GTCR revisits commercial security in $1.6bn carveout; Battery Ventures sees H2 recovery

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

I hope your day is going well!  We’ve got some interesting stories for your reading pleasure.

We’re featuring a Deep Dive into GTCR’s $1.6 billion carveout from ADT, including an interview with David Donnini.

We’ve also got an H2 Outlook Q&A with Battery Ventures’ Zak Ewen.

Also on deck, a sentiment survey of private equity and investment banking folks.

Without further ado, we’ll get right to the big deal.

Take two
GTCR this week agreed to acquire a commercial security and safety provider it previously owned, this time through a carveout from ADT for $1.6 billion, eight years after selling it.

Chicago-based GTCR initially bought the company, known as Protection 1, in 2010 for $828 million and exited to Apollo in 2015. In 2016, Apollo went on to acquire ADT Corp and merged it with Protection 1, before taking Boca Raton-based ADT public in 2018.

“We are buying back a business which we owned before in a previous company, and so our interests in the business have been long term and we have got quite a bit of experience,” David Donnini, managing director and head of GTCR’s business and consumer services, told PE Hub’s Obey Martin Manayiti.

With a footprint across the US, ADT Commercial serves a wide range of industries, including schools, hospitals, warehouses and other large businesses to enhance safety and security at their premises.

The business has some attractive characteristics that GTCR is banking on, according to Donnini, describing it as a “critical service, regulated and mandated.”

“Customer retention [in this business] is quite high because of its complex [nature], and it’s so critical for the customers,” he said. “They don’t typically switch providers very much at all, and we really value that type of stability to the business.”

The business is highly recurring too, he said. “Customers pay us monthly to monitor, service and inspect their systems to make sure they are in working order.”

For growth, GTCR is looking at opportunities to add salespeople, invest in customers and enhance technology.

“Technology is part of the story,” he said. “Technology and security and life safety have continued to improve and drive a nice tailwind in the industry.”

Recovery in H2
International demand for European tech firms will help drive activity in the second half of the year, Zak Ewen, partner at Battery Ventures, told PE Hub Europe’s Irien Joseph. Ewen said the trends that underpin tech investments are still solid in Europe and the US.

Battery is a technology and software-focused investment firm with offices in Boston, San Francisco, Silicon Valley, Tel Aviv, New York and London. Recent deals include an equity investment in Berlin’s Vimcar and Zurich’s Avrios, a pair of cloud-software providers for the fleet-management sector, in January. In late August 2022, it reinvested in Forterro, a European provider of enterprise resource planning software for the industrial mid-market.

Here’s a snippet from Irien’s Q&A:

What’s Battery’s forecast for dealflow in H2?
Dealflow in the tech sector will be better and with time, more exit horizons will come to bear. There will be pressure from the private equity community with portfolio companies hitting maturity and firms pushing for exits ahead of new fundraising cycles.

The last 18 months have been a wait-and-see environment. The public tech markets collapsed, crossover funds shut down private market activities and at the same time, the macro environment worsened, and interest rates were going up. That dust has settled. People know where interest rates are heading and can model it into their capital structure. It won’t slow down deal activity dramatically, but it will rebalance capital structures. The way deals are done will change. The expectation is that deal volumes will increase and there will be a recovery in H2.

What kind of deals can get done today?
Given the reshoring trend and globalization scaling back, this is bringing manufacturing investments back into Europe and the US. We’ve done a lot around ERP and PLM, and simulation software, and this will continue to be an area of focus for Battery. Other areas include the public sector; there are long-term trends around governments digitizing across Europe and looking to the private sector to build tech to help them get there.

We’ll have more H2 Outlook Q&As coming up from PE Hub and PE Hub Europe.

Buyer’s market
CIL, the international private equity consultancy, has completed its US Mid-Market M&A Pulse Check 2023, which is based on research with 110 respondents, the majority of whom work for US investment banks and PE firms.

Here are some highlights from the sentiment survey:

• Rapid escalation of interest rates has curtailed debt accessibility and escalated costs more quickly than expected, resulting in 43 percent of respondents reporting “very low” or “low” deal activity so far this year, 25 percent said it was about average and 32 percent said it was high.

• The majority expect a rebound in deal activity over the next 12 months, with more than 80 percent anticipating that deal volumes will materially increase by the end of 2023. This positive sentiment is fueled by improving confidence in the economic outlook.

• The majority of respondents, 77 percent, expect the swing to a buyer-favorable market to continue through the next 12 months as the market undergoes recalibration post-covid.

• When asked about the two biggest challenges to their organization in terms of being able to get deals done, excessively high valuation expectations (47 percent) and economic and market uncertainty (45 percent) were cited as the key obstacles in 2023.

• As the economy shows signs of stabilizing, respondents are generally supportive of the Federal Reserve’s current monetary policy with 54 percent saying that it should stay the same, 23 percent saying it should tighten and 23 percent saying it should loosen.

That’s all for today. Obey will bring you Friday’s newsletter, and I’ll be back on Monday.

As always, I’d love to hear from you at my new email address:

Happy dealmaking,