Maitland/AMO Private Equity Monitor – 2 July 2021

2nd July 2021

Worth a read

A poor workman only blames his tools

Merryn Somerset Webb weighs into the continuing debate about private equity which burst after the takeover offer of Clayton Dubilier & Rice for supermarket staple Morrisons. She counters critics who lambast private equity as asset strippers and bloating companies with leverage, as not being entirely fair. While conceding that PE firms do tend to underinvest, there is nothing “intrinsically good or bad” about the sector when it comes to management. It’s just a different sort of corporate governance, whose success depends on the competence and creativity of the managers. But the boom in the private equity industry, which McKinsey estimates was worth about $7tn has become an area into which conventional fund management companies have been clamouring to get into. But, Somerset-Webb cautions, that the fund managers have been so busy agitating to get a piece of the private equity pie, that they’ve started to miss pretty obvious opportunities – one being the cheapness of the UK market. Somerset-Webb has further stern words for fund managers: if they did their jobs properly, there would be “no cheap listed UK companies for privaate equity companies to snap up”.

Retail investors invited to join the venture capital party

The Financial Times reports that UK venture capital companies are inviting retail investors to help back early-stage entrepreneurs opening up a part of the market that has been hitherto difficult for private retail investors to access – but perhaps with reason as it also carries particular risks. The piece notes that interest in private asset categories like venture capital has soared in recent years as the investment industry has grappled with how they can solve the consistently low returns in the public markets. Morgan Stanley calculates that the private capital industry has grown threefold in the past decade to $7.4tn.

Private equity is booming

Not only are private equity firms striking deals worth north of $500bn, but the Financial Times reports that buyout GPs have had their busiest six months since records began 40 years ago. According to data provider Refinitiv, there have been 6,298 deals announced since the start of January worth $513bn, before taking into account a $34bn megadeal for Medline, which is the strongest half-year result at least since from before this author’s birth.

But is breaking a record really worth it?

The Financial Times’ Lex column takes a look at this time of record breaking private equity activity and poses the question: why has private equity dry powder climbed to this record of $1.5tn when public market returns are so good? The piece cautions celebrating these record transactions – despite raising vast sums of capital, private equity firms are in the main, “not even pretending” to seek out value, betting that growth for its own sake justifies the high multiples paid.

UK companies have never looked so good to Uncle Sam

Financial News notes the record breaking, the frenzied activity and oodles of cash that US-based buyout groups are dispensing to buy up UK companies at breakneck speed. The piece notes that the pace shows little sign of slowing as private equity groups salivate at the prospect of cheap valuations and bulk up their portfolios. Looking as to why now, well, as Ecclesiastes says, there’s a time for everything, but there are a combination of factors driving the soaring demand. The main kicker though is price: valuations of UK listed companies have been dragged down by Covid-19 and by Brexit which has seen the value of sterling fall by roughly 15% against a basket of major currencies since the Brexit referendum. In a report by Fidelity International, UK businesses have been trading at a discount of roughly 40% compared to world stock markets – and as much as 50% compared with American markets.

Politicians raise eyebrows over private equity's continuing advance

Concern about the pace of private equity deals has reached the Palace of Westminster. The Times reports that MP Darren Jones, chairman of the Commons business, energy and industrial strategy committee, has written to the CMA and to the FCA to ask about the scope of their regulatory powers and noted his concern about previous “highly leveraged purchases of high street brands, which have ultimately resulted in administration, job losses adn pension fund shortfalls” have scant protection or oversight from regulator s who do not do enough to intervene when “new owners act irresponsibly”. The recent approach by Clayton Dubillier & Rice caused the MP to raise concerns about British supermarkets being the latest area of interest for private equity — and what this might mean for protection of jobs, pension funds and any real presence on the UK’s high streets.

Wall of money

Continuation capital

Growth investor General Atlantic has announced that it has raised $3bn for a continuation fund that will allow it more time and money to develop its existing portfolio companies, specifically Howden Group, Argus Media, Laboratorios Sanfer and Red Ventures. The firm said that this type of fund represented a “very powerful tool for [its] investors”.

Vistria closes fourth buyout fund

Midmarket-focused Vistria Group has closed its latest buyout vehicle on $2.68bn, more than double the size of its predecessor and far exceeding the target size of $1.5bn. The firm also announced that it is seeking $750m for its debut credit fund.

Nordic Capital raises €1.2bn

The Stockholm-based private equity arm has raised the total for a new mid-market fund after just three months in the market. In a statement, the firm said that the fundraising was substantially oversubscribed at its hard cap and “significantly exceeded its target”. The Evolution Fund will apparently have a strong ESG focus and target investments across Northern Europe between €35m and €150m.

Five Arrows shoots high for a €450m close

Five Arrows Growth Capital has held its final close of its fourth private equity fund at €450m. The fund will invest in European small-cap companies within healthcare and education, data and software and technology-enabled business services.

Deal chart

Acquisition TargetBuyerSellerValueDate AnnouncedRegionSector
Speciality Chemicals International LimitedBlack DiamondInvestindustrialUndisclosed02/07/2021USChemicals
InovaCarlyle-€60m01/07/2021FranceLife Sciences
Motive PartnersApollo Global Management-Undisclosed, 24.9% stake01/07/2021USPrivate Equity
WaystoneMontaguMML CapitalUndisclosed01/07/2021UKFinancial Services
Honey BirdettePLBY Group-$333m30/06/2021AustraliaRetail
UDG HealthcareClayton Dubilier & Rice-£2.8bn29/06/2021UKHealthcare

Movers and Shakers

UK & Europe

EQT has boosted its sustainability credentials with the appointment of Bahare Haghshenas and Sophie Walker. Previously Haghshenas was a partner at Deloitte and director of Acacia while Walker sat on the JLL UK Board as head of sustainability.

bd-capital has hired Anne van de Voorden as an investment director. Previously, Voorden was involved in the technology, services and industrial sectors at EQT.

KKR has announced the opening of a new office in central Stockholm, which will serve as the firm’s Scandinavian hub. Hans Arstad will lead operations from Stockholm.

From the horse’s mouth...

Private markets are an exciting area which are usually impossible for normal investors to get a slice of the pie. That said, this is risky stuff.” – Alex Davies, founder of Wealth Club gives a mixed verdict on private markets opening up to retail investors

The level of deal activity is truly extraordinary, and beyond any of our expectations” – Cathal Desay, global co-head of M&A at Credit Suisse

“If you hate a person, you hate something in him that is part of yourself. What isn’t part of ourselves doesn’t disturb us.” – Hermann Hesse, German-Swiss novelist born on this day in 1877