PE Hub’s Outlook 2022 Q&A series with high-profile private equity professionals continues today with insights from Brad Bernstein, managing partner, FTV Capital. Founded as FTVentures in 1998, the New York firm backs high-growth companies in three sectors: enterprise technology and services; financial services; and payments and transaction processing. The firm made recent investments in Luma Health, a provider of patient engagement systems; Plate IQ, a provider of accounts payable and payment systems for restaurants; and Vagaro, developer of cloud-based business management systems for beauty, fitness and wellness businesses.
Will the dealmaking momentum continue in 2022?
My expectation for 2022 is a torrid dealmaking pace continuing in Q1 as people push to complete transactions that started in 2021 and work towards closings before tax rates change. I anticipate a modest slowdown in Q2 and Q3 as interest rates recalibrate and tax rates become clearer, followed by a strong push into Q4 to wrap up a year of similar volume in aggregate. Activity levels are a function of significant committed capital and a deep field of promising emerging companies, particularly in tech-enabled solutions that are transforming industries and taking share from incumbents.
Which sectors and types of companies are promising in 2022?
Companies that serve the migration to e-commerce trade will be of great interest. Whether it is AI-driven solutions that enhance the shopping/buying experience for consumers or companies that are fixing and enhancing the logistics challenges in our supply chain, these companies will have strong tailwinds and garner premium prices, given their growth and the large total addressable market they are tapping into.
What keeps you up at night?
My greatest concern is always externalities, such as changing government policies on the regulatory front, tax policy and foreign policy that could disrupt markets we are trying to underwrite. Of course, new variants of covid and inflation will also pose challenges, but both make enterprise clients more inclined to pursue digitization and adoption of innovation, which is ideal for our high-growth portfolio.
How is the hybrid work model affecting deal origination and deal closings?
We have all learned how to work in a hybrid model and everyone has proven to be more resilient and flexible in finding ways to get diligence done. I do not anticipate this impacting the pace of deal activity, but I do think those investors brave enough to go meet founders in person will benefit from their courage and greater relationship building.
How will PE’s increasing focus on ESG affect dealmaking?
ESG will lead to premium pricing on deals that fit squarely in the narrative and may lead to greater discounts for businesses that have significant ESG issues. As for the impact on our transactions, ESG considerations are another key step in the diligence process, but it does not change the timing or process in any material way. Everyone understands that addressing these factors is an important step on the journey to maturation for a company.
What are you most looking forward to in 2022?
Coming off a year of 50 percent-+ growth across our portfolio, I am looking forward to seeing if our amazing management teams can sustain the momentum in 2022. On a personal note, I need some travel to an exotic location – not sure where yet, but definitely need an adventure in a far-off land!
Editor’s Note: For more Outlook 2022 Q&As, see our interviews with The Riverside Company vice chairman Pam Hendrickson; Grain Management founder David Grain; and Monroe Capital president Zia Uddin. Check back next week for more Q&As.