Dealmaking optimism emerges amid falling activity; Knox Lane brings Fund II to market

Morning Hubskis!

This is Chris, on for Wire Wednesday.

While deal numbers have been falling, I am hearing more optimism around dealmaking, (including secondaries), mostly because of ample uncalled capital just waiting to be spent. While lending hasn’t recovered, GPs are out seeking deals and the expectation is that activity will continue to strengthen into the second half.

Of course, this precludes some exogenous shock like the US defaulting on paying debts it’s already incurred, for example. And as always, GPs are in need of more exits, more exits, more exits …

Wealth management
Bain Capital made a minority co-investment of $1 billion in CI Financial Corp’s US business, as a way to seize on opportunities around wealth management, writes Obey Martin Manayiti on PE Hub today.

The platform is focused on high net worth and ultra high net worth clients and since 2019, the US division has completed more than 20 add-ons.

The plan is for the company to make strategic acquisitions to expand its capabilities to attract more clients and to add new products. M&A also will focus on adding new geographic footprints and products that will solidify and scale the business in existing markets, according to Bain Capital partner Cristian Jitianu.

The wealth management business is growing in the stressed economy of high interest rates, Jitianu said. “Rather than [clients] doing it themselves at the kitchen table, they tend to come and talk to a professional about how they should invest their savings. From that perspective, the value-add that the business gets to some extent is even higher in periods of economic uncertainty.”

The $1 billion investment gives the business an enterprise value of $5.3 billion. This represents 25.6x Q1 annualized adjusted EBITDA of CI US. The deal equity value is 3x CI Financial’s current equity market capitalization as of 10 May 2023.

Falling
While dealmakers appear to be more optimistic, numbers have definitely been lagging this year. The number of announced deals in April plunged 40.5 percent year-over-year to 843 from 1,416, according to fresh research from S&P Global Market Intelligence. Total deal value through April 30 was $148.1 billion, down from 53.9 percent year-over-year.

TMT sector attracted the most private equity capital at about $11 billion, down 72.6 percent from April 2022, S&P said. Healthcare sector secured $4.12 billion in April, down from $9.09 billion a year ago, and financial services attracted $3.81 billion. Materials saw the largest decline, falling 69.8 percent compared to last year to $16 billion.

Coming back
We have been exploring the challenges for the largest and most established PE shops to hit their targets. Several of the biggest firms in the world are stuck only part-way to their ultimate fundraising goals, and conditions don’t seem to be improving.

This situation could open opportunities for newer managers, raising smaller funds, to form relationships with LPs and bring in more capital. We’re seeing a small group of first-timers and emerging managers continuing to raise money and hit targets.

One that appears to be moving strongly through its process is Knox Lane, a firm formed in 2019 that is back in market with its second fund. KLC Fund II is targeting $850 million and has reached more than halfway toward that goal, sources told Buyouts. Read more here.

That’s it for me! Hit me up at cwitkowsky@buyoutsinsider.com or find me on LinkedIn with tips n’ gossip, feedback or The Drama, which we love.