Corsair’s Raja Hadji-Touma: Narrowing bid-ask spread to spark rise in deals

The private equity firm is looking at some potential deals in insurance distribution and wealth management.

Raja Hadji-Touma, Corsair
Raja Hadji-Touma, Corsair

The environment for deployments and exits is set to improve in 2024 thanks to a narrowing bid-ask spread, the need for private equity firms to return capital to LPs and strategic buyers upping activity thanks to more palatable valuations, Raja Hadji-Touma, partner at Corsair, told PE Hub Europe in the latest of our Q&A series with senior dealmakers on the outlook for next year.

Corsair, a private equity firm with $9.6 billion of assets under management and offices in New York and London, made an exit of its own in October as it sold Oakbridge Insurance Agency to Audax Group, having made 25 acquisitions. Add-ons are a tactic the firm has used for its portfolio this year, taking advantage of the softer market conditions to snap up attractively priced tuck-ins, Hadji-Touma added.

Do you expect a pickup in dealmaking in 2024 compared to next year? What’s making you optimistic about dealmaking next year and what are you worrying about?

Over the last 18 months, we have witnessed a material slowdown in deployment and exits. Investors have been grappling with the impact of the increased cost of debt, lower availability of financing and an uncertain macroeconomic picture, all of which have dampened overall appetite. The bid-ask spread in valuation has remained quite wide in 2023, except for prime assets which continue to trade at very attractive multiples. The bid-ask spread has started to narrow as the current market view settles on rates and macro.

I am cautiously optimistic for 2024 and expect a material uptick in transaction volumes from a low base. Interest rates seem to have peaked and inflation is coming down, providing a more stable outlook. Financing to middle market companies has been quite resilient for quality assets and is slowing coming back for larger buyouts.

There is a material backlog of assets being prepped for sale. A large number of businesses started preparing for an exit throughout 2023 with the view to potentially launch in 2024 as the picture normalises. GPs are under pressure to deploy after 18 months of reduced activity and others need to crystallise exits to deliver DPI.

I expect to see a larger number of companies come to market, in part due to an urgent need to recapitalise and alleviate debt and interest rate burdens. All of the above should result in more demand and supply of assets in the market. That said, the geopolitical events at play could result in a sustained slowdown in IPOs and an impact on exits.

How was your dealmaking experience in 2023? What were the high and low points in terms of deals/exits signed and wider conditions?

H1 2023 was quiet in terms of new deal activity, but there was fierce competition for a small number of quality assets. As a result, longer processes have been afforded to private equity – or as we like to call them, ‘bespoke processes’. We witnessed very high multiples paid for more defensive services-focused buy-build strategies deployed in sectors like wealth and insurance brokerage.

We have evaluated a number of opportunities, but the overall quality of assets on offer was lower in the first half of the year, as compared to previous years. That said, we saw a material uptick in quality and investment opportunities in H2 2023. We are currently pursuing a few opportunities in the insurance distribution and wealth management space which may come to fruition in 2024.

On the exit front, we successfully closed BCI’s minority partnership investment in ZEDRA, which we continue to control. On the portfolio side, we have leveraged the current softer market conditions to lean heavily on attractively priced M&A tuck-ins for our portfolio companies.

Which sectors and/or sub-sectors do you expect to do well in 2024 and why? Which do you expect to struggle? Will that be similar to what you saw in 2023 or different?

We expect to see a continuation of the trends we saw in 2023 with significant interest in highly cash generative buy-and-builds operating in fragmented markets. We also expect SaaS businesses at scale and operating with large TAMs to continue to be rewarded with attractive multiples.

Do you expect an increase in take-privates next year? If so, why?

In Europe, I expect a small increase in take-privates but nothing material relative to the size of the overall market volume. This is in part due to the complexity of take-privates and the availability of financing.

What’s your outlook for exits in 2024? Do you expect a pickup in IPOs or will it be mainly financial and strategic sales next year?

I expect exit volumes will increase substantially for private equity owned businesses due to the pressing need to return capital to LPs after 18 difficult months. I also expect strategics will become more active given the more attractive valuation environment and their financing firepower.

IPO markets will likely continue to remain challenging due to the overall macro picture and the potential geopolitical overhang.

Editor’s note: PE Hub Europe will be running 2024 outlook Q&As with senior private equity dealmakers through December. The last instalment featured Louise Kingston of Baird Capital.