Investcorp has high hopes for CrossCountry; FTV hopes for the best, plans for the worst

FTV Capital's Bernstein shares his 2023 outlook.

Good morning, dealmakers! Welcome to the second to last Wire of the year.

Today we are going to take a look at one firm doubling down on its investment in an advisory company, while another PE firm is bullish on demand for data centers.

We also have two fresh Q&A’s that get some perspectives on what to expect in 2023 and what were some of the biggest challenges in 2022.

Compelling company. Obey Martin Manayiti recently reported that Investcorp is looking to at least double its investment in CrossCountry Consulting, a global business advisory company, claiming the sector has the potential to withstand the macroeconomic headwinds.
Earlier this month, Investcorp acquired a majority stake in CrossCountry, a McLean, Virginia-based company that was founded in 2011 to provide accounting, finance, risk, operations, cyber, and technology-enabled transformation services to CFOs in public and private organizations.

“CrossCountry has a compelling return potential with less downside risk,” said Dave Tayeh, head of North America head of private equity at Investcorp. “We want to earn at least two-and-a-half times our money,” he said, adding that the financial advisory space has a very resilient outlook that can weather shocks to the economy.

“The reason why we think it [CrossCountry] will be resilient is that a lot of our services are not tied to those macro factors.”

Other reasons why the firm invested in the company were all about growth and resiliency.
“When you combine the resiliency and growth characteristics of the end market with the specifics around CrossCountry’s ability to grow – including its existing geography, services, opportunities for further penetration and potential for M&A – and pair it with a very highly cash-generative financial model…that is what creates a great risk adjusted return opportunity.”

You can read the whole story here.

Recession resistant. As part of PE Hub’s ongoing Q&A series with private equity leaders reflecting on highlights from 2022 and sharing their outlooks for 2023, MK Flynn caught up with Brad Bernstein, managing partner at FTV Capital.

How do you expect the first six months of PE dealmaking in 2023 to compare with the last six months of dealmaking in 2022?
Compared to the last six months of 2022, we expect market participants to adjust to the post-bubble environment as markets stabilize and recession fears catalyze funding needs. Given the likelihood of a recession in 2023, it will be important to have a disciplined approach amid a continued challenging macro backdrop.

What will be the most important trends affecting your dealmaking in 2023?
We remain focused on identifying high-caliber companies with the ability to endure market cycles due to robust financial profiles, predictable revenue models, mission-critical value propositions and highly motivated management teams. Heading into 2023, we’ll put even greater emphasis on profitability and recession resistance in our underwriting and continue to seek risk-adjusted returns through modest leverage and senior securities with strong downside protection.

You can read the whole story here.

Doubling down. Bullish on data center demand, LLR Partners is doubling down on the growth of data centers by extending the geographic footprint of its portfolio company Salute Mission Critical, a global player in the sector, writes Obey.

“We are very bullish on the growth of the data center space,” said Katie Lankalis, the vice president at LLR Partners. “We are optimistic about the organic growth ahead of the company.”

Extending geography is part of the strategy for growing Salute, a global data center services provider operating in about 11 countries across the world that the firm acquired back in Feb. 2021.

Lankalis said the AMS Helix purchase will allow Salute to deepen its roots within the EMEA markets.

“It’s an opportunity for us to expand our local presence in the UK and accelerate our growth in the EMEA region more generally,” she said. “We have increasingly seen our customers invest in Europe and we are excited by the opportunity to strengthen our presence in that region.”

You can read the whole story here.

Rejecting reality. Pivoting back over to another new part of the outlook series, MK Flynn shared some thoughts that Alok Singh, founder and CEO of Bridge Growth Partners after reflecting on the year that was.

The New York firm backs technology companies, a sector in which valuations have been volatile. Following on the firm’s sale of school website specialist Finalsite to Veritas Capital in December 2021, Bridge Growth spent 2022 focused on organic growth for its existing portfolio companies.

What were the highlights of your dealmaking in 2022?
We felt it was wiser for us to focus on investing incrementally in our existing portfolio companies instead of new platforms in 2022. We saw more opportunities to organically grow enterprise value by investing additional capital into our existing companies. In our view this was better and a more secure ROI versus buying into new platforms at prices that were still too inflated. This held true even in the second half of 2022 by when it was obvious that growth and margins would come under increasing pressure.

What was the biggest challenge to completing deals in 2022?
Seller price expectations, in our view, remained out of touch with reality. By mid-2022, investors generally knew that the next several years were going to be more challenged in terms of growth and operating margins, and that the cost of financing was going to be meaningfully higher. Sellers however stayed in the mode that the best strategy was to hold out for the valuation multiples of 2021. As a result, this led to many sale processes being put on hold after the price discovery phase occurred until 2023 or beyond. Probably a fair bit of wasted effort expended by both sellers and their management teams.

You can read the whole story here.

That is all for today! As a reminder, tomorrow will be the last edition of the Wire this year as we will be taking next week off – so be sure to tune in at the same time and same place. Until then…

Cheers,

Aaron