Energy efficiency and decarbonisation continue to be extremely important topics in all industries. Just last month, COP28 closed with an agreement that the UN said signals the “beginning of the end” of the fossil fuel era. This morning, we have an exit in the segment, as Bridges Fund Management has closed the sale of a home energy efficiency company.
We then have an outlook Q&A from our affiliate title PE Hub’s ongoing series with private equity dealmakers. We hear from Asante Capital’s Fraser van Rensburg, who shares his expectations for 2024. I’ve also collected some recurring themes from previous Q&A stories.
We’ll close today with an IT managed services deal, as LDC invests in managed IT services provider Kick ICT.
Bridges Fund Management has exited home energy efficiency business AgilityEco via a strategic sale to M Group Services.
Bridges’ impact-focused Evergreen fund made a money multiple return of 3.4x and an IRR of 40 percent on the sale. Since Bridges’ investment in the company in 2019, AgilityEco’s turnover has grown by three times to over £100 million ($127 million; €116 million), according to a statement.
AgilityEco provides home energy advice and products to low-income households in the UK. The London-headquartered firm worked with more than 36,000 households in the 2022-23 financial year, the statement added.
“AgilityEco is exactly the type of business that Evergreen wants to partner with,” said Tom Biddle, Bridges partner, in the statement. “It exists to tackle two of the greatest challenges facing the UK today: decarbonising our housing stock and lifting people out of fuel poverty.”
Continuing with a bit of weekend reading for the fans of our outlook Q&A series. This time we hear from Asante Capital’s co-founder and managing partner Fraser van Rensburg. Here’s a snippet from the interview:
What is your outlook for the private equity industry for 2024?
Financing markets remain challenging and pricing gaps on private equity deals are stunting M&A confidence. With the Fed’s comments that rate reductions may systematically take place through 2024, we’re expecting expensive financing to persist for a while, but likely to subside in H2 2024.
Until the pricing gap closes, sellers of assets will continue to hold onto what they believe their companies are worth. This stagnant M&A market has indirect pressure on LP liquidity levels, as they wait in anticipation for distributions from managers to pick up. It’s a necessary market correction but extending longer than initially expected, although we now see indicators that there may be some improvement in H2 2024.
One important perspective amongst all this is that we may be bottoming out and seeing green shoots emerge in 2024. The current market is still nowhere close to the post-GFC severity, which was total market shutdown.
The resilience of the asset class has been underpinned and enhanced by two important dynamics. Firstly, the development of secondary markets has de-risked the asset class to a large extent – by adding a liquidity option that never existed before the GFC. This option now exists for both the LP and GP, and has become really sophisticated, with GP-led transactions having become largely more accepted by LPs across the market.
Having these options has reduced the risk of the asset class dramatically. However, returns have not dropped in response to the risk reduction. In fact, returns are as strong as ever, despite valuation decreases resulting from the market correction.
I highly recommend reading the full interview, as it covers van Rensburg’s thoughts on secondaries, co-investments and fixed income’s impact on investment portfolios. You can find the story here.
As we’re nearing the end of our outlook Q&A series, I wanted to collect some of the prominent themes from the stories so far.
Overall, European private equity dealmakers have a cautiously optimistic view on 2024. Baird Capital’s Louise Kingston predicts factors that slowed dealmaking down in 2023, such as raised interest rates and more cautious banks limiting leverage, to reduce in H1 of 2024, enabling more deals to get done. “Whilst we don’t expect a surge in H1 2024, we believe there will be a material step-up over next year,” she said.
Riverside Europe’s Karsten Langer echoed Kingston’s thoughts. “Debt finance has also been more constrained in 2023, but there are now signs that rates are unlikely to increase further and therefore locking in loans at the current level becomes more attractive,” he said.
Unsurprisingly, generative AI is also at the forefront of dealmakers’ minds. Blackstone’s Paul Morrissey said that the adoption and advancement of generative AI is opening up an array of new investment opportunities. “The ability of generative AI to produce original, high-quality content quickly and efficiently has transformed operations in sectors such as advertising, entertainment and education,” he said. “This has led to a surge in growth equity investments in companies leveraging these AI capabilities to offer more innovative products and services.”
3i’s Severin Matten also sees opportunities with AI, but from a due diligence perspective. Thorough outside-in due diligence for upcoming exit processes has moved from being a differentiator to becoming a prerequisite to successfully compete on sought-after assets, according to Matten. “A contributing factor to this is the use of AI and technology platforms to accelerate due diligence, he added. “This is certainly true for large and upper-mid cap transactions but is starting to creep into the lower-mid cap market. As a result, GPs need to be selective on where they want to play, and focus their resources accordingly.”
Let’s finish with a deal. LDC has made a “significant” investment in Kick ICT, a Scotland-based managed IT services provider.
Kick ICT’s previous backer BGF exited as a result of this transaction. BGF backed Kick ICT since 2021.
Kick ICT CEO Tom O’Hara, group sales director Alan Turnbull and chairman Geoff Neville will continue in their roles.