The Riverside Company co-CEOs predict bid-ask spreads will narrow in 2023

'We've got some exciting exits planned,' Béla Szigethy and Stewart Kohl told PE Hub.

In 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, we turn to Béla Szigethy and Stewart Kohl, the co-CEOs of The Riverside Company.

Riverside was founded by Szigethy in 1988 to invest in lower-mid-market companies. Since then, Riverside has backed more than 850 companies globally and scored 210 exits. Today, the firm employs more than 300 people in offices across North America, Europe and the Asia-Pacific region and has $13.1 billion in assets under management.

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 will be the most important trends affecting your dealmaking in 2023?

SK: We just keep becoming deeper industry specialists by focusing on what we call the SATTs – subsectors, attributes, themes and theses – to drive our platform selection.

As we mentioned before – add-ons, add-ons, add-ons as the best arbitrage available to us.

Finally, enhancing our operating chops makes us both better buyers and better owners. From our first operating partner hired in 1997, we now have almost 70 of them.

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!

Editor’s note: Throughout December and January, PE Hub will be publishing Q&As with private equity industry leaders. Click here for our interview with Kirk Konert, a partner at AE Industrial Partners. And look for more in the weeks to come.