PE Hub’s Q&A series with private equity leaders reflecting on highlights from 2022 and sharing their outlooks for 2023 continues now with Arvindh Kumar, partner and co-head of EQT’s global technology sector team.
EQT is headquartered in Stockholm but has offices worldwide, including in New York, where Kumar is based. Kumar led the firm’s take-private of US company Billtrust for about $1.7 billion, a deal announced in September. EQT also expanded its Asian footprint by completing its merger with Baring Private Equity Asia in October.
What were the highlights of your dealmaking in 2022?
EQT bought and exited several companies across our funds this year, delivering a lot of liquidity for our investors. One of the highlights for me was the firm’s successful take-private of Billtrust, a US-based B2B software and payments player focused on accounts receivable automation. It was the result of several years of thematic sector work, building chemistry with the founder, and navigating a challenging macro environment. The company has a strong foundation, and we have an exciting value creation plan.
What was the biggest challenge to completing deals in 2022?
The elephant in the room is of course made of several concurrent macro challenges, including global recessionary forces, high inflation leading to higher interest rates, war, supply chain shortages, China’s pandemic response, and so on. The cost of capital has significantly increased, thereby reducing what buyers can pay, yet sellers have been slower to rebalance their expectations. As a result, private equity has seen a huge reduction in deal activity in the second half of 2022, especially for larger transactions that require bank financing.
How do you expect the first six months of PE dealmaking in 2023 to compare with the last six months in 2022?
In technology PE, where I focus, I am already seeing an increase in outreach from companies expecting to explore a sale or recap in early 2023. However, given the persisting spread between buyer and seller valuations, I expect the backlog to continue piling up without a corresponding level of consummated deals in the first half of next year. I think valuations will continue to decline versus H2 2022 on average, but we will see the crown jewel assets continue to attract premium valuations, given their scarcity. Finally, I think take-privates and carve-outs will be major themes in the technology world in H1 2023.
What will be the most important trends affecting your dealmaking in 2023?
Given that PE markets often look to public comps as leading indicators on value, bookings and earnings trends, especially versus guidance, will be closely watched. While most public tech companies continued to hit revenue targets in 2022, we are seeing cracks in Q4 which could lead to lower public valuations if and when growth slows further. That should impact private valuations eventually. This, combined with the Fed’s interest rate actions and debt financing terms, are trends to look out for in 2023.
What’s keeping you up at night?
There are so many macro concerns concurrently happening that the cumulative impact keeps me up at night. On a global level, unpredictable behavior from some of the most powerful world leaders worries me. Additionally, global warming is getting worse by the day, in an accelerated manner.
What are you looking forward to most in 2023?
I’m hoping for my New York sports teams to start seeing real success in 2023, and to explore some exciting places in the world with my family in 2023!
More generally, I am looking forward to cooler heads prevailing on geopolitical tensions in 2023. I also look forward to seeing stabilization in the US and global economic outlook, which should help resume deal activity.
Most of all, I’m hoping that we can stay safe and healthy, which would be a big step up from the past few years.