In the latest edition of PE Hub Europe’s Q&A series with private equity leaders reflecting on 2022 and looking ahead in 2023, we focus on sustainability with Mauro Roversi, partner and chief investment officer at Ambienta.
Founded in 2007, the company manages €3 billion of assets in private equity and public markets and invests specifically in companies with a sustainability angle. The firm has offices in Milan, London, Paris and Munich.
Recent deals include its platform company In.Pack Machinery buying Karlville Swiss, a manufacturer of machines for pre-made pouches, and its portfolio firm Cap Vert buying Duc & Préneuf Bourgogne and Environnement 41.
How has private equity adapted to the increased demand for sustainable investments?
In 2007-09 the first wave of green investors was in cleantech, but their strategy was mostly venture capital. They couldn’t achieve a reasonable performance in their investments. We had a different approach because we are a plain vanilla private equity firm. Strong financial returns plus investments in sustainability has been the perfect recipe.
We invest in traditional companies that sometimes didn’t know that they were providing more efficient products. Europe has always been poor in raw materials and the cost of energy has always been high. It’s typical to find companies that historically have delivered products which are more efficient compared to the US, for example.
That became our hunting space because you have thousands of mid-sized, family-owned businesses that provide solutions that are much more efficient compared to the rest of the world. Europe is the cradle of innovative technology to reduce consumption and boost resource efficiency and pollution control.
What was the biggest challenge to completing deals in 2022?
It was a year that we worked a lot on our portfolio companies. A lot has changed in terms of macroeconomics, such as inflation, mostly driven by rising energy cost. The focus went into creating value in portfolio companies rather than taking the risk of buying something when the visibility of the future is quite low.
What were the highlights of your dealmaking in 2022?
We completed around 11 add-ons, some of which were big deals. As an example, we completed the acquisition of Calpeda, a €24 million EBITDA company we combined with another portfolio company called Caprari to create one of the largest manufacturers of water pumps in Europe. The combination makes more than €40 million EBITDA, has around 1,000 employees, 25 subsidiaries, and around €260 million in revenues.
The idea was to create value in the existing portfolio and wait a little bit for the sky to get clearer again, or at least for the macroeconomic situation to stabilise.
What will be the most important trends affecting your dealmaking in 2023?
We’re still a little prudent in our approach. While the situation is not stable, at least now the public market has realigned to lower valuation expectations from sellers. We have passed the wave of increases in the cost of debt, although we have not reached the ceiling.
By June of 2023 valuations will be much more aligned in terms of price levels, considering the higher interest rates and lower debt available in the markets. That should allow for a new wave of M&A.
There is some expectation of recession, but we see the fundamentals of our business being strong. Even stronger, if you think that the last few years, in particular the gas dependency on Russia, have accelerated a number of decisions to reduce consumption and diversify energy sourcing from countries which have proved unreliable.
After covid, people realised that the business model of relying so heavily on China for manufacturing certain components was not the right strategy. We are already experiencing the onshoring of activities that had been outsourced to other countries. That should mitigate a little bit of the effects of potential recession.
What are you looking forward to most in 2023?
Everyone is expecting a lot of money to pour into electric infrastructure and power generation. That should be seen as a lever for exceptional growth in the coming years. In Europe what remains tricky is the political set-up and a little bit of bureaucracy and confusion around who does what. But in terms of opportunities and the capacity of people to find ways to grow, Europe is not second to anyone.
Editor’s note: PE Hub Europe’s Q&As with private equity industry leaders will continue to appear throughout January. Check out our interview with Stafford Capital Partners’ Jesse de Klerk here.