Honing the carve-out craft with Aurelius

With “cautious optimism” the prevailing sentiment for the start 2024, the Mergermarket private equity (PE) reporting team takes stock of our 1Q 2024 European private equity data, providing insights into how this year could shape up for deal activity, exits and fundraising.2024 started off more strongly than 2023 in terms of private equity activity, with deal count up by 21% and disclosed deal volume more than doubling versus Q1 2023. Activity has dropped since Q4 2023, however, with deal count down by 6% and disclosed deal volume by 72%.Although a number of successful exits were announced in the past quarter, PE firms made 13% fewer exits in Q1 2024 versus Q1 2023, marking the worst quarter for exits since the start of the COVID-19 pandemic.This episode begins with an overview of Mergermarket PE buyout, exit and fundraising data, highlighting the top sectors and geographies.With the PE industry is preparing for an uptick in activity over the course of the coming year, the Mergermarket team explores the current macro picture, deals to watch out for this year, and changes to deal structuring that GPs are pursuing to get deals done, including minority stake sales and equity syndication.Data overview: PE deal activity, exits and fundraising – 0:42The macro picture and the road ahead – 4:26The outlook for PE exits – 7:54Processes to look out for – 10:10The rise of deal-by-deal fundraising – 11:44Changes to deal structuring – 14:26Going back to exits – 17:00You can listen to the podcast on your favourite podcasting platforms, including Spotify and Apple Podcasts.If you would like to hear more podcasts produced by ION Analytics, you can access the ION Analytics channel on Apple Podcasts.Theme music: ©2012 Kick Up The Fire

With GP-led secondaries becoming a mainstay in the private equity exit toolbox, Mergermarket's funds editor Harriet Matthews and senior private equity reporter Rachel Lewis discuss the outlook for this growing part of the private equity market. In a guest interview, Elena Laleh, managing director at Kline Hill Partners, discusses the secondaries investor’s European and North American strategy, highlighting the sizeable opportunity to be found in GP-leds in the lower mid-market.With EUR 47.3bn raised across 16 secondaries funds active in Europe in 2023, versus EUR 30bn across 18 funds in 2022, LP demand for secondaries strategies shows no sign of slowing in the face of a tough fundraising market.While megacap fundraises of EUR 10bn-plus from the likes of Goldman Sachs, Glendower Capital and Lexington Partners typically bolster secondaries fundraising volume, with large-cap deals grabbing headlines, there is also ample opportunity in the lower mid-market, where GPs are also looking to continuation funds as an exit option, but investor capital is more scarce.Elena Laleh discusses Kline Hill’s focus on “trophy assets” in this market segment, which sees it engaging in deals of less than EUR 250m in size and deploying around two-thirds of its capital in the US and one third in Europe.She also shares her view on whether an anticipated exits uptick will affect GP-led secondaries dealflow, and discusses the importance of due diligence, returns and alignment.Following the interview, the Mergermarket team dissects the key takeaways, sharing data on PE exits in the lower mid-market and recent reporting on secondaries activity in this market segment.Introduction – 0:38Current state of the GP-leds market – 1:34Secondaries fundraising: data recap and LP appetite – 4:35Interview with Elena Laleh, Kline Hill Partners – 8:48Kline Hill’s GP-led strategy and lower mid-market focus – 9:56US versus European GP-led secondaries market dynamics – 11:41GP-led secondaries and exit environment optimism – 12:52Valuations in GP-led deals – 15:58Returns in the GP-led secondaries market – 18:24Capital supply in the secondaries market – 21:15Kline Hill’s view on alignment – 23:37Key takeaways – 25:16Lower mid-market PE exits – 26:15GP due diligence in secondaries deals – 29:06Mergermarket reporting on recent lower mid-market GP-leds – 31:03Adviser adaptation and market consolidation – 33:20You can listen to the podcast HERE, as well as your favourite podcasting platforms, including Spotify and Apple Podcasts.If you would like to hear more podcasts produced by ION Analytics, you can access the ION Analytics channel on Apple Podcasts.Theme music: ©2012 Kick Up The Fire

Mergermarket’s funds editor Harriet Matthews speaks to Pierre-Antoine de Selancy, managing partner and co-founder of net asset value (NAV) lender 17Capital, about the evolution of NAV financing and its use cases in the current market, as well as wider industry reservations about the use of this type of leverage. The use of and interest in NAV financing has been growing in recent years. In times of restricted liquidity and a tough fundraising market, GPs can use this tool for situations including refinancing a group of portfolio companies to take advantage of M&A opportunities.De Selancy addresses some of the questions that LPs have around NAV financing, arguing that using leverage is a core skill of private equity professionals in creating value for investors, and the use of NAV financing is part of this process. “If limited partners are worried about GPs putting in place debt, they should not be investing in private equity,” he said. 90% of the money used in NAV financing goes into portfolio companies, whereas 10% is used to make distributions, he said, playing down concerns around “fake DPI”. “It’s not a competitive world – it’s an ultra-competitive world,” he said, noting that LPs now have more choice than ever and are applying increasing scrutiny to how GPs are creating value and balancing this with risk. It is important that GPs “do the right thing” for their LPs, he said, emphasizing the importance of communication.Lastly, de Selancy discusses the future of NAV financing as a “new niche” and “the fastest growing market in private credit”, features which are likely to drive the growth of 17Capital itself.0:39 – Introduction2:54 – Interview with Pierre-Antoine de Selancy3:26 – 17Capital’s strategy4:49 – Current use cases for NAV financing7:13 – NAV financing versus continuation funds11:27 – Cost of capital dynamics14:42 – NAV financing and LP sentiment25:49 – What’s next for the NAV lending industry?28:20 – 17Capital’s future growthYou can listen to the podcast on your favourite podcasting platforms, including Spotify and Apple Podcasts.If you would like to hear more podcasts produced by ION Analytics, you can access the ION Analytics channel on Apple Podcasts.Theme music: ©2012 Kick Up The Fire

In this week’s episode, Mergermarket's funds editor Harriet Matthews and senior private equity reporter Rachel Lewis explore how private equity (PE) firms are turning to various options in an effort to secure succession between generations of management, with a guest interview from Jon Harvey, Head of Relationship Management at Investec Fund Solutions.As the PE industry matures and grows, with GPs growing from single-strategy firms to multi-strategy asset managers, the themes of succession and the value within private equity firms have grown in prominence.The team kicks off the episode by discussing some recent examples of succession, including the reported search for a chairman at Bridgepoint [LON:BPT], and Cinven’s recent managing partner shake-up.Investec’s Harvey starts off by discussing the rise in prominence of the theme of succession, some of the routes available to GPs (including GP stake sales, IPOs, and management company financing). Harvey discusses how the theme of succession is linked to wider pressure within the PE market, including exits, fundraising, and securing a GP commitment for their next fund. He also shares his insights on what GPs should consider to shore up culture and create alignment within their teams when managing succession.Lastly, the Mergermarket team discusses key takeaways from the interview, and also discusses some situations where succession has not been so smooth, as well as the importance of succession and monetisation for growth, and the issue of team retention.Introduction – 0:38Recent examples of succession plans – 2:14Interview with Jon Harvey, Head of Relationship Management at Investec Fund Solutions – 4:40Triggers for succession – 5:17Pros and cons of different succession paths – 8:59LP alignment and GP commitments – 13:04How to use permanent capital – 17:31When succession goes wrong – 23:40Monetisation for growth – 25:00Retention in PE – 29:25You can listen to the podcast on your favourite podcasting platforms, including Spotify and Apple Podcasts.If you would like to hear more podcasts produced by ION Analytics, you can access the ION Analytics channel on Apple Podcasts.Theme music: ©2012 Kick Up The Fire

Joerg Zirener, a partner at One Equity Partners (OEP), speaks to Mergermarket’s funds editor Harriet Matthews about the firm’s mid-market strategy and his outlook for 2024, covering topics including buyer and seller valuation expectations, mid-market value creation levers, and where OEP sees opportunities for dealmaking.Founded in 2001 and with operations in Europe and the US, OEP’s team has made more than 120 platform investments and more than 300 add-on acquisitions. “We look for what we want to buy, instead of what’s for sale,” says Zirener of the firm’s largely proprietary origination process.Zirener is “cautiously optimistic” for 2024 as the sponsor continues to find ways to deploy equity and support its portfolio companies. “We are specifically continuing to look at opportunities to support companies to add to their capabilities, build scale, enter new markets, enhance their competitive position in their respective markets, so all around transformative combinations,” he says.Areas of focus for OEP in 2024 include digitalisation and artificial intelligence (AI), as well as the industrials sector. It is also continuing to focus on buy-and-build, allowing its companies to gain scale in a range of ways, including geographically.Based in Frankfurt, and having joined OEP in 2006, Zirener has operated in the private equity industry across a number of different dealmaking climates. Rounding off the interview, he shares his perspective on how the current market compares to that of the time when he first entered the industry.Introduction – 0:30OEP’s strategy – 2:42Sourcing deals with a European and US presence – 5:01The appeal of the mid-market – 7:52Exits and investment pace – 12:04Value creation levers – 17:35Overcoming dealmaking challenges in 2024 – 20:00Perspective on the current market – 25:22If you would like to hear more podcasts produced by ION Analytics, you can access the ION Analytics channel on Apple Podcasts.Theme music: ©2012 Kick Up The Fire

Mergermarket's funds editor Harriet Matthews and senior private equity reporter Rachel Lewis discuss what the key themes that emerged from January’s IPEM conference in Cannes mean for the 2024 outlook for the European private equity industry, touching on topics including debt, exits, fundraising, and the secondaries market.With interest rates expected to stabilise this year, private equity is adjusting to paying more for leveraged buyout financing and is approaching 2024 with a cautious optimism.However, the industry is not out of the woods yet when it comes to the eternal question of returning capital to LPs via DPI (distribution to paid-in capital) in a tough exits environment. Creative routes continue to be on the agenda, be it recaps, minority stake sales or GP-led secondaries.Fundraising challenges also remain, with LP capital still scarce – but with deployment and the overall pace of fundraising expected to continue to return to a more even keel, the outlook for 2024, as well a the longer term outlook for pools of capital available to private equity funds, could be a little brighter.0:31 – Introduction1:13 – The macro picture3:04 – A bad time to make exits?5:02 – Debt dynamics and recaps5:59 – Secondaries market growth8:40 – Private equity’s creativity9:45 – Fundraising challenges12:29 – Adjusting returns expectations14:09 – The pace of deploymentIf you would like to hear more podcasts produced by ION Analytics, you can access the ION Analytics channel on Apple Podcasts.Theme music: ©2012 Kick Up The Fire

Tom Ross-Jones, partner at UK-based private equity firm Palatine, speaks to Mergermarket senior private equity reporter Rachel Lewis about the sponsor’s journey with sustainability consultancy Anthesis, setting out how the deal was originated, the value creation initiatives during the investment period, and the exit process.If private equity had its own dictionary, value-creation could easily have been a top contender for ‘phrase of the year’ through 2023. Everyone is speaking about it, but there are still questions around how many GPs are achieving it. Palatine originally took a minority stake in sustainability consultancy business in Anthesis in the quarter of 2021 for a reported GBP 50m. Just two years later it, returned 6x with Carlyle Group entering as a majority shareholder, only for Palatine to re-invest in a minority position to keep some exposure to the business. The deal was valued at a reported GBP 400m, although Palatine did not confirm this valuation.In this episode, Ross-Jones, discusses the sponsor’s investment and journey on value creation. He starts off by discussing the sponsor’s approach to origination, what measures it put in place as a minority shareholder, and the significance of human capital and culture in creating value.Later, the podcast delves into the importance of data, whether buy-and-build still works, how it got the company ready for an exit and exactly why it reinvested under Carlyle’s ownership. Introduction – 0:31Interview with Tom Ross-Jones – 1:35Palatine’s approach to origination and first eyes on Anthesis – 1:58Making a minority investment – 5:00 Approach to leverage – 7:23First steps and initial value creation – 9:02Palatine’s value creation playbook – 16:48Levers for mid-cap value creation – 20:18Integrating bolt-ons and the future of buy-and-build – 22:23 Getting the company ready for exit – 26:40Reinvesting for a minority stake – 30:33You can listen to the podcast on your favourite podcasting platforms, including Spotify and Apple Podcasts.If you would like to hear more podcasts produced by ION Analytics, you can access the ION Analytics channel on Apple Podcasts.Theme music: ©2012 Kick Up The Fire

As a tough year for the European private equity (PE) draws to an end, Mergermarket’s private funds editorial team gives a market overview and highlights key topics including the resilience of the mid-market, consolidation in the advisor space, and the popularity of co-investments.The last 12 months brought with them the collapse of Credit Suisse and Silicon Valley Bank; a return to higher interest rates; and yet more geopolitical uncertainty and conflict.Although private equity activity has remained subdued this year, particularly versus the highs of 2021 and 2022, the industry has continued to innovate and adapt, looking for ways to get deals done and maintain liquidity.Consolidation remains an ongoing theme in the private equity industry – not only via value creation through buy-and-build, but in the form of asset managers acquiring specialised and mid-market firms. The mid-market has seen consistent dealflow and exits against a tough backdrop, leading larger sponsors to re-enter the mid-market so as not to miss out.The PE advisory industry has also been busy consolidating amid a drop in dealflow and therefore a drop in fees, with more consolidation on the cards for 2024 as advisers look to gain market share and add new capabilities to their roster.Structuring deals in 2023 has been challenging in a higher cost of capital environment, leading GPs to explore options including adding more equity into deals in the form of co-investments. These deals also have benefits to LPs including relationship-building and an opportunity to gain in-depth insights on how their GPs operate.0:55 – Market overview2:20 – Mid-market outlook with Rachel Lewis11:48 – PE advisory consolidation with Min Ho17:51 – Co-investment perspectives with Ero PartsakoulakiYou can listen to the podcast on your favourite podcasting platforms, including Spotify and Apple Podcasts.If you would like to hear more podcasts produced by ION Analytics, you can access the ION Analytics channel on Apple Podcasts.Theme music: ©2012 Kick Up The FireInterested in private equity analysis? ION Analytics has more.Private Equity Trendspotter: Sponsors look to kick-start stalled cycle as deployment, exit pressure mountLPs need more convincing for value strategies as carve-out pipeline picks up - analysisPrivate equity’s love story with outsourced pharma services to heat up in 2024 – analysis

Private equity dealmakers in the DACH region have been facing a plethora of challenges in 2022 and 2023 in particular. Funds editor Harriet Matthews discusses the 2024 outlook with HIG Capital’s Holger Kleingarn, and is also joined by Mergermarket’s DACH bureau chief Patrick Costello, who shares his insights on market sentiment and how dealflow is shaping up for 2024.DACH private equity activity in the year to date has comprised EUR 18bn of disclosed deal volume across 156 deals, versus EUR 27bn of deal volume and 164 deals in 2022, according to Mergermarket data. Exits have also fallen, with EUR 7bn in disclosed volume across 44 deals in 2023 YTD versus EUR 11bn across 51 deals in 2022.Meanwhile, fundraising for DACH-focused buyout funds has reached an eight-year low in 2023, with EUR 2.7bn raised across five vehicles – but with EUR 159bn of the approximately EUR 165bn total buyout fundraising in Europe potentially able to make DACH deals, the region will not be short of capital to get deals done when the market picks up.In a guest interview, HIG Capital managing director Holger Kleingarn gives an overviews of the challenges and opportunities for private equity in the DACH region, including the macro picture and the art of the PE exit.Kleingarn also highlights sectors and themes that are of interest to HIG, including infrastructure services, healthcare services, labour location and reallocation, sports and esports, business process automation, AI, and energy efficiency.Lastly, the team discusses some of the key points from the interview with Kleingarn, and looks ahead to some of the topics that the market will be keeping an eye on as we move into 2024, including buyer and seller valuation expectations.DACH data overview – 1:26Fundraising focus – 2:58Market sentiment – 5:17What’s in the year-end and 2024 deal pipeline? – 6:27Interview with Holger Kleingarn – 8:37The macro picture – 9:04Opportunities for private equity – 12:192024 outlook and HIG’s key sectors – 17:29The art and science of exits – 23:51Cause for optimism – 29:30Key takeaways and analysis – 35:05Adjusting valuations – 37:27If you would like to hear more podcasts produced by ION Analytics, you can access the ION Analytics channel on Apple Podcasts.Theme music: ©2012 Kick Up The Fire

With corporates looking to divest non-core businesses and private equity investors placing a renewed emphasis on value creation, carve-outs are climbing the agenda for many GPs. Harriet Matthews and Min Ho explore the factors behind current dealflow, with a guest interview with Tristan Nagler, partner at Aurelius.According to Mergermarket data at the time of recording, EUR 190bn worth of carve-outs have taken place in EMEA in 2023 YTD, with EUR 39bn taking place in September and October alone. Competition for carve-outs also appears to be on the up, with more US players edging their way into the European market.Following a discussion of headline data and upcoming deals, Harriet Matthews speaks to Tristan Nagler about the outlook for complex corporate carve-outs and how Aurelius approaches this market.While a process can attract “a flurry of interest” at the start, the complex and uncertain nature of corporate carve-outs and the level of risk often means that there is “a high rate of attrition” in processes, according to Nagler.Nagler discusses Aurelius’ outlook for carve-outs dealflow, including buyer and seller motivations, what makes a “good” carve-out, where the GP sees pockets of opportunities, and how ESG can be a dealbreaker for the firm.In the final part of the episode, the Mergermarket team highlight some of their key takeaways from the interview, as well as the role of communication with unions in carve-out processes, and why carve-out strategies are appealing to LPs in the current market.Intro – 0:27 Data and recent deals – 1:07Dealflow drivers – 4:22Who’s buying? – 7:26Interview with Tristan Nagler, partner at Aurelius – 10:23A wave of carve-outs? – 11:26The changing buyside landscape – 16:25What makes a “good” corporate carve-out? – 20:51Pockets of opportunities – 23:39Shoring up a target – 27:19Value creation levers and Aurelius’ portfolio – 31:26The role of ESG – 35:45Key takeaways – 39:31The role of unions and long-term goals – 42:01The LP view – 45:06If you would like to hear more podcasts produced by ION Analytics, you can access the ION Analytics channel on Apple Podcasts.Theme music: ©2012 Kick Up The Fire