As part of our series of interviews with senior private equity figures on their H2 dealmaking outlook, PE Hub Europe caught up with Thibault Basquin, co-head of buyout at Ardian.
What is Ardian’s forecast for the economy in H2?
While we expect inflation to slow down, there is continuing volatility in the energy and some commodities markets, which means consumer prices are likely to remain elevated in the medium term. These markets are still facing the long-term impacts of the war in Ukraine, and we don’t expect interest rates to fall in the short term – there is growing consensus that rates will not return to target levels in Europe until the second half of 2025.
As such, we expect growth to remain moderate and be driven mostly by price rather than volume.
What are you expecting in terms of dealflow in the second half of the year?
We expect that dealflow will pick up in H2 compared to the first half of the year. Following H1 earnings season, there is increased visibility for potential acquirers and lenders on how businesses are performing in the current market environment. This should result in banks being more willing to underwrite new deals, a factor which has been holding the market back in recent months. As the year continues, performance improvement and cashflow generation should also narrow the gap between original seller expectations and buyer appetite.
In terms of deal origination, we are expecting to see more primary investment opportunities in family businesses, in which we’ll work alongside the family-led management teams, and for carve-outs from businesses selling non-core assets.
What are the key challenges for dealmakers in 2023, and how is Ardian meeting them?
The key challenge for dealmakers over the rest of this year will continue to be pricing. Investors should be picking their battles and remaining selective when making acquisitions.
Volume growth will be limited, or in negative territory, and the majority of growth at the full year will be a result of price increases. As a result, it can be difficult to discern how “inflation proof” businesses are, given the variety of market dynamics at play across different regions and geographies, combined with political instability and lack of visibility for dealmakers.
At Ardian, we are leveraging the scale of our platform and our reputation to tackle these challenges. Over the last two decades we have continuously expanded our access to a large high-quality international dealflow across our four core sectors of focus, whilst developing our expertise and relationships. Issues of visibility affect dealmaking, which is why our reputation and people are a decisive asset. By demonstrating the value we bring in these uncertain times, we will remain partner of choice to these businesses.
What about key opportunities?
The current slowdown in dealmaking has allowed dealmakers more time to review prospective investments, and created space to buy at a balanced valuation entry point. However, the flipside of this is that firms need to be ready to hold assets for longer, in order to deploy full value creation programmes and achieve the optimal value at exit.
The breadth and depth of origination network is also critical for dealmaking in this current environment. Ardian has significant dealflow opportunities, originating from our sector expertise, the depth of our networks and our reputation as an investor. This allows us to be very selective in the investments we make.
What kinds of deals can get done today?
Current market conditions have reinforced the appeal of specific company profiles and sectors. This is particularly true across essential sectors such as the food value chain, health and wellness, critical technologies and value-added services.
Inevitably, there is demand for companies with a proven track-record in navigating volatile markets, with strong and cohesive management teams and for those with ESG-focused strategies. There is also an opportunity amid current market conditions for buy-and-build strategies aimed at consolidating businesses’ share of fragmented markets and creating industry leaders.
Editor’s note: PE Hub Europe’s interviews with private equity professionals will appear throughout August and early September. Read our interview with Blackstone’s Alexander Walsh here.