learning AI to counteract cybersecurity threats. Its technology supports over 9,400 customers including Allianz, Airbus, and the city of Las Vegas.

The financials. Despite its advanced technology, Darktrace's valuation has historically lagged behind its key competitors. The company’s management team has been outspoken about public markets – especially those traded on the London Stock Exchange – undervaluing the company’s innovation. It’s the latest in a slew of companies delisting from the LSEG, including Arm Holdings, Flutter, and CRH. 

The deal aligns with the current trend of PE firms taking undervalued tech companies private. In this case, the acquisition’s total enterprise value represents 34x Darktrace’s adjusted EBITDA ($146 million) for the twelve months ended December 31, 2023. 

The company’s results for the first half of 2024 were largely impressive. Darktrace reported $330 million in revenue, over +27% growth year-over-year, and strong annual recurring revenue. Further, the company is well-diversified geographically with 34% of revenues coming from the US, 24% from Europe, 15% from the UK, and 25% from the rest of the world. Other key highlights from its recent earnings included a large backlog of client deliverables worth $1.3 billion, a customer base shifting towards larger contracts, and a strong retention rate of 105%. Darktrace raised its revenue expectations for FY2024, now anticipating +24% to +25% revenue growth for the year.

The human element. Aside from solid financials, another angle for the take-private is the concern that the public market has had with Mike Lynch, Darktrace’s co-founding investor. He is currently facing fraud and conspiracy charges in the U.S. and still holds a 7% stake with his wife. The couple will make $377 million from the sale, removing Lynch’s association with the company going forward.


Buyout News

PE firm GTCR is acquiring AssetMark Financial, a wealth management platform, for $2.7 billion. The company reported $709 million in revenues last year and an EBITDA of $213 million. Its stock price has increased about +24% since its IPO in 2019, underperforming other companies in the fintech space. Analysts from William Blair published a note saying the offer “feels somewhat low… However, reports of a potential deal were reported by Bloomberg in December, which suggests that if there were other potential buyers at a higher price, they likely would have emerged by now.” (Source) 

The drama surrounding Paramount’s potential merger with Skydance Media, which is backed by KKR and RedBird Capital, continues. Paramount CEO Bob Bakish has been abruptly axed from the company, raising suspicion about infighting with majority owner Shari Redstone about a potential takeover. (Source)

Apollo is acquiring US Silica Holdings, an industrial minerals company that injects sand to expose oil embedded in rock, for $1.9 billion. The company reported $1.6 billion in revenues last year and an EBITDA of $416 million. US Silica has survived several boom-bust cycles in the frack-sanding market. Sand prices surged +50% last year as large parts of the globe faced an energy crisis bringing back a demand for fracking; but, over the long-term sand prices have steadily declined as miners have been able to source materials locally in Texas, closer to large oil mining operations. (Source)

L Catterton, the private equity arm of luxury house LVMH, is acquiring KIKO Milano, an Italian make-up brand, for $1.5 billion. The family-owned company reported $860 million in revenues last year, up +20% YoY, and has a strong online presence as well as brick-and-mortar distribution with over 1,100 of its own stores. (Source)

KKR is halting a potential sale of Upfield, the maker of Country Crock spreads. The PE firm was seeking a valuation of $10 billion for the company, and it did attract interest from the Abu Dhabi Investment Authority, but discussions ultimately led nowhere. KKR acquired Upfield for $7.3 billion in 2017 during a carve-out deal from Unilever. (Source)

Ardian is selling Audiotonix, a manufacturer of professional audio equipment that is used in stadiums by major artists and sporting events, to PAI Partners. The deal is valued at over $2.5 billion. Ardian acquired the company in 2020 and supported its investments in R&D and several M&A transactions. (Source)

Questions? Email us: editor@valueaddpe.com

Thoma Bravo Pays $5.3B All-Cash for Cybersecurity Firm Darktrace

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: PE-backed exits of financial service companies have been decreasing since 2021’s high, with 2023 exits nearly on par with pre-pandemic levels. Overall in 2023, exits for financial services were less popular than all other sectors (technology, industrial, consumer, energy, and healthcare). Technology saw the most exits, with 264. 


Spotlight

Permira has agreed to sell half of its stake in Alter Domus to Cinven. Alter Domus is a leading fund administrator for the alternative investment industry with nearly $2.5 trillion in assets under administration. The company was founded over 20 years ago in Luxembourg. The deal introduces Cinven as a new strategic investor with the intent to support the company’s long-term strategic growth by leveraging its team's expertise and global scale. The deal values Alter Domus at $5.3 billion, with EBITDA increasing 5x since Permira’s initial acquisition in 2017 and assets under administration increasing by +69% since 2021. 

How did Permira help Alter Domus improve company performance?

 * Effective Strategic Planning: Since Permira’s acquisition in 2017, Alter Domus has expanded its market share in the fund administration industry by successfully introducing new capabilities for open-ended and liquidity-managed private market funds, including European long-term investment funds. New features include support for NAV calculations, enhanced efficiency with settlement processes, overall improved network connectivity for distribution services, refined regulatory reporting, and white-glove support as a registered transfer agent for Luxembourg-based funds. These enhancements further broaden the company’s overall fund-administrator capabilities.
 * M&A: In 2021, Alter Domus acquired IPS Fund Services, a Boston-based fund administrator with $9 billion in assets under administration which helped it to enter the North American market. Just over a month later, Alter Domus followed with another acquisition of Strata Fund Solutions, a Utah-based fund administrator with $140 billion in assets under administration. In May of 2023, Alter Domus acquired Solvas, a loan and debt servicing company founded by Deloitte, with the intent to grow technology and servicing support capabilities. 
 * Digital Transformation: Alter Domus has been highly focused on digitization in recent years, going to market with new technology that helps clients manage and optimize risk in their financial portfolios. The company’s tech strategy has three branches that consist of the following: acquiring data-focused companies, partnering with companies that provide state-of-the-art technological experiences (such as eFront and Yardi), and developing original tech-based solutions such as CorPro, VBO, and Agency360. In 2020, Alter Domus launched an ‘Accelerate’ program, investing $125 million in companywide digital transformation. 
 * Management Changes: In 2021, Alter Domus appointed Michael Janiszewski, the former COO of BNY Mellon’s Securities Services and Digital business, as its COO. Janiszewski has over 20 years of experience in business strategy development, operational management, and technology innovation More recently, Alter Domus appointed Amaury Dauge as its new CFO. Dauge has an extensive background in finance, previously serving as CFO of Allfunds and Euronext where she led both companies through the IPO process. 


Buyout News

Summit Partners is looking to exit men’s personal care brand Dr. Squatch for $2 billion. The PE firm is working with investment banks Raymond James and Centerview Partners to find potential buyers. The company reportedly generated EBITDA of $90 million last year, suggesting rapid growth given a valuation that would be more than 20x earnings. The company was founded in 2013 and instantly made a name for itself with its organic and natural handmade soaps for men. Since then, the company has diversified its offerings into a wider range of men’s hygiene products, including deodorant, cologne, lotion and hair care. By 2020, the company had grown by over 4x and surpassed $100 million in revenues. In 2021, Dr. Squatch gained distribution at Walmart, placing its products in over 1,600 of the retailer’s stores. (Source)

BC Partners is selling a majority stake in Presidio, an IT provider, to Clayton Dubilier & Rice. Financial terms were not disclosed, but BC Partners almost sold the company for $4 billion in 2021. Presidio delivers IT software solutions for over 6,600 customers, including Amazon, Microsoft, Google, and Cisco Systems. (Source) 

Questions? Email us: editor@valueaddpe.com

Permira Sells Stake in Alter Domus After 5x'ing EBITDA

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Spotlight

Silver Lake has announced the acquisition of Endeavor, a sports and entertainment conglomerate owning holding companies WME and IMG, along with assets such as bull riding league PBR, betting data firm OpenBet, marketing agency 160over90, and hospitality firm On Location. The deal values Endeavor at $25 billion, the largest PE-backed take-private deal in more than 10 years. The announcement comes three years after Endeavor initially went public and 12 years after Silver Lake first invested in the company.

In 2023, Endeavor strengthened its position in sports and entertainment by acquiring TKO, the parent company of UFC and WWE. This resulted in annual revenues increasing +36% in the “Owned Sport Property” segment to $1.8 billion in 2023. Endeavor’s overall company performance has steadily increased over the years, reporting a CAGR of +8% in annual revenue since 2021 to $6 billion in 2023, and a CAGR of +18% in adjusted EBITDA to $1.2 billion. Despite the earnings growth, Endeavor is currently trading about -25% lower than its high in 2021. 

Shortly after Silver Lake’s initial investment in 2012, Endeavor pursued an aggressive M&A strategy — something that Silver Lake Managing Director Stephen Evans suggests will continue. “Marked by more than $3.5 billion of direct investment across six distinct transactions over [the previous] 12 years. We are excited about what we can achieve together in this next phase,” he stated in a press release. 

Public market investors have been skeptical that Endeavor can effectively manage and grow newly acquired businesses in its portfolio, but some could view that diversification as an advantage.


Buyout News

Paramount has snubbed Apollo Global Management’s $26 billion all-cash offer and entered into a 30-day agreement to try to finalize a merger with Skydance Media. Apollo previously offered $11 billion to acquire Paramount’s film studio business and then matched a competing offer from Skydance. However, Shari Restone, whose family owns a controlling stake in Paramount’s parent company National Amusements, noted she would rather partner with a strategic acquirer rather than with a private equity firm. Paramount will now pause any conversations with other potential buyers for 30 days to work out a deal with Skydance Media. Paramount currently has a market capitalization of about $8.2 billion, roughly half its valuation in 2019. (Source)

EQT has acquired Avetta, a software developer of supply chain risk management tools. The transaction values the company at more than $3 billion, including debt. EQT invested because it believes AI automation will be a critical capability for companies managing the complexities of supply chain risk management. "Avetta's leadership position, world-class SaaS platform, and commitment to ESG represent a highly thematic investment opportunity for EQT,” says Arvindh Kumar, an EQT partner. “As one of the most active technology investors worldwide, EQT has deep software expertise and a broad network of advisors in the space.” Avetta was acquired from Welsh, Carson, Anderson & Stowe (“WCAS”) and will be a part of the EQT X Fund, which has now invested about 40% of its capital. (Source)

Marathon Partners Equity Management is encouraging Dr Martens, a footwear brand, to go private for $2 billion. The company’s share price has fallen -83% since going public in 2021, valuing the company at $1.1 billion. Marathon Partners argues the retailer’s strong brand should demand a premium over its current share price, and that the company has become “stranded and orphaned in the public markets.” European PE firm Permira owned the company between 2014 and 2021 and still owns a 39% stake.  (Source)

Sapiens International, a software maker for the insurance industry, is seeking to go private at a $2 billion valuation. The Israel-based company was initially entertaining buyout interest last summer but paused discussions due to the military conflict in the region. Sapiens posted adjusted EBITDA of $98 million for FY 2023, up +11.7% YoY. (Source)

Vista Equity has acquired Model N, which makes software for optimizing pricing and other business intelligence decisions, for $1.3 billion. It’s Vista’s fifth take-private of a technology company in the past 18 months, as lower valuations have created a buying opportunity for PE funds in the tech space. (Source)

Questions? Email us: editor@valueaddpe.com

Endeavor Largest Take-Private Deal in 10+ Years

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Insights

Chart of the Week: Spindrift Beverage Co., a popular sparkling water brand in the US, is said to be considering a sale or merger. The brand differentiated itself early on by claiming to be the first sparkling water in America that uses real squeezed fruit. Spindrift reportedly brought in $300 million of revenue in the past 12 months, driven by strong distribution in major retailers such as Kroger, Publix, and Whole Foods. 

Spindrift is still relatively small enough as a company, that an additional round of venture or growth investment could propel the brand to a much larger exit to a strategic acquirer in 4-5 years. For example, Spindrift could launch new flavors and verticals, or expand internationally, as the brand’s products are currently only available in the US.


Spotlight

Leonard Green and Berkshire Partners have exited SRS Distribution, selling the company for $18.3 billion to Home Depot. Berkshire, a middle-market buyout firm, originally acquired the roofing and building supplies distributor in 2013, when SRS had fewer than 100 branches and was generating about $650 million a year in revenue. Leonard Green joined in 2018, acquiring a majority stake in the company at a $3 billion valuation. Today, SRS has 760 branches across 47 US states and generates over $10 billion a year in revenue. 

The exit marks one of the most successful private equity deals in the industrial distribution space. Let’s review some of the value-creation tactics that made SRS such a good PE-backed investment:

 * M&A Strategy: Since 2008, the company has acquired 118 independent roofing distributors. Roofing supplies, like many industrial products, are often sold through fragmented, local distribution channels. 
 * End-User Focus: Roofing is a major part of the $450 billion US construction supplies industry, but it can be difficult for mainstream retailers and distributors to access the professional segment of the market. This allowed SRS to grow without much competition from Home Depot, Lowe’s, and other major building supplies distributors. 
 * Human Capital: Navigating the relationship-driven trade of roofing products is complex. Therefore, the company has always been led by executives with experience in the roofing industry, with CEO Dan Tinker and each business unit president having over 20 years of experience in the sector. Moreover, SRS's commitment to its employees and culture was evident in its decision to distribute $250 million to its employees in 2021, as part of an equity incentive plan. 


Buyout News

Ardian has sold Grupo Monbake, a frozen dough supplier, to CVC Capital. The company was formed following Ardian’s acquisition and subsequent mergers of Berlys and Bellsolá in 2018.  The combined company created the third-largest producer and distributor of frozen pastries in Spain, following Grupo Panstar and Europastry. The transaction price was not disclosed. (Source)

Cinven has decided to pause negotiations to sell European pet food maker, Partner in Pet Food. The company was reportedly valued at around $2.2 billion but bids from Advent International and CVC Capital were lower and talks stalled. Cinven acquired the Hungary-based pet food supplier in 2018 and is looking to exit after a strong year — sales were up +16% to $867 million in 2023. (Source)

Apax Partners is reportedly preparing to exit PIB Group, a British insurance brokerage. The company is forecast to generate EBITDA of $315 million this year, and Apax is seeking a valuation near $5 billion. Apax acquired the company in 2021. (Source)

L Catterton’s deal to acquire luxury shoemaker Tod’s has hit a snag. Shareholder Tabor Asset Management issued an open letter saying the buyout offer of $1.5 billion was far too low. Tabor, which owns a 1% stake in Tod’s, believes the company is worth closer to $3 billion. Tod’s founders, the Della Valle family, tried to take the company private in 2022, but Tabor voiced similar concerns which convinced other shareholders not to proceed. (Source)

The Nuvei deal that we reported on last week is now official. Advent International is acquiring the Canadian payments company for $6.3 billion. The company’s shares have been trading -80% lower than their highs in 2021, but EBITDA and revenue were up 40%-50% in Q4 2023. (Source)

Questions? Email us: editor@valueaddpe.com

SRS Distribution Becomes One of the Most Successful Industrial PE Deals of All-Time

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Spotlight

Advent International is advancing towards an acquisition of Nuvei, a Canadian-based fintech company that offers payment processing solutions. Nuvei went public in September 2020, raising $700 million — the largest tech IPO in the history of the Toronto Stock Exchange. The deal size is still uncertain, but Nuvei is actively engaged in discussions about going private with major shareholders and outside advisors. The company’s TSX-listed stock jumped +32% on news of the announcement, closing March 18th on a $4 billion market cap. 

The adoption of digital payments — accelerated by online shopping and the 2020 pandemic — has been a boon for processors like Nuvei. The company’s transaction volume increased +53% YoY in Q4 2023, which resulted in strong earnings — revenue was up +46% to $322 million for the quarter, and adjusted EBITDA grew +40% to $120 million. Despite the growth, Nuvei's shares are currently trading -82% lower than their highs of 2021 as the company has been recovering from a correction in tech markets as well as a short-seller report released by Spruce Point Capital Management in April 2023. 

Some consider Nuvei to be a classic target for Advent International, a firm that has, in the past, focused on the technology and financial services sectors. If a deal does come to fruition, Advent may have to help Nuvei integrate recent acquisitions such as its $1.3 billion acquisition of Paya Holdings in 2023.

Software companies have been a major target for PE firms over the past year, and Nuvei-Paya could be seen as a tempting two-for-one deal.


Buyout News

Another Canadian payments company, Lightspeed Commerce, has said that it would also be open to being taken private. “I still believe that the [public] stock market is a good place for Lightspeed, but when you look at what’s happening, you wonder if going private would be a better option,” CEO Dax Dasilva stated. The company is currently trading at a $2.1 billion market cap.

Several PE firms, including Advent International, Blackstone, Bain Capital, CVC Capital Partners, and KKR have been approaching both banks and private lenders in order to secure debt financing packages of as much as $8.2 billion with the intent to take over Paris-based pharmaceutical company Sanofi’s consumer healthcare division. The deal could be valued at around $20 billion, which would be the largest buyout this year. The fact that banks are competing to lend in the deal is significant as they have largely sat on the sidelines the past two years, and it’s a sign that they are looking to re-enter the LBO market as interest rates stabilize. 

Apollo Global Management has offered $11 billion to acquire Paramount’s Hollywood film studio. However, Shari Redstone, whose family controls Paramount’s parent company, National Amusements, says she would rather do a deal with billionaire David Ellison and his company Skydance Media. Paramount Global’s shares currently trade at a $7.7 billion total enterprise valuation on the Nasdaq, down from 2019’s $17 billion.

Nordstrom’s founding family, which controls 30% of the company, is seeking buyout bids to take the retailer private. The company currently has a market cap of $3.2 billion, down from $7.2 billion in March 2021. Leonard Green & Partners offered $8.4 billion to take Nordstrom private in 2018, but the company’s board rejected the deal. Since then, the retailer has held up better than most department stores but has still had its fair share of challenges due to lower store traffic, shifting consumer habits, and the rise of e-commerce competitors. 

Advent International, Hellman & Friedman, and Thoma Bravo are each in talks with Synopsys to acquire its $3 billion software security business, known as “SIG.” The company is likely trying to free up cash after its $34 billion acquisition of software developer Ansys. The SIG business unit is used by software developers to test the security of their applications. Synopsys executives, including CFO Shelagh Glaser, have experience doing deals with private equity.

Platinum Equity is weighing a sale of golf car manufacturer Club Car at a valuation of $2 billion. The company reportedly generated $200 million in EBITDA in the previous 12 months. Platinum Equity acquired Club Car for $1.7 billion in 2021 from Ingersoll Rand. While the company is most well-known for its golf carts, it’s been leading the way in creating a new category of “small-format electric lifestyle vehicles” for schools, hospitals, and consumers. Club Car CEO Mark Wagner has been with the company since 2017 when it was still a part of the Ingersoll Rand brand portfolio. 

Vista Equity is looking to exit Solera, a technology company that provides fleet management software for automotive companies, via an IPO in late 2024. Vista acquired the company for $6.5 billion in 2016 and has been heavily involved on the operations side. Darko Dejanovic, President of Vista’s Intelligence Group, has been CEO of Solera since 2019.

Questions? Email us: editor@valueaddpe.com 