Apollo PE leaders opine on 2023; Vestar bets you need help getting to sleep

A conversation with Michael Vaupen, managing director at Vestar Capital Partners, about its investment in Nox Health; David Sambur and Matt Nord, co-heads of private equity at Apollo, talk about the year ahead.

Happy Fri-yay, Hubsters! Aaron here on this wet and windy winter morning here in New York.

Today we’re going to break down a new sleep health deal and then we’ll look at some non-healthcare deals that were announced this week.

And we’ll end with some thoughts on 2023 from the co-heads of PE at one of the largest firms in North America.

Sleep well. Sleep is not only important to health but also to mental health. Yesterday, I wrote about how Vestar Capital Partners made a significant minority strategic growth investment in Nox Health, a one-stop, holistic solution helping to identify, address and resolve sleep issues across the globe.

I spoke with Michael Vaupen, managing director at the New York-based firm, to talk about what enticed Vestar to the Atlanta-based sleep health company, how the dealmaking process went and Vestar’s plans to grow and scale the asset.

The firm was attracted to Nox for several reasons, with the first being the market opportunity, as sleep health is a “large and substantially underserved market with durable growth drivers.”

“Second, Nox’s solutions are well-positioned against this attractive market backdrop,” he said. “The company has built a differentiated portfolio of proprietary medical device IP, advanced software and analytics, and technology-enabled care management solutions which support the delivery of sleep care across the continuum of providers, payers and patient populations.”

The investment is well-aligned to Vestar’s thematic focus of solutions that improve health outcomes, lower costs and enhance patient experience, according to Vaupen.

You can read the whole story here.

ICYMI. We know that you are busy and maybe you are not caught up on some deals in other sectors that were announced this week but don’t fret, we got you! Here is a quick non-healthcare deal round up from this week.

The Halifax Group, a Washington DC-based mid-market private equity firm, has completed an investment in Milestone Technologies, a Fremont, California-based provider of value-added IT services to blue-chip, enterprise clients.

Founded in 1997, Milestone partners with organizations to support their forward-looking digital transformation roadmaps and to scale their IT capabilities. The company provides a suite of services across application services, including digital product engineering and ServiceNow-oriented services, digital workplace services, and private cloud services.

Some of Milestone’s clients are drawn from the largest and fastest growing companies in the technology, healthcare, and consumer markets, according to the press release.

“Milestone have proven themselves to be a best-in-class management team with an impressive story to tell,” David Bard, partner at Halifax. “Halifax has built a strong thesis and set of executive relationships around IT services, which we aim to bring to bear to support Milestone in building on and further accelerating their tremendous success to date.”

Digital transformation. Heading north, Canadian private equity firm Danilee Capital has invested in Addmore Group, a Toronto-based provider of SAP staffing solutions.

Addmore provides SAP recruiting solutions to a range of clients in Canada and the US, including SAP, software vendors, consultants and companies running SAP. The investment in Addmore marks Danilee’s second platform acquisition by a fund launched earlier this year.

“Corporate and government investment in digital transformation continues to grow rapidly on a global scale. Our partnership with Addmore will enable them to expand their service offerings to meet the current and future needs of their customers, and further cement their status as the leading staffing solutions provider in SAP and the broader digital transformation market,” said Derrick Ho, managing partner, Danilee.

Car care. And last but not least, HIG Capital-backed Recochem closes acquisition of Torque Detail, a Norwalk, Connecticut-headquartered brand of automotive detailing products.

Recochem is a Montreal-based manufacturer, marketer and distributor of automotive aftermarket and household fluids for consumers and industrial customers.

This is an add on to the Recochem platform and the acquisition supports Recochem’s continued expansion in the US branded car care market. It also supports Recochem’s continued expansion in the US branded car care market, the company said. Torque will continue to operate under its existing brand, as a part of Recochem’s car care division.

Looking ahead. Recently, I went to a media breakfast hosted by Apollo Global Management and although it was off the record, I was able to follow up for some on-the-record thoughts from David Sambur and Matt Nord, co-heads of private equity at Apollo.

On the current exit environment:

For the market, we do think many sponsors are grappling with whether they would like to sell in the current environment or whether they would prefer to try to continue to build value and wait for a more opportune time to sell.

Fortunately, we aren’t facing these pressures. We maintained our discipline throughout the high-priced environment of recent years, which allowed us to create durable value at our companies. In turn, we’ve been able to return capital to investors early where it’s made sense given the strong performance of our fund, but we’ve still maintained focus on long-term value creation.

What do you expect in 2023?

In 2023, we anticipate that GPs who successfully maintained discipline throughout the growth-chasing environment of the last decade will be well-positioned to ‘go on offense.’ In the near term we expect thematic challenges in the current market environment to persist – namely, a lack of traditional financing for LBOs and recessionary concerns driving decision-making. But even with this backdrop, nimble, patient sponsors – particularly those capable of structuring creative financing solutions – will find exciting opportunities to invest.

We also expect that more of the companies that have been saddled with too much debt will turn to sponsors for equity capital to help them de-leverage. Many companies have already started to show cracks, and those with capital structures laden with floating rate debt, we believe, will not be able to weather rising interest costs over the long term. Further, when capital markets reopen, companies will be faced with significantly higher costs of capital and lower leverage expectations, making many companies that are already over-levered unable to secure financing and forcing them to find alternative ways to de-leverage.

While most GPs pull back in volatile markets such as the one we’re currently experiencing, a select group will “lean in” in 2023 to capture what we view as unique investment opportunities.

That’s all for today! It is my girlfriend’s birthday tomorrow, so I will be celebrating that the next couple of days. Wishing everyone a wonderful weekend. MK Flynn will be with you on Monday!