Blackstone to take stake in Emerson’s climate tech biz for $14bn; plus Q&As with Vista, EQT

Blackstone is acquiring Emerson Electric's climate tech unit for $14 billion.

Happy Halloween, Hubsters! MK Flynn back from vacation and here with today’s Wire.

It’s a deal-packed Monday morning.

Blackstone just announced it’s buying a majority stake in Emerson Electric’s climate technologies business for $14 billion. We’ve also got a pair of Q&As: one with Vista on the completion of its $8.4 billion acquisition of Avalara, and one with EQT on its merger with Baring Private Equity Asia to create BPEA EQT.

Closing time. Diving into the Blackstone deal… The Emerson unit it’s buying includes the Copeland compressor business and the portfolio of products and services across all HVAC and refrigeration end-markets, representing approximately $5 billion of fiscal 2022 sales, according to the companies.

“This is a marquee transaction for our private equity business and a testament to our ability to deliver solutions to our partners even in difficult economic and market environments,” Joe Baratta, global head of Blackstone Private Equity, said in a statement. “Copeland is the market leader in supplying critical components for residential, commercial and refrigeration climate control systems. The business is poised for accelerated growth as it leads the way in helping consumers and businesses shift to more energy-efficient heating and cooling products as part of their carbon reduction efforts.”

The deal details say a lot about today’s climate for transactions.

Blackstone and its co-investors are contributing $4.4 billion in equity toward the deal, which is being supplemented by $5.5 billion of debt financing, according to the Wall Street Journal, which reports that Blackstone placed the debt itself as banks are mired in big buyouts announced earlier in the year.

“I think it will take at least six months for the credit market to normalize, and we will continue to transact in this market,” Baratta told the Journal. “We like to invest in these moments. This is when you can do interesting things.”

Tax time. Earlier in October, Vista Equity Partners, the Austin, Texas-based private equity firm, completed its take-private acquisition of Seattle-based Avalara, an automation tax compliance provider, for $8.4 billion. PE Hub’s Obey Martin Manayiti spoke with Monti Saroya, Vista’s senior managing director and co-head of its flagship fund, about the deal.

Here’s an excerpt from the interview.

How does the current macroeconomic environment affect this deal and the growth strategy?
Enterprise software is still the most productive tool introduced in the business economy in the last 50 years and will likely continue to be for the next 50. So, in an environment with wage inflation, a lack of developer talent, challenges related to cyber-attacks, in many cases companies are increasing their spending in enterprise software. This is especially true for tax compliance as taxes will always be a part of every transaction and businesses will need solutions to address continually evolving tax laws.

How does this deal symbolize your investment thesis?
We believe the opportunity in enterprise software remains one of the best uses of capital in the world. When we evaluate potential investments, we focus on identifying platforms that are fundamentally primed for “growth at scale” in concert with our Vista best practices. These are rigorous and proven principles that prioritize operational excellence to create additional value and drive profitability.

At a high level, volume and complexity are the nexus where data-driven software solutions are often the most business-critical and resilient – and this is exactly the type of solution Avalara provides. Avalara is a market leader in tax compliance automation that serves customers in a variety of end-markets, including retail, manufacturing, lodging and software.

We also believe Avalara possesses multiple future growth and operational levers capable of driving profitability in an underpenetrated market, and we look forward to working closely with their CEO Scott McFarlane and the entire Avalara team to maximize these opportunities moving forward. Vista has built a reputation as a preferred partner for founder-led, next-generation software companies and embraces the value of founder relationships and their importance throughout the lifecycle of our investments.

For more, read the whole story here.

EQT completed its mammoth merger with Baring Private Equity Asia to create BPEA EQT earlier in October, with BPEA CEO Jean Eric Salata staying at the helm of the combined Asian private capital business.

Christian Sinding, EQT CEO, spoke to PE Hub Europe’s Craig McGlashan about the firm’s plans for BPEA EQT, how the merger will affect the firm’s business in Europe and whether economic and geopolitical events since the deal’s announcement have changed the outlook for the firm and private equity generally.

Here is an excerpt:

Do you believe there will be more consolidation in the private equity industry generally?
As we have seen with many other professional services and asset management industries, we think that over time a handful of global leaders will emerge but then there will also be a number of specialists.

It’s our ambition to remain and be one of the long-term global leaders in the industry and look forward to what this combination with BPEA means for our business and the industry, more broadly.

When you spoke with PE Hub back when the deal was announced in March, you talked about the exciting growth in Asia. Have any of the headlines around China and Taiwan, or the struggling global economy more generally, affected your optimism?

We remain just as optimistic. Asia is one of the world’s most important markets. The region has strong long-term prospects driven by demographic and macroeconomic tailwinds – for example the population is both young and growing – and its scale and growth significantly exceed developed markets. All this makes it attractive to private capital investors for the long-term, even if the world is entering a challenging period economically.

It is also worth noting that the economic downturn and inflation impact in Asia is significantly lower than what we are seeing in Europe and in the US. Expanding further into Asia creates a truly global and diversified firm, which is helpful during downturns such as these.

For more on EQT’s ambitions to grow globally, see the full interview on PE Hub Europe.

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That’s it for today. I’ll be back with more tomorrow.

Here’s wishing you more treats than tricks,

MK