General Atlantic’s Gabriel Caillaux expects dealmaking to shift back to basics in 2024

'One of the silver linings of the market correction is that the days of companies selling products at negative gross margins are gone.'

Gabriel Caillaux, General Atlantic

General Atlantic expects private equity to focus on value proposition to consumers, profitable growth and real unit economics in 2024, Gabriel Caillaux, co-president, global head of climate and head of EMEA, told PE Hub Europe in the latest instalment in our outlook Q&As.

New York-headquartered private equity firm GA’s recent deals include an increased stake in juice bar and coffee company Joe & the Juice and an investment in fresh dog food company Butternut Box.

What were the highlights of your dealmaking in 2023?

This year [2023] was marked by a broad-based reset in valuations across a range of asset classes, and we see exciting opportunities emerging through periods of market dislocation. Because the themes we invest behind are carried by long-term growth trends, we believe the adjustment to private valuations has translated to better entry levels, deepening our commitment to identifying innovative, high-growth businesses led by passionate entrepreneurs.

Two exciting new investments are Odoo and Butternut Box. Both have differentiated business models: Odoo is a leading provider of integrated business software that is seeking to disrupt the global SME software market, while Butternut Box is one of Europe’s largest fresh dog food brands. Yet, both investments are underpinned by our guiding investment principles – enabling the transition to a digital economy, fostering technological innovation, and facilitating global growth. We also invested in a leading German provider of workforce management solutions, ATOSS, where we see opportunities to help scale the company through our actionable value creation levers.

What was the biggest challenge to completing deals in 2023?

2023 presented a complex macroeconomic environment for dealmaking, as central banks continued to battle inflation, but the industry also had to contend with the material challenges of elevated geopolitical and regulatory risk, which impacted the flow of transactions globally. 2023 also presented a deep correction in all investment sectors. This broad-based volatility, of course, makes it more challenging to strike deals.

How do you expect the first six months of PE dealmaking in 2024 to compare with the last six months of dealmaking in 2023?

We are anticipating a healthy shift to dealmaking going back to the basics, focusing on the value proposition to consumers, profitable growth, real unit economics and fully funded business plans. One of the silver linings of the market correction is that the days of companies selling products at negative gross margins are gone.

Moving forward, companies that are executing based on fundamentals are poised to gain market share and will be able to continue to raise capital from private markets and, eventually, public markets. We have also seen many overly aggressive and economically irrational investors leave the market, creating an opportunity for General Atlantic and other firms experienced in company-building to partner with these growing companies to help scale and add value for their next chapter of growth.

What will be the most important trends affecting your dealmaking in 2024?  

Through a tighter fundraising environment, we have observed a significant shift among LPs, with investors increasingly seeking deeper, more strategic relationships with GPs who provide the breadth and depth of access to a full suite of asset classes and strategies. As we seek to create value for our capital partners, we have expanded our investment programme to meet their evolving needs.

We are continuing to expand our investment capabilities in climate and credit, where we believe we have a competitive advantage that leverages our core strengths. In addition to these developments, we are also focused on harnessing the growing prospects in the digital and AI world, emerging markets and health and wellness space.

What are you looking forward to most in 2024?

I am particularly excited about the opportunity set for climate investing, especially after being at COP28. The number of resources – both financial and talent – needed to transform our global economy and capture this energy challenge is going to be large, creating more of an opportunity for the private sector and investors like General Atlantic to partner with innovative companies seeking to generate impact in the energy transition.

There are plenty of challenges to confront in climate and energy transition investing, including the scale of capital needed to finance the transition, the need for a standardised carbon credit structure, and addressing energy solutions in the Global South; however, we are fundamentally optimistic.

The solutions that will impact climate change and the energy transition will require significant innovation and entrepreneurship – this is where growth equity plays a crucial role to partner and help scale companies focused on this transformation. GA recognises the significant momentum in this sector and formalised our climate investing efforts as a core platform this year [2023]. Climate solutions are presenting compelling investment opportunities, particularly in areas such as software, carbon capture and storage, diversified energy sources and grid infrastructure. Software is a particularly interesting space as technology and decarbonisation are intrinsically linked.

Editor’s note: PE Hub Europe is running 2024 outlook Q&As with senior private equity dealmakers through December and January. The previous instalment was with Karsten Langer, managing partner of Riverside Europe.