Good morning Eurohubsters, Craig McGlashan here with the Dealflow.
With December nearly upon us we’re looking ahead to the environment for dealmaking in 2023. Things look a little gloomy on that front, so before we dive into that, let’s take a look at a bit of action we have seen.
Custom deal. Castik Capital-backed Customs Support Group announced that it has strengthened its presence in Germany and Poland by adding on Porath Customs Agents.
Porath is a family-run firm focused on customs clearance, headquartered in Hamburg with teams located in Germany and Poland.
Rotterdam-based Customs Support is a digital provider of customs services with over 15,000 customers annually, in industries such as automotive, and food and beverage.
UK move. Thoma Bravo-backed Veriforce announced that it has signed a definitive agreement to buy CHAS, a UK compliance management firm, from the London Borough of Merton.
Veriforce is a supply chain risk and compliance management company with headquarters in Houston, Texas and offices in Covington, Louisiana, as well as Calgary and Toronto in Canada and Pretoria in South Africa. After combining with CHAS, the firm will have a platform for more than 3,200 companies in over 130 countries with over 80,000 contractors.
Veriforce describes itself as a supply chain risk performance network, comprising more than 750 hiring clients, more than 50,000 contracting companies, 7,000 accredited safety trainers and authorised evaluators, and over 2.5 million workers.
Delisting. This morning, motorway and airport manager Atlantia confirmed that a voluntary public tender offer for its shares by Schema Alfa had hit the threshold of 90 percent that will now allow its shares to be delisted from the Euronext Milan.
Schema Alfa is an investment vehicle for New York-headquartered private equity firm Blackstone and the Benetton family. We reported a couple of weeks ago that the vehicle had secured 62.2 percent of Atlantia’s shares in a bid that valued the Rome-based Atlantia at €58 billion – which would make it the largest take-private deal ever for a European-listed company.
Tender begins. North Luc Holdco, a vehicle for Bain Capital, Security Trading, Fennogens Investments and Corbis launched a tender offer today for all the shares in Finnish firm Caverion Corporation. The tender offer will run to 12 January.
The offer price is €7 in cash for each Caverion share on the Helsinki Stock Exchange. That values Caverion at around €955 million. The firm’s share price was around €4.1 to €4.7 through October, before the bid was announced on 3 November.
Vantaa-headquartered Caverion is a building technology and industrial services company.
Rocky outlook. Such large deals might be somewhat of a rarity next year, though. They usually require large amounts of debt and, even with the latest minutes from the US Federal Reserve showing that most of its officials back slower rate rises ‘soon’, the cost of debt is unlikely to come down soon – particularly in Europe.
“Cutting rates won’t happen any time soon,” Sunaina Sinha Haldea, global head of private capital advisory at Raymond James, told me. “The ECB has only done a couple of hikes.”
The capital markets mix in Europe is also likely to exacerbate the situation.
“In Europe, the banks are constrained in underwriting debt,” said Sinha Haldea. “The true mid-market needs the banks to cooperate. The US has the benefit of a large and fragmented private credit and direct lending industry.” She defined the “true mid-market” as €1 billion-plus funds.
On top of the difficult investment outlook, exits will also be tricky.
“PE firms are holding companies in the teens of EBITDA multiples,” she said. “That’s still to come down. Many clients say they will over-equitise today, wait for valuations to fall, and then refinance and do a dividend recap.
“Strategic buyers have largely disappeared. PE buyers can’t get deals funded through debt. It’s a perfect storm.”
That lack of exit opportunities will likely bolster a trend for continuation funds in 2022, while fundraising in general will prove hard, Sinha Haldea added.
“A lot of funds are not getting the valuations they want so are holding or going into continuation funds,” she said. “We’ve never seen more interest in continuation vehicles than in 2022.
“2023 will be difficult for fundraising. Funds will slow down deployment to avoid fundraising in such a tough environment. We’ll see funds raised below target, especially in middle to lower midmarket. GPs with chequered pasts, with write-offs or mediocre returns, will struggle. Even for those with strong data points, it’s hard.”
With dealmaking slowing as the end of year approaches, we’ll be looking more and more ahead to the dealmaking environment in 2023. We’d love to get your thoughts, so drop me a line with your view at firstname.lastname@example.org
That’s it from me – Nina Lindholm will be with you tomorrow.