Vista talks opportunities in software sector; Blackstone bets on energy

CalPERS pledges $1 billion to TPG and GCM Grosvenor to back emerging and diverse managers.

Good morning, dealmakers! Aaron here to start the short week.

Today, we have fresh outlook pieces from Vista and Blackstone as well as news from the largest pension system in the country.

Software spotlight. Continuing with our outlook series, we have a software specific edition.

Vista Equity Partners president and COO David Breach shared some thoughts after an active year for the firm.

In 2022, Vista was involved in several of the largest enterprise software deals of both the year and the firm’s history. The firm bought Citrix, Avalara and KnowBe4 and sold Datto and Ping Identity.

Here’s an excerpt:

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

We continue to believe investing in enterprise software remains one of the best uses of capital anywhere in the financial markets. Even against the backdrop of increased uncertainty, businesses are expected to increase their IT spending, indicating that software spend is less discretionary today than it was in prior cycles. These are mission-critical tools that are often one of the last services businesses look to “turn off,” which is illustrated by the resilient retention rates we continue to see across the space. We think the public markets will continue to offer attractive opportunities to acquire great companies at reasonable valuations.

What will be an important theme in software investing in 2023?

Operational expertise is so much more than a talking point in software investing. We have always taken a deep operational approach to underwriting and portfolio management. We believe we have built a highly unique and differentiated value creation function and ecosystem that allows us to partner most effectively with our portfolio companies to enhance the value of our investments on a consistent and repeatable basis, regardless of the macroeconomic environment.

This integrated approach leads to better due diligence, better underwriting and better execution. And in an uncertain economic climate, our ability to create value through operational excellence is more important than ever.

You can read the whole story here.

Energy and environment. We also have a fresh Q&A outlook piece from Craig McGlashan over at our PE Hub Europe.

Juergen Pinker, senior managing director at Blackstone talks about the energy transition, including his firm’s strategic investment in Esdec, a provider of mounting systems for rooftop solar.

Here’s a snippet:

How has private equity adapted to the increased demand for sustainable investments in recent years?

The energy transition presents a huge opportunity for investors – flexible capital and the ability to deploy it at scale are essential to funding decarbonization, which is now top of mind for many businesses all over the globe.

2022’s legacy as the year of the energy crisis, combined with supply chain issues and the fragility it exposed, continues to act as a catalyst for further investment in low-carbon energy sources. The need for energy security means countries all over the world are looking to increase sustainable domestic energy production – which in turn creates investing opportunities.

Blackstone’s portfolio company Transmission Developers, which is working to deliver clean energy to New York City from Canada via a 339-mile underground electric transmission line, is a case in point. In the process, the new line is expected to reduce New York City’s CO2 emissions by an average of about 3.9 million tons per year. This is equivalent to removing about 44 percent of passenger vehicles from New York City.

You can read the whole story here.

Emerging managers. California Public Employees’ Retirement System is pledging $1 billion to TPG and GCM Grosvenor to back emerging and diverse managers. It is committing $500 million to each of the firms via TPG’s NEXT fund and Grosvenor’s Elevate strategy, writes Buyouts’ Chris Witkowsky.

According to Chris, some view the commitment as mostly a public relations strategy, a way for CalPERS to signal that it is committed to boosting diversity in the private equity world. This is because $1 billion, for a system that manages a total of about $453 billion in assets, seems minuscule and perhaps not significant.

CalPERS has long been a booster of the emerging manager ecosystem. The system, by state law, is not allowed to make investment decisions based on race or sex. However, many new managers also happen to be diverse-led, and so, indirectly, CalPERS has been a supporter of this community for many years.

You can read the whole story here.

That’s a wrap for me. Chris will be with you tomorrow, and MK Flynn will write the Wire on Thursday. Happy dealmaking!

Cheers,

Aaron