Good morning, Hubsters. MK Flynn here.
I’m back after a long, restful weekend visiting friends and family in The Berkshires.
It’s a bustling morning jam packed with deal news and insights. Below, I’ll share a slew of announcements from late yesterday and early today.
Plus we’ve got an in-depth interview with BC Partners’ Nikos Stathopoulos about investing for the long haul.
And we take a look at a Partners Group carbon capture deal that blurs the lines between venture capital and growth equity and involves Amazon, Microsoft and Samsung.
Lets start with the deals.
News in brief
• GI Partners has acquired a majority stake in two hyperscale data centers in Elk Grove Village, Illinois, in a deal announced late yesterday afternoon. The transaction was done in partnership with Digital Realty Trust, which retained a 35 percent stake in the properties and will continue to manage day-to-day operations. “We are excited to announce the formation of a joint venture with one of the leading data center operators in the world and a company that GI Partners helped launch in 2001,” said Rick Magnuson, founder and executive managing director at GI Partners, in a statement.
• Lee Equity Partners and Twin Point Capital have closed their previously announced buyout of Tessco Technologies, a wireless infrastructure products provider, and merged the company with Alliance, a distributor of equipment for the wireless industry and GetWireless, another distributor. The deal was for about $160 million.
• PestCo, a Dallas-based portfolio company of Thompson Street Capital Partners, has acquired Indianapolis-based 5 Star Pest Solutions, a provider of commercial pest control services. This is the eleventh investment for PestCo, an acquisition company formed to consolidate the highly fragmented pest control industry.
• Incline Equity Partners has acquired GME Supply Co, a Columbia, Maryland-based distributor of harnesses and other safety equipment and gear for workers.
• IOU Financial, a Montreal-based online lender to small businesses, has agreed to be acquired by a vehicle owned by Neuberger Berman, Palos Capital and Fintech Ventures.
And for ongoing coverage of deal announcements reported by Iris Dorbian and Irien Joseph throughout the day, see PE Hub’s News in Brief.
“Patience is a very big virtue,” said BC Partners’ Nikos Stathopoulos in an in-depth interview with PE Hub Europe’s Craig McGlashan.
PE firms are holding onto assets for longer amid “the lowest deal volumes and deal values in the private equity iindustry that I can remember for at least a decade.”
Stathopoulos serves as chairman of Europe for London-headquartered BC Partners. He is also a partner and member of the management and private equity investment committees.
He joined the firm in 2005.
He began his private equity career at Apax Partners in London about 25 years ago and has invested through many economic cycles.
“For those of us who have been in the industry for almost three decades, this is not unprecedented,” said Stathopoulos with respect to today’s challenging economic environment. “We were, for better or worse, spoiled by the last decade of very low interest rates and very low inflation.”
The change demands a switch in approach where the patience Stathopoulos spoke of becomes key. The firm invests in businesses with strong cashflow and balance sheets – attributes that he said bolster margin and profitability.
But value must also be created via operations – something particularly true today.
“In the current financing environment, we are very focused on managing short-term refinancing pressures given higher costs, and managers will need to be prepared to hold assets for longer.”
Such conditions also require creativity. That means finding novel ways to return capital to investors, such as minority stake sales – which do not trigger bank loan refinancings – and continuation funds.
While inflation and interest rates will remain higher for longer than many economists predicted, the macro picture is stabilizing. In Europe – where BC Partners invests about two-thirds of its capital – inflation is falling and interest rates are plateauing, except in the UK.
“Markets will start to recognize this and respond to increasing stability and therefore I do think that we will see an uptick in market activity,” he said. “There’s a high degree of consensus that Europe and the US are going to avoid recession in 2023.”
“The biggest opportunity for disciplined investors in this environment, is that it is actually a very good environment in which to invest. But to invest in these environments you need conviction, which comes from a combination of experience and an understanding of specific sectors and sub-sectors. You can see the trends through the macro instability and just focus on company fundamentals.”
That outlook comes tempered with his other bit of advice for PE investors.
“Management of expectations in this environment is essential, because a lot of deals and a lot of effort may not result in a transaction,” he said. “But as an industry, I still believe it’s one of the best investing environments that I can think of.”
Blue Earth Capital, the impact firm incubated by Partners Group, has made a carbon capture deal from its climate fund alongside Amazon, Microsoft and Samsung, reports New Private Markets’ Snehal Shah.
The firm has led an $80 million funding round into CarbonCure Technologies, a Halifax, Nova Scotia-based carbon capture and utilization company for concrete manufacturing. Other participants include Microsoft (via its $1 billion Climate Innovation Fund), Amazon’s Climate Pledge Fund – both of which had previously invested in the company – Samsung C&T’s venture capital arm and BH3 Growth Equity. VC firms such Breakthrough Energy Ventures, Taronga Ventures and 2150 also participated.
CarbonCure is the fifth investment from Blue Earth’s Climate Growth Fund. “We look to support… proven and tested technology, clear commercial market adoption with a path to scale and measurable impact,” Kayode Akinola, head of private equity at Blue Earth, told Snehal. Akinola, a former director at KKR, joined Blue Earth in 2021.
CarbonCure’s Series F funding round is a sign that carbon capture technology – a popular theme among climate funds – is scaling out of the venture stage.
“We no longer see CarbonCure as a classic start-up, but as a growth company,” said Akinola. “It has proven its core product technology [and] has clear market adoption by its target customer base.”
I’m always intrigued by the moment when a company leaves the VC phase and enters the PE stage.
On that note, I’ll sign off for today. As always, I’d love to hear from you, Dear Reader. Please email me at email@example.com.
Tomorrow, Buyouts’ Chris Witkowsky will write the Wednesday Wire, as per usual. And I’ll be back on Thursday.
Until then, happy dealmaking,