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)

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