Good morning, Hubsters. MK Flynn here with the Wire on a busy Thursday morning.
Let’s get right to it.
Trends to watch. RSM reached out to me yesterday with the firm’s perspective on current dealmaking, and I found the analysis useful.
The top three mid-market deal trends to watch out for this year, according to RSM are: “Entrepreneurs and founders are taking advantage of a market high to exit; the impact of the war in Ukraine could soon start to be felt on deal activity; the TMT sector – particularly B2B software – will continue to see intense dealmaking.”
The audit, tax and consulting firm, offered insights on global mid-market M&A activity.
“Transitioning from 2021 into Q1 2022, we saw deal volumes continuing to remain buoyant with high levels of capital available,” said Lee Castledine, a partner at RSM UK and a member of RSM’s global financial due diligence leadership team. “The appetite from both private equity investors and corporates also remains strong, and currently the data shows no sign of this slowing down. At present this dynamic is more than offsetting geopolitical and economic factors that might serve to undermine confidence and dampen deal activity as we progress into 2022. The appalling humanitarian crisis in Ukraine continues to escalate, and while the full scale of its impact is unpredictable, it looms large as a potential drag on the broader economic outlook and on deal activity generally.”
Costs of war. RSM warned that “the risk to the wider economy from the war will be causing decision makers to pause before they sign investment agreements. In addition to the tragic humanitarian cost, the impact of the war will be felt through increased commodity and energy prices, particularly where Russia is a key part of the supply chain, such as in commodities and raw materials. Manufacturers and consumers in particular will feel the pressure. Additionally, pressure is being added to global supply chains that were already facing persistent challenges created by the pandemic and issues such as the chip shortage, threatening trading performance in many industries. The war in Ukraine will add to those challenges.”
Recurring revenues. On TMT dealmaking, RSM said that investors are especially interested in companies that produce enterprise software, SaaS and Cloud technologies that enable remote working. “Many of these products have become embedded in customers’ core operational infrastructure, increasing the prospects of predictable recurring revenues for investors in the companies that make them,” the report said. “Software companies are being snapped up by bigger businesses who need to rapidly add digital capabilities without the cost and timescale that organic growth would involve, driving up the number of deals and leading to exceptionally high valuations. This trend is set to continue in 2022 even in spite of economic headwinds. Companies providing B2B enterprise software are more likely than their consumer-facing TMT peers to remain resilient through the cycle.”
Packaging deals heat up. Clearlake Capital’s $2.6 billion take-private deal for Intertape Polymer Group (IPG), announced earlier this month, may be the biggest recent PE-led deal in the packaging sector, but it’s far from the only one. Obey Martin Manayiti, who joined PE Hub as a reporter this month, discovered a slew of smaller deals in the sector.
Other recent PE packaging deals that caught Obey’s attention include: Cold Chain Technologies, a portfolio company of Aurora Capital Partners, acquired Packaging Technology Group; C-P Flexible Packaging, a portfolio company of First Atlantic Capital, bought Bass Flexible Packaging; and ProAmpac, a portfolio company of Pritzker Private Capital, bought Belle-Pak Packaging.
For more on the deals, read Obey’s story.
In fundraising news, Knox Lane, the PE firm founded by former TPG Growth partners John Bailey and Shamik Patel, has wrapped up fundraising for an inaugural fund of $610 million, Kirk writes. KLC Fund I closed earlier this month, above an initial target of $500 million and a hard-cap of $600 million, Bailey and Patel told Buyouts. The firm is one of 12 emerging managers Buyouts had previously identified as ones to watch.
Knox Lane makes control investments in mid-market businesses, typically with EBITDA of $10 million to $50 million, in consumer and services sectors. Target end-markets include food and beverage, personal care, beauty, consumer healthcare, nutraceuticals, contract manufacturing and packaging, residential services and broader consumer services.
The firm’s debut investment, made back in December 2020, was Fingerpaint, a health and wellness marketing agency. Founded in 2008 by CEO Ed Mitzen, the company had 12 straight years of revenue growth prior to the deal. Since the investment, Fingerpaint’s EBITDA has tripled, Bailey and Patel said. The company has also been acquisitive, picking up Splice, a healthcare communications business, last June.
To learn more about how Knox Lane raised the fund “right in the teeth of the pandemic,” read Kirk’s story.
Also on the fundraising front, FTV Capital announced the close of FTV VII, its seventh and largest fund, oversubscribed at its hard cap of $2.3 billion in capital commitments. FTV VII comes on the heels of what the firm describes as “a sustained period of momentum and success.” Since activating its sixth fund at the beginning of 2020, FTV has achieved liquidity events generating $3.2 billion in value, according to the firm. Noteworthy realizations include A-LIGN, Enfusion (NYSE: ENFN), Strata Fund Solutions, True Potential and VPay. Portfolio companies in FTV’s current funds continue to exhibit extremely strong performance with over 80 percent average year-over-year revenue growth rate as of the third quarter in 2021, the firm said.
FTV’s recent investments include 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.
I interviewed managing partner Brad Bernstein earlier this year for my series of Q&As with high-profile private equity pros. Check out my interview here.
That’s it for today. I’ll be back tomorrow morning with more.
All the best,