Electric vehicles take off; Blackstone’s Verdun Perry shares market insights; register for PE Hub Europe

Surging interest rates become increasingly concerning.

Good morning, dealmakers. MK Flynn here with today’s Wire.

Yesterday, I mentioned that the debt offering for the $16.5 billion LBO of Cytrix by Vista Equity Partners and Elliott Management is one that dealmakers are watching closely as a market bellwether in this era of rising interest rates.

As we’ve reported previously, Bank of America, Credit Suisse, Goldman Sachs and others have been struggling to offload debt after agreeing to finance the deal.

And today, there’s more bad news on that front.

“Orders scarce for Citrix LBO debt sale in sign of weak credit market,” read the headline in this morning’s Financial Times story on the process.

“Investor orders barely covered an $8.55bn debt package on offer, with many big money managers and hedge funds refusing to lend to the business, according to people briefed on the matter,” said the FT.

At PE Hub, we’re following the impact of rising interest rates on PE-backed deals closely and have been asking our sources to share their experiences. If you have a perspective to share, please email me at mk.flynn@peimedia.com.

And now onto deals we’ve been looking into.

Power up. The electric vehicle industry is “at an inflection point,” said Reuben Munger, Vision Ridge Partners managing partner, in an interview with PE Hub’s Obey Martin Manayiti.

Boulder-based Vision Ridge last week joined other investors in a $1 billion funding of TeraWatt Infrastructure, a San Francisco-based developer of EV charging systems.

“We are in a moment when the adoption of electric vehicles is accelerating, and manufacturers are coming up with better models,” he explained. “As battery costs have come down and the industry has ramped up, we are beginning to see the start of a crossover in a number of areas where EVs are cheaper, and sales are going up relative to traditional combustion engines. As that sort of transition happens, it’s going to cause a huge amount of demand.”

Read the whole story here.

Recycling. In another sign of EV’s momentum, LBO France will guide its latest purchase, metal recycling facilities manufacturer Zato, towards new markets such as plastic and electric vehicle batteries, partner Arthur Bernardin and investment director Chiara Venezia told PE Hub Europe’s Nina Lindholm.

Zato, based in Brescia, Italy, designs and manufactures ferrous and non-ferrous metal recycling facilities that use artificial intelligence algorithms and IoT devices.

LBO France, based in Paris, announced the purchase of Zato in mid-September, via its Italian subsidiary Gioconda. The investment was the fifth in Italy by LBO France’s Small Caps Opportunities funds, after Vetroelite, Bluclad, Demas and Astidental Bquadro.

“We could apply our technology to a lot of other materials, such as plastics, cables and other waste,” Bernardin said. But LBO France does not want to stop there. Zato’s products have the capability to scrap cars, but Bernardin is looking further ahead.

“In 10 years or so, we need to be recycling electric car batteries,” he said. “You need to adapt your equipment to make sure that you’re able to recycle batteries, which is completely different to recycling a car.”

For more, read the full story.

In case you missed. Over the summer, we launched PE Hub Europe, a separate website that focuses on private equity-backed deals in Europe.

The UK team is led by Craig McGlashan and includes Nina Lindholm and David Wansboro. Based in London, Craig writes the daily Dealflow newsletter – akin to the Wire.

In today’s Dealflow, Craig wrote about the “sterling opportunity,” among other topics.
“Private equity buyers, particularly from the US, are snapping up UK firms thanks to sterling’s decades’ long low against the dollar,” Craig wrote. “That includes situations where the currency balance has nudged a potential investment into a definite one, or even some simple currency plays – buy a sterling asset when it’s low against the dollar, then wait for sterling to recover and sell it on.

“Regardless of the strategy, this Thursday’s interest rate decision could help fuel the trend further. The rate is at 1.75 percent and analysts expect a hike of 0.5 to 0.75 percentage points at Thursday’s meeting.”

Check out the online version of the newsletter here and sign up for access to PE Hub Europe and the daily Dealflow. (It’s free for a limited time only.)

And you can reach Craig at craig.m@peimedia.com.

Wait and see. The secondaries market is slowing amid valuation uncertainty and pricing expectation gaps that are only growing wider between buyers and sellers. Buyouts’ Chris Witkowsky recently chatted with Verdun Perry, head of Blackstone Group‘s secondaries operation Strategic Partners, about how the team is approaching the market.

Here’s an excerpt from the interview:

How is the environment of rising rates and inflation impacting the way you do deals? What has changed in this new environment?

As a secondary buyer, we do bottoms-up analysis, we don’t evaluate based on top-line, franchise recognition, brand name, anything like that. As it relates to higher interest rates, if underlying companies have floating rate debt, their debt is getting more expensive. Higher inflation could mean pressure on wages, it could mean pressure on input costs, and so it could mean lower earnings. So all of these things have to be factored in.

It also could mean that your exit multiples come down, so how does that impact the secondary market? It’s going to clearly impact pricing and so if, for example, we factor in lower exit multiples, our price is going to be overall lower. Do sellers agree with that lower price or not? So it really comes down to fundamentals.

How are these challenges impacting deals – are you seeing pulled deals?
I haven’t seen a whole lot of deals get pulled, if any. What you’re clearly seeing is that people have postponed bringing their deals to market. People looked and said, ‘I’m going to wait until the macro environment stabilizes and then I’ll bring my portfolio to market, and I’ll more than likely get a better price when things stabilize.’

It’s not dissimilar to what we saw in the first half of 2020, when covid took hold. A lot of people that had planned to come out in the first half of 2020 postponed and came out in late 2020, or sometime in 2021.

Read the whole interview here.

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Let us know what you think of our coverage of private equity-backed deals by taking the survey here.

That’s it for today. Tune in tomorrow when Chris writes the Wire. And I’ll see you back here on Thursday.

Cheers,

MK