Good morning Eurohubsters, Craig McGlashan here with the first Dealflow of the week.
Much of the UK was closed on Monday in observance of the funeral of Queen Elizabeth II and many announcements were postponed during the period of mourning. Many eyes in private equity will now turn to one of those delayed decisions – the Bank of England’s next interest rate move and the effect it could have on sterling.
Sterling opportunity. Several people have been telling me that private equity buyers, particularly from the US, are snapping up UK firms thanks to sterling’s decades’ long low against the dollar. That includes situations where the currency balance has nudged a potential investment into a definite one, or even some simple currency plays – buy a sterling asset when it’s low against the dollar, then wait for sterling to recover and sell it on.
Regardless of the strategy, this Thursday’s interest rate decision could help fuel the trend further. The rate is at 1.75 percent and analysts expect a hike of 0.5 to 0.75 percentage points at Thursday’s meeting. Anything less could cause more weakness in sterling, said some analysts – although that would be a potential boon for those private equity investors outside the country that are looking at UK assets.
IPOs back? On the other side of the investment coin, private equity firms have been limited in their exit options this year. That’s because European IPO values in the first half reached a 10-year low and the market was “largely closed for most issuers” in the second quarter, according to PwC. Second quarter IPO issuance in Europe totalled €2.1 billion from 29 IPOs compared to €23.1 billion from 142 IPOs in the second quarter of 2021, the firm said.
But there are signs that the market could be reopening. On Sunday, Reuters reported that Volkswagen has targeted a valuation of €70 billion to €75 billion for luxury sportscar firm Porsche. That would make it the second largest German IPO ever and, at the upper end, the third largest ever in Europe.
The future of recycling. Sticking with the automobile world, PE Hub Europe’s Nina Lindholm has a piece this morning on how LBO France will guide its latest purchase, metal recycling facilities manufacturer Zato, towards new markets such as plastic and electric car battery recycling.
Zato, based in Brescia, Italy, designs and manufactures ferrous and non-ferrous metal recycling facilities that use artificial intelligence algorithms and IoT devices.
LBO France announced the purchase of Zato in mid-September, via its Italian subsidiary Gioconda. The investment was the fifth in Italy by LBO France’s Small Caps Opportunities funds, after Vetroelite, Bluclad, Demas and Astidental Bquadro.
“We could apply our technology to a lot of other materials, such as plastics, cables and other waste,” LBO France partner Arthur Bernardin told Nina.
But LBO France does not want to stop there. Zato’s products have the capability to scrap cars, but Bernardin is looking further ahead.
“In 10 years or so, we need to be recycling electric car batteries,” he said. “You need to adapt your equipment to make sure that you’re able to recycle batteries, which is completely different to recycling a car.”
Charging up. If you’d like to read more about the latest in electric vehicles, then head over to our affiliate site PE Hub to read Obey Martin Manayiti’s interview with Reuben Munger, managing partner at Vision Ridge Partners.
As demand for electric vehicles gathers momentum, investments supporting infrastructure, such as charging systems, are vital for the transition from fossil fuel-powered vehicles, said Munger.
The Boulder, Colorado-based private equity firm last week joined other investors in a $1 billion funding of TeraWatt Infrastructure, a San Francisco-based developer of EV charging systems.
Launched out of stealth in May 2021, TeraWatt focuses on non-personal vehicles. “This is an area where there is more need and a different layer of service that is needed to deliver,” Munger said.
As battery technology and other innovations emerge, the adoption of EVs in commercial transport and the logistics sector has been ticking upward. “What we are doing is to help fleets start to plan as well, and it’s going to take one-to-two years for some of these projects to kick off, so you need to get going in order to deliver back to your customer,” he said.
That’s it from me – happy dealmaking and we’ll speak again on Wednesday.