General Atlantic dealmakers are “globalists by nature and by training”, its co-president, managing director and head of EMEA, Gabriel Caillaux, told PE Hub Europe. That outlook fits with Caillaux’s view on Europe, where he said entrepreneurs no longer want to be number one in their country – they now want to “win the world”.
When Caillaux joined the New York-headquartered growth equity investor nearly 20 years ago, it “felt like entrepreneurship was a bit of a luxury on the West Coast of the US”. But now, with 16 locations worldwide including his London office, the firm sees some of the most attractive opportunities in what is often maligned as boring old Europe.
“We’ve done seven deals in the last five years in France alone and the quality of those entrepreneurs and companies is staggering,” he said. “The long-term momentum continues to be super exciting.
“Investors occasionally ask me, how can you do growth investing in Europe when Europe stopped growing 10 years ago and is in permanent crisis? Actually, in a lot of ways, Europe is at an earlier innings in technology disruption than some of the other markets where GA operates. Our portfolio in Europe is north of €10 billion and the average growth rate of our companies in Europe is above the GA average of 40 percent.”
European entrepreneurs have taken encouragement from the likes of Swedish music streaming service Spotify, which since becoming a global name has given others in Europe the ambition to be global leaders, he added.
The end of a brain drain to the West Coast of the US has also helped.
“Those people have come back and realised that if you have a winning business model, a winning team and the right access to capital, there’s no reason not to be multi-regional, and that the cost of becoming multi-regional goes down tremendously with time,” Caillaux said. “It used to be that the big challenges were different consumer trends and different customer acquisition trends. The global consumer acquisition platforms are now all the same.”
GA’s global approach might seem at odds with the backlash against globalisation of the last few years. But Caillaux pointed to a stat that he loves – that 2022 had the highest ever trade quantum between the US and China.
“So among the geopolitical tension, the US-China trade corridor continues to operate at incredible efficiency,” he said. “One of the strengths of digital businesses is the ability to scale globally with less friction, and in our digital portfolio we’re seeing no slowdown in the ambition of digital entrepreneurs to be regional or global in their nature.”
Caillaux, who sits on the investment committee, expects 2023 to be among the most exciting vintages ever. “Everyone talks about how exciting 2020 and 2021 were. We actually thought those were more challenging years because we’ve never seen a valuation environment quite like that in a competitive environment quite like that.”
That environment changed in 2022 as interest rates and inflation jumped and capital markets froze. “A lot of people in our industry weren’t around last time there were interest rates rises or inflation. There’s a change of behaviour needed in the way you price risk assets like private equity. Our behaviour was one of caution, but we were still super active. We invested about $5 billion globally. We also generated about $4 billion of liquidity, which is an even more unique statement. A lot of firms got paralysed on the liquidity front.”
The conditions also called for a focus on existing investments, said Caillaux. “A lot of early-stage investors got anxious about the market, but in 2022 we were able to double down in a bunch of our star companies in the portfolio to the tune of almost 40 percent of last year’s investment. We deployed capital into existing portfolio companies not because they had liquidity issues, but because we thought this was the best risk/return in the portfolio.”
Another positive is that the market has in some ways returned to normal after the peak, around September 2021, he said. “We were seeing multiples relative to growth that were probably two times the long-term historical average. The market has repriced massively, and now we’re probably at the long-term average. We’re back down to somewhere between 1 and 1.5 times earnings to growth or EBITDA growth depending on the quality of the business model. That’s a healthy time to be buying into growth.”