Riverside co-CEOs have ‘exciting exits planned’ for 2023; Lincolnshire bets you’re keeping your old car

An interesting partnership announced this week between Microsoft and the parent company of the London Stock Exchange; plus an interview with a partner at Lincolnshire Management about opportunities in car care.

Good morning, Hubsters. MK Flynn here with the Wire.

Let’s take a quick look at an interesting partnership announced this week between Microsoft and the parent company of the London Stock Exchange; then we’ve got a second installment in our outlook 2023 series featuring the co-CEOs of The Riverside Company; and we’re featuring our new podcast series, plus an interview with a partner at Lincolnshire Management about opportunities in car care.

All about the cloud. Microsoft is buying a 4 percent stake in London Stock Exchange Group from Blackstone and Thomson Reuters.

In addition to the investment, LSEG and Microsoft have entered into a long-term strategic partnership to jointly develop new products and services for data and analytics using the Microsoft Cloud.

“This strategic partnership is a significant milestone on LSEG’s journey towards becoming the leading global financial markets infrastructure and data business, and will transform the experience for our customers,” said David Schwimmer, CEO of LSEG, in a statement.

LSEG is banking on data as a way to diversify its interests. Last year, the company completed the acquisition of Refinitiv from a consortium of Blackstone and Thomson Reuters.

Looking ahead. This morning, we published the second installment of PE Hub’s new Q&A series with private equity leaders reflecting on highlights from 2022 and sharing their outlooks for 2023. In this edition, we hear from Béla Szigethy and Stewart Kohl, the co-CEOs of The Riverside Company.

With offices in North America, Europe and the Asia-Pacific region, Riverside has $13.1 billion in AUM and is one of the most prolific PE firms focused on the lower mid-market.

Here are some excerpts from the interview:

What were the highlights of your dealmaking in 2022? 
Kohl: There were many exciting highlights for us this year, but we definitely have to start with the fact we deployed over $1.5 billion, including coinvest.

We’ll do around 75 add-ons just like last year. We are an add-on machine! Really focused on tremendous value creation.

And in 2022, we’ve had more than 20 exits.

What was the biggest challenge to completing deals in 2022?
Szigethy: We saw the bid-ask spread widen in the spring, and it remains that way even through the end of the year.

We also experienced that, when we exit our larger platforms, the buyers have trouble getting financing. The squeeze in financing especially occurred during the last four months of the year.

How do you expect the first six months of PE dealmaking in 2023 to compare with the last six months in 2022?  
BS: Definitely anticipate an improvement as buyers and sellers adjust, and the bid-ask spreads narrow. I also imagine we’ll see some improvements in the credit markets.

What’s keeping you up at night?
SK: Read any newspaper, and you’ll end up curled up in the basement in a fetal position surrounded by stacks of canned foods. We’ve never seen such an anticipated, signaled recession and greater volatility.

We think the biggest risk is continued challenges with availability and cost of labor, though it should improve through the year. And on the positive side, we have been significant investors in companies that use technology to make labor more efficient and available, which is one of our super investment theses.

What are you looking forward to most in 2023? 
BS: We have a lot to be grateful for and look forward to the excitement of a new year. Just a few of these things:

• No major elections!
• Covid is another year in the rear-view mirror.
• Peace in Ukraine (we’re praying!).

From an economic standpoint, that the Fed and other central banks finish raising rates – and that prices find equilibrium, allowing the M&A and IPO markets to open up again.

And, we’ve got some exciting exits planned!

Read the whole story here.

And check out the first installment in the series: Obey Martin Manayiti’s interview with Kirk Konert, a partner at AE Industrial Partners.

Throughout December and January, PE Hub will be publishing more Q&As with private equity industry leaders. Come back for more!

Tune in. For insights on how PE-backed deals are faring in an era of higher interest rates, listen to our new podcast series, Private Markets and the End of Cheap Money. Reporters from all over PEI Group titles, including PE Hub, Buyouts and Private Equity International, worked on the series and spoke with dozens of sources. Shout out to Adam Le and Rich Melville for leading the series and to Eric Fish for handling the production.

In the first episode, I spoke with a slew of PE pros: Norm Alpert, founding partner at Vestar Capital Partners; Greg Belinfanti, senior managing director of One Equity Partners; Marc Leder, co-founder and co-CEO of Sun Capital Partners; Ignacio Jayanti, CEO of Corsair Capital; Milwood Hobbs Jr, managing director and head of North American sourcing and origination at Oaktree; Michelle Handy, managing director and head of portfolio and underwriting of First Eagle Alternative Credit’s direct lending platform; and Peg Jackson, managing director, software, internet and digital media at Stifel.

Listen to the first episode here.

Car talk. One subsector we’ve seen a lot of deal activity in this year is auto repair and maintenance.

Supply chain issues have made getting new cars tough, so lots of people have hung on longer than usual to their old cars. In addition, recession fears have made many consumers hold off on big ticket items. All this adds up to increased demand for services and parts that keep older cars running.

Obey interviewed Tad Nedeau and Phil Kim, co-managing partners of Lincolnshire Management about the firm’s recent purchase of Whitewater Brands, a Caldwell, Idaho-based provider of products for car repair shops.

“This is a very large and highly fragmented marketplace across the collision, mechanical repair and the dealership space,” Nedeau said. “There’s only a handful of large, regional, or national players, and so there is always a need for a business like Whitewater to be a leader in servicing that kind of highly fragmented broad marketplace.”

A long-time investor in the auto space, Lincolnshire earlier this year exited Schumacher Electric, a Dallas- headquartered company focused on battery charging equipment, jump starters and other accessories.

Kim explained the firm’s approach: “For us it’s about being more hands-on operationally to add direct value,” he said. “Our team will make sure we are not just sitting in a room, twiddling our thumbs and hoping for the best but literally driving those initiatives on the ground alongside management.”

For more, read the full story here.

That’s all for today. Tomorrow, Buyouts’ Chris Witkowsky will bring you the Wednesday Wire, and PE Hub’s Aaron Weitzman will be on duty Thursday and Friday. I’ll be back here next Monday.

Until then, happy dealmaking,