Isabel O'Brien

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.

Daily Insights

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

Cooper Smith

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.

Published Research

Operating Trends 2024

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"
}




Sponsor-to-Sponsor Exits 2024

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"
}




Technology: Value Creation 2024

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"
}




What’s Included

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