Good morning, Hubsters. MK Flynn here, wishing you a happy and healthy new year!
For insights on what we can expect from dealmaking in 2023, PE Hub and PE Hub Europe reporters and editors have spent the last several weeks asking a wide range of sources for their outlooks.
This morning, we’ve got Q&As with dealmakers from Thoma Bravo, Churchill and Nordic Capital.
But first, let’s take a quick look at a fresh exit.
Adding on. Altus Capital Partners just announced this morning the sale of MGC Diagnostics to CAIRE, a subsidiary of NGK Spark Plug. MGCD provides cardiorespiratory diagnostics systems. Headquartered in St. Paul, it has facilities in Belgium, Germany, France, and Australia.
Altus bought MGCD back in 2017 in a take-private transaction. During its ownership, the Wilton, Connecticut PE firm closed three add-ons and doubled the portfolio company’s revenues and earnings, according to the firm.
For more details, see reporter Iris Dorbian’s story on the exit.
Proprietary dealflow. As the new year begins, PE Hub’s Q&A series with private equity leaders reflecting on highlights from 2022 and sharing their outlooks for 2023 continues today with Anne Philpott, a managing director on the private equity and junior capital team at Churchill Asset Management, where she is involved in sourcing and executing investments. Headquartered in New York and an affiliate of Nuveen, Churchill provides customized financing to mid-market PE firms and their portfolio companies across the capital structure.
Here’s an excerpt from the interview:
What should the private equity industry be most worried about?
Without more visibility on inflation, rates and the economy by mid-year, the private equity industry may operate at a lower level of deal activity for longer. During times like these, access to unique proprietary dealflow is critical to receiving better relative quality and volumes. In Churchill’s case, for instance, our position as a proven co-investor, direct lender and advisory board member to private equity firms often allows us to get a first look on top opportunities. Scaled managers with large existing portfolios will also benefit from add-on acquisitions and activity in a slower new deal environment.
At Churchill, we always keep an eye on the macro environment and volatility in the debt markets so we can choose the best deals from a risk/return perspective. Our scaled platform allows us to be highly selective with transactions and also pivot across asset classes as needed, which is vital in an uncertain environment.
What should PE folks be most excited about for 2023?
2023 will offer a significant amount of opportunity for scaled, differentiated managers with dry powder. Historically, funds invested during or in the immediate aftermath of recessionary periods were among the best performing vintages on a historical basis.
From a limited partner perspective, we are seeing private equity firms begin to differentiate in terms of strategy and specialization in response to the market environment and dealmaking trends. This will create some interesting opportunities both as a limited partner and co-investor alongside sponsors in the coming year.
You can read the full interview with Philpott here.
Competitive advantage. Also in our Q&A series, we heard from Holden Spaht, a managing partner at Thoma Bravo, one of the most active PE firms in 2022.
With offices in Chicago, Miami, San Francisco and an upcoming one in London, the tech-focused firm took advantage of the declining valuations of public technology firms to close some really big take-private deals last year, including acquiring business planning software provider Anaplan for $10.4 billion and business payments tech provider Bottomline Technologies for $2.6 billion, as well as buying identity management enterprise software developers SailPoint Technologies for $6.9 billion and Ping Identity for $2.8 billion. Among Thoma Bravo’s firm’s exits was the sale of K-12 administration software provider Frontline to Roper Technologies for $3.7 billion. And in December, the firm closed its newest three funds on more than $32.4 billion, with its 15th flagship fund at $24.3 billion. The firm has offices in Chicago, Miami, San Francisco and has announced it will open one in London.
Looking ahead, Spaht predicted:
“2023 will be, at times, uncertain and turbulent for investors and companies alike, however, private equity’s governance structure – clear direction from a control owner – is a competitive advantage in these conditions and highly sought after by existing owners and operators. During these times, we will also see true leadership emerge among our portfolios. Leaders who have built great teams, are nimble operators and collaborative decision-makers will see their businesses emerge stronger through this cycle. As always, the software and technology space remains an exciting place to be, and we are optimistic about the continued opportunities ahead for partnership with great companies.”
Read the full interview here.
Better basis. PE Hub Europe’s Nina Lindholm spoke with Kristoffer Melinder, managing partner at Nordic Capital, for his outlook on 2023.
The Stockholm-based firm’s recent deals include the acquisition of Autocirc, a provider of reused and recycled automotive original spare parts, and the exit from The Binding Site, a supplier of diagnostic products to clinicians and laboratory professionals.
“There has been a great deal of focus on the rerating of valuations and its impact on investment and exit activity,” he told Nina. “However, the rerating of valuations is not entirely a bad thing. We see it as a positive that some of the worst hype has gone out of the market, providing a better basis for fundamental analysis and valuation. In our view, the next 12 months – and the two to three years after that – will offer up exciting investment opportunities that favor those investors with a strong capital base and deep sector knowledge.”
Read the whole interview to find out more about how Nordic expects to deploy Nordic Capital Fund XI, the $9.6 billion fund the firm closed in October.
Also on PE Hub Europe today, Nina has an interview with One Equity Partners about an acquisition of a London-based target.
You can read that story here.
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Look to PE Hub Europe for:
• The latest deal terms and pricing to bolster your negotiations
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Also sign up for PE Hub Europe’s daily newsletter, Dealflow, written by editor Craig McGlashan and reporter Nina Lindholm.
In case you missed. For more insights on how private equity pros are handling higher interest rates and the slowdown in dealmaking, listen to our new podcast miniseries, Private Markets and the End of Cheap Money.
In the first episode, I spoke with: Norm Alpert, founding partner at Vestar Capital Partners; Greg Belinfanti, senior managing director of One Equity Partners; Marc Leder, co-founder and co-CEO of Sun Capital Partners; Ignacio Jayanti, CEO of Corsair Capital; Milwood Hobbs Jr, managing director and head of North American sourcing and origination at Oaktree; Michelle Handy, managing director and head of portfolio and underwriting of First Eagle Alternative Credit’s direct lending platform; and Peg Jackson, managing director, software, internet and digital media at Stifel.
That’ll do it for today. Tomorrow, Buyouts’ Chris Witkowsky will write the Wednesday Wire.