If someone were to ask me to list some of the hottest topics of the year, I’m sure artificial intelligence would be present. This morning, we look at it from the perspective of business management software, as PE Hub Europe’s Irien Joseph talks to Carlyle managing director Michael Wand about the firm’s acquisition of GBTEC Software.
Valuations, specifically mismatching valuations, have been causing headaches within the PE industry for some time now. We take a look at a prime example of that this morning, as Carlyle has reportedly received lower than expected offers for video game publisher Jagex.
We then review some data points on buyout activity across the European private equity industry, as buyouts dip to their lowest level in a decade.
We’ll finish with the next instalment in our outlook Q&As for 2024. This time, we hear from Frédéric Stévenin, managing partner at PAI Partners, who speaks about the opportunities large-cap carveouts present for 2024.
Kicking off with a deep dive into a software deal. My colleague Irien Joseph spoke with Michael Wand, managing director and co-head of Carlyle Europe Technology Partners, about the firm’s acquisition of GBTEC Software.
GBTEC Software is a business process management (BPM) and governance, risk and compliance (GRC) software provider based in Bochum, Germany. Carlyle said it will acquire a majority stake in GBTEC from Main Capital Partners in late November.
GBTEC provides an opportunity to invest into the “growing and underpenetrated” BPM software market, which has grown substantially in Europe in recent years and has a “good growth outlook”, according to Wand.
“The driving force for this growth is the accelerating adoption of professional BPM solutions in the technology sector, enabled by long-term growth trends such as digitalisation and automation of business processes, the increased focus on streamlining business processes and cost optimisation, and the increasing number of obligatory regulatory and audit requirements,” he told Irien.
Carlyle will work with GBTEC’s management team to develop its product portfolio, particularly in the area of digital process automation, as well as building out its artificial intelligence capabilities.
GBTEC’s product portfolio within BPM positions the company well for global expansion, so one of Carlyle’s next key steps is to build a local presence in the target expansion markets to unlock growth, Wand said. The target markets include the US and some European countries, including the UK.
I highly recommend reading Irien’s full story to learn more about GBTEC’s product portfolio and Wand’s thoughts on Europe’s role in technology. You can find the piece here.
Valuing video games
Moving on to a topic close to my heart. I’ll let you guess whether it’s valuations or video games. Private equity firms, including Advent International and CVC Capital Partners have submitted first-round offers for video game publisher Jagex, Sky News reported.
Banking sources told Sky News that the bidders were pitching their interest at a valuation of approximately £800 million (€928 million; $1 billion), which is below a £1 billion valuation present earlier in the process.
Several other buyout firms have decided against submitting an offer entirely, expressing uncertainty about the company’s business plan and development pipeline, according to Sky News.
Jagex, headquartered in Cambridge in the UK, is a video game publisher best known for RuneScape. The company has been owned by Carlyle since 2021.
PE Hub Europe has reached out to Carlyle, Advent and CVC for a comment.
Let’s take a look at some data points next. European private equity deal volume (637 buyouts) and aggregate value (€67 billion) in 2023 represented the lowest cumulative value and volume of completed deals since 2013, according to provisional full-year data from CMBOR, the Centre for Private Equity and MBO Research, supported by Equistone.
This is the first time in six years that value hasn’t surpassed the €100 billion threshold, the report added.
Mid-market deals accounted for 25 percent of volume and 31.7 percent of value, compared to 23 percent of volume and only 18 percent of deal value last year.
Mega-deals, buyouts valued at €1 billion or more, accounted for less than half of total European buyout value for the first time since 2017, according to the data.
“Having shown remarkable resilience in 2021 and 2022, the European buyout industry in 2023 experienced a genuine slowdown due to the combination of macroeconomic headwinds and rising rates across the continent,” said Christian Marriott, head of investor relations at Equistone. “It feels like 2023 has been a pause for breath, but green shoots are emerging. The mid-market remains robust, and there also appears to be a number of large-cap deals nearing completion in the next few months.”
We’ll close today with our most recent Q&A for 2024. This time, PAI Partners’ managing partner Frédéric Stévenin shares his dealmaking expectations for 2024. Here’s a snippet from the story:
What are your dealmaking expectations for 2024?
We anticipate challenging macroeconomic conditions to persist in Europe. Despite European inflation trending down from its peak, it remains high. However, consumer confidence in Europe remains robust, with consumer spending rebounding to pre-pandemic levels.
Despite the economic headwinds, we continue to invest in attractive opportunities within defensive and resilient segments of the real economy, where PAI has a long track record of taking advantage of subsector dislocation to unlock value. The core thesis now revolves around transformation and the value creation playbook is more and more operationally driven. Private equity firms must demonstrate that they can transform businesses into strategic assets that can command a premium by going ‘back to basics’ and traditional industry skills.
We believe that the sale of non-core assets will continue to offer attractive opportunities, including strategic partnerships and carve-outs – an area where PAI has a strong track record and to which we are particularly suited.
Take a look at the full story to learn about PAI’s dealmaking highlights from 2023, Stévenin’s thoughts on the exit market and what sectors the firm finds attractive in the current market. You can find the story here.