ChatGPT, Anthropic point the way for PE investments in AI; plus, there’s a new CEO at Carlyle

Harvest Partners President Wilkins passes away.

Good morning, Hubsters. MK Flynn here with the Wire on a busy Monday morning.

ChatGPT is the hot new technology everyone’s talking about lately, and it’s among the developments PE Hub is following this morning.

We’ve got an interview with a tech investment banker who has some insights on investing in the AI trend.

We also share a scoop from our partners at PE Hub Europe, and there’s going to be a new CEO of Carlyle.

Unfortunately, there’s some sad news from Harvest Partners, which announced the passing of president Jay Wilkins this morning.

There’s more on all of this news, below.

Tech opportunities. Investments in “generative” artificial intelligence (AI that can create new content) are heating up quickly.

Earlier in February, Google teamed up with Anthropic, including an investment in the AI startup, reportedly to the tune of $300 million.
And in January, Microsoft announced the third phase of its “multiyear, multibillion dollar investment” in OpenAI, the developer of ChatGPT.

To gain insights on the opportunities for AI and other tech subsectors in 2023, PE Hub’s Georgina Tzanetos spoke with Wayne Kawarabayashi, partner and head of M&A, at technology-focused investment bank Union Square Advisors, which has headquarters in New York and San Francisco.

Here are excerpts from their conversation:

What are the opportunities on the buy side?
On the buy side for new platform situations, I think we will see more activity this year. I say that because we saw some public company LBOs happen last year. There were some bigger ones that happened, including Citrix being sold to Vista and Evergreen Coast Capital in September, the December announcement that Thoma Bravo is buying Coupa in a take-private deal and the January announcement that Vista is acquiring Duck Creek. As stock prices have settled and may not rebound quickly, maybe finding a strategic or private buyer might be a better option than remaining public.

Everyone will sit there and say, “Well the cost of debt is so high with rising interest rates, it’s hard to get enough leverage or a large enough quantum,” but there are still people deploying capital. The private lenders are still active. A lot of those folks are leaning in and finding opportunities to support buyouts.

Which tech subsectors are you most interested in?
One of the sectors I expect to see M&A activity is cybersecurity. Whether it’s protecting everything we are doing online, anti-fraud or securing critical infrastructure, cybersecurity solutions have become crucial parts of everyday life.

AI, DevOps, customer engagement, digital transformation, risk and compliance and cybersecurity will be the major tech areas of focus for M&A and investment. During and post-pandemic, many process operations went through a digital transformation. So any kind of software that helps accelerate processes and digitizes what was manually intensive or people-based continues to remain ripe for investment in the hybrid world.

What about AI interests you?
There’s a lot of buzz in the market with Microsoft’s investments in OpenAI with ChatGPT. It’s really interesting, AI has been around for a bit. I think we are going to continue to see efforts both in investing and M&A around AI. Companies are also trying to find AI and [machine learning] solutions that help their business units.
What specific value does AI bring to a potential investment?
The important element is access to data and the ability to better inform and automate marketing, sales, and customer support decisions.

The question becomes, how do you ultimately win a customer, and even when you do win that customer, how do you support that customer and retain them? Having all of that connected and ensuring that there’s a positive customer experience and loyalty is going to be critical. So, technologies that help enable that are going to be important.

You can read the full interview here.

Cutting energy costs. Over at PE Hub Europe’s Irien Joseph got a scoop, when she reported earlier today that Ara Partners, headquartered in Houston, acquired a majority stake in Wattstor, a London-based provider of automated carbon reduction and electricity cost-saving technology.

In addition to the UK, Wattstor has offices in Czech Republic, Slovakia, Croatia and Poland.

The firm intends to use the capital to widen its European footprint, launch its Energy-as-a-Service (EaaS) finance offering, boost R&D, and expand its team by over 50 percent in the next year.

“Wattstor provides a unique and highly compelling automated behind-the-meter solution allowing its I&C customers to reduce their carbon footprint and save on costs, while increasing energy security,” said Myles O’Shaughnessy, managing director at Ara. “Wattstor’s offering fully aligned with Ara’s sustainability principles and our ongoing focus on proven technologies for sectors requiring investment to decarbonise.”

Wattstor’s existing investor janom, a PE firm based in Bratislava, Slovakia, will retain a minority stake in the firm.

People moves. As expected, Carlyle has named Harvey Schwartz to lead the PE firm as CEO, effective February 15. Bill Conway will step down as interim CEO, maintaining his role as co-chairman of the board.

The move follows Kewsong Lee’s unexpected resignation in August.
Schwartz, you may recall, is the former president and co-chief operating officer of The Goldman Sachs Group. He left Goldman in 2018, after David Solomon was named CEO, taking over from Lloyd Blankfein.

“Harvey is a widely respected business builder with significant leadership experience in high-performing, highly competitive global financial institution,” said co-chairmen Conway and David Rubenstein. “Given his experience, track record, and skillset, the board was unanimous in its determination that he is the right leader to drive Carlyle forward, building upon the firm’s strong operational foundation, world-class brand, and collaborative, performance-oriented culture.”

Deeply missed. Harvest Partners shared some sad news with us this morning.

Here’s the statement from the mid-market New York firm:
Harvest Partners mourns the loss of John C. (Jay) Wilkins, Jr.
Harvest Partners, LP, is deeply saddened to announce that Jay Wilkins passed away unexpectedly on February 4, 2023.
Jay’s sudden death is a shock to everyone at Harvest Partners and is a great loss to all of us. He was a true friend and a dedicated partner. We send our deepest sympathies to Jay’s family.

Jay joined Harvest in 2010 as a Principal and has been President of Harvest since 2021. As a leader of the Firm, he devoted meaningful time mentoring the investment staff, investing and, in keeping with his personal practice, spearheading charitable initiatives.

Michael DeFlorio, CEO of Harvest, said, “Jay was a talented investor and great leader and friend and will be deeply missed by the Firm.”

Jay is survived by his wife McCartney and son Jack.

On behalf of PE Hub and Buyouts, we offer our condolences.

I’ll be back tomorrow with more news on PE dealmaking.

All the best until then,