Apex Group’s Maxwell Johnston: PE pause has opened up opportunities for strategics

'We have seen some PE investors "pause" activity, with this temporary hiatus creating new opportunities for strategic acquirers who are able to raise financing more efficiently given prior track records and relationships,' says Maxwell Johnston, head of M&A Apex Group.

Apex Group, a financial services provider backed by Genstar, TA Associates, Mubadala and Carlyle, says the tight macroeconomic environment has weighed heavily on dealflow recently. In the first half of 2023, Apex has done nine acquisitions in Europe, Africa and Brazil. Maxwell Johnston, head of M&A at the global financial services provider, told PE Hub in an interview that the second half of the year will be more busy.

What are you expecting in terms of dealflow in H2?

The first months of 2023 saw sustained – and surprisingly consistent – global M&A activity levels; however, as the crisis of confidence in the banking sector grew towards the end of Q1, financing conditions tightened, dampening asset valuations. In Q2, global M&A activity fell to its lowest level in a decade, as rising inflation, hikes in interest rates and fears of a recession dampened appetite for dealmaking.

Among the factors bolstering cautious optimism in M&A markets for the second half of 2023 is that we have seen an acceptance of the new valuations in this macro environment and a future path to normalizing monetary policy that is encouraging the opening of credit markets, even if only for short periods.

Maxwell Johnston, Apex Group

We remain confident that M&A volumes will pick up in the second half of 2023, as in the current macro-economic environment – where opportunities for organic growth are potentially dampened – M&A activity can deliver not only growth and scale, but also access to new markets, products and technologies, which can benefit clients and offer a competitive advantage.

What are the key challenges for dealmakers in 2023, and how is Apex Group meeting them?

The M&A market had become accustomed to the low interest rate environment enabling acquirers to raise debt efficiently and be supported by the substantial amount of dry powder in the private markets.

Against the macroeconomic backdrop, we have seen that sale processes for assets have become more protracted – favoring strategic acquirers who are able to move quickly and have an established track record as a “known quantity” that reassures both debt and equity providers and provides much needed certainty.

We have remained disciplined yet flexible in our M&A strategy, which includes avoiding competitive processes where possible so that we can have a high level of certainty around our ability to create value from an acquisition. Apex Group’s acquisition strategy, whilst flexible enough to accommodate opportunistic situations, remains laser focused on only acquiring quality businesses which add a specific product, technology or geography for our clients.

The rationale behind every acquisition must fall into at least one category: either to increase our capabilities so that we can continue to deliver the broadest range of solutions in the market to our clients and/or to expand our geographic reach so that our clients can benefit from partnering with Apex Group globally.

What are the key opportunities for dealmakers in 2023, and how is Apex Group taking advantage of them?

We have seen some PE investors “pause” activity, with this temporary hiatus creating new opportunities for strategic acquirers who are able to raise financing more efficiently, given prior track records and relationships. With reduced competition from PE acquirers, there has been some moderation in valuations, enhancing the attractiveness of some assets.

What kinds of deals can get done today?

Whilst industries such as hospitality, travel and manufacturing continue to recover from the pandemic, others such as healthcare, technology and our own sector of fund and financial services have emerged as resilient revenue generating sectors. Covid was the ultimate black swan stress-test, and through that period Apex continued to show strong organic growth that has now continued for the subsequent years.

What can you tell us about take-private deals and corporate carve-outs in this climate?

We are seeing many corporates, as well as private equity investors, looking to realign their businesses and portfolios to weather the current macroeconomic headwinds and position themselves for future growth. Corporates are looking to reposition their businesses to navigate the current environment – driving deal activity both by divesting non-core divisions, and by acquiring new capabilities.

What are the exit opportunities for private equity-backed companies in 2023?

There are signs of green shoots within the IPO market that is the traditional route for large PE-backed companies, and in parallel there will likely be further deployment of PE acquisitions as the interest rate environment stabilizes, allowing sponsors to feel more confident in deployment.