It’s a pretty packed Monday morning. First up, we have the highlights of Bain & Co’s Private Equity Midyear Report 2023. It makes for slightly sobering reading, as it highlights how investments and exits have dropped in H1 2023 compared to H1 2022. But we also speak to EQT CFO Kim Henriksson about his firm’s first half – which in contrast to the findings of the Bain report, enjoyed a near doubling in investment activity.
Switching to deals and we have news of another US private equity firm move for a listed UK company this morning, this time as Searchlight goes for asset manager Gresham House. We also catch up on news from Friday that Goldman Sachs Asset Management, alongside co-investors including General Atlantic, is looking to take Norwegian edutainment business Kahoot private.
We then round things out with highlights of Irien Joseph’s deep dive into how private equity firms believe generative AI will boost the healthcare sector.
Pressure
Bain & Co’s Private Equity Midyear Report 2023, released this morning, cast light on how macro uncertainty is keeping a lid on investments, exits and fundraising, and putting pressure on GPs to find ways to return capital to LPs. But it appears not all firms are being equally affected. EQT has increased its investments this year, the firm’s CFO Kim Henriksson told PE Hub Europe after the release of its half-year report on Friday.
“The current market environment is potentially quite conducive to making good investments, and we have actually put double the amount of capital work in H1 this year compared to last year,” said Henriksson, referring to figures of €11 billion in H1 2023 and €5 billion in H1 2022.
“We clearly had a slowdown in investments in 2022. There was a mismatch between sellers’ and buyers’ price expectations. Typically, such a mismatch only goes away with time. That time has now passed, and thus we see that it’s easier for buyers and sellers to meet.”
That’s in contract to the wider market, according to the Bain report. It found that buyout funds generated $202 billion in deal value in the first half of 2023 – a decline of 58 percent from the same period a year ago.
Meanwhile, GPs are feeling “significantly more pressure” on the sell side, the Bain report said. Over the year’s first half, buyout-backed exits fell to $131 billion, a 65 percent decline from the same period in 2022.
EQT’s exits were steady from last year, at €4bn.
“On exits we’re being cautious. We’re doing some exits, but we are not selling great companies at a discount. We made a lot of exits two years ago so we are in no hurry, and have very limited pressure from our clients to make exits.”
There was no sense of a mismatch with the rising investment size and stable exit volume, according to Henriksson, thanks to “significantly growing fund sizes”.
“Over time of course we as an industry will need to ensure that our clients have capital to deploy into new funds from exits,” he added.
The Bain report had some better news for the wider industry however, with public markets rebounding, particularly the tech-heavy NASDAQ, and inflation moderating in major economies, except in the UK.
But still, private equity firms are sitting on a record $3.7 trillion of dry powder, the report said, including $1.1 trillion in buyout funds. Meanwhile, buyout funds are sitting on a record $2.8 billion of un-exited assets, four times the level during the global financial crisis.
“Top funds aren’t waiting for clear skies,” the report said. “They are reviewing portfolios, resetting value creation plans, and otherwise working to get things moving again.”
That focus on portfolios is something we’ve been hearing a lot of, and was visible in the fact that add-ons represented a big share of buyout fund activity in the first half – 9 percent of total deal value and 56 percent of deal count.
Finding assets
Searchlight Capital Partners looks close to acquiring London-headquartered alternative asset manager Gresham House, after the companies said this morning that they had agreed a recommended final cash offer.
The private equity firm has offered £11.05 per share, valuing Gresham’s issued capital at around £470 million ($616 million; €548 million) on a fully diluted basis and £441 million on an enterprise value basis. Gresham’s share price jumped on the news, to £10.56 at the time of writing.
The offer gives a premium of 63 percent to Gresham’s closing price on Friday, 61 percent over the one-month average up to then, 47 percent over the three-month average, 44 percent to the 12-month average and 10 percent over Gresham’s highest ever closing price, of £10.05 on 12 April 2022.
The offer also gives an enterprise value multiple of around 15.9 times Gresham’s EBITDA for the 2022 calendar year.
Gresham manages about £8 billion for institutions, family offices, charities and endowments, private individuals and their advisers. It is listed on the AIM, a sub-market of the London Stock Exchange.
Searchlight has been busy in take-privates this year. It took UK-based conference company Hyve Group private, alongside Providence Equity Partners.
Education
Sticking with take-privates, on Friday Goldman Sachs Asset Management, with co-investors General Atlantic, KIRKBI Invest, Glitrafjord and others, agreed a recommended voluntary all-cash offer for Kahoot, a game-based learning platform headquartered in Norway.
The offer price is NKr35 per share, making an aggregate equity purchase price of NKr17.2 billion ($1.72 billion; €1.53 billion). The Kahoot board has unanimously recommended that shareholders accept the offer.
The offer price is a premium of 53.1 percent to the closing price on the Oslo Stock Exchange on 22 May, the last trading day before the shareholding positions of the co-investors were publicly disclosed. It also offers a premium of 33.3 percent to the three-month average price up to 13 July, and 62.1 percent over the six-month average to that point.
“Kahoot is unlocking learning potential for children, students and employees across the world,” said Michael Bruun, global co-head of private equity at GSAM, in a statement. “The company has a clear mission and value proposition and our investment will help to grow its impact and accelerate value for all stakeholders.”
“Since General Atlantic partnered with Kahoot in September 2022, the company has maintained significant momentum across key strategic initiatives, including scaling its enterprise offering and global subscriber base while also extending its premium IP partnerships and delivering product innovation to leverage advances in generative AI,” said Chris Caulkin, managing director and head of technology for EMEA at General Atlantic, in the statement.
Healthcare
Generative AI has been creating a lot of buzz lately – to say the least – so PE Hub Europe’s Irien Joseph took a deep dive into where private equity dealmakers believe the technology can be used in healthcare.
While there’s been a lot of headlines around the use of generative AI at the cutting edge of drug discovery and diagnostics, the tech could also be used for good old-fashioned back-office activities.
BPOC, a Chicago-based healthcare private equity firm, has been implementing AI at several portfolio companies. “We have seen, for the revenue cycle example, the ability to deploy bots that are custom-built to speed up processing a healthcare claim, which provides immediate savings for some of our portfolio companies,” Greg Moerschel, managing partner, told Irien.
“There is also an opportunity in provider credentialing, a multi-step process that takes a lot of human capital,” he said.
The US healthcare system spends around $300 billion a year chasing down revenue, an inefficiency if compared to retail or financial services, said Moerschel.
“Given this, the sheer computing power AI can deliver in terms of speed, ability to gather information and consistency will be a game changer for the revenue cycle in healthcare and, in some cases, even deliver better outcomes in care delivery.”
Check out the full article for more areas that generative AI is affecting healthcare, including in pharmacovigilance and more.
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