Main Capital’s Charly Zwemstra: Working on two ‘record’ exits in H2

Main is also working on a corporate carve-out in Belgium and assessing another from a healthcare group in the Netherlands.

Charly Zwemstra, Main Capital

As part of PE Hub Europe’s series of interviews with senior private equity professionals, in which we hope to learn their dealmaking outlook for the second half of 2023, we spoke with Charly Zwemstra, founder and managing partner at Main Capital Partners.

The firm invests in software companies in the Benelux, DACH and Nordic regions, and in the US. Based in The Hague, it has more than €2.2 billion in assets under management, and its recent acquisitions include a majority stake in Patchmanager, bought in July, and RailCube and Sensire Oy, both acquired in early June.

What is your outlook for H2 of 2023? 

There will be interest rate reduction, which will provide improvement in the stock markets in Q4. This will start in September, October when people are back from holidays. We expect a pickup in dealflow in the fourth quarter.

What are the key challenges for dealmakers in 2023?

Buyers are uncertain about the inflationary environment, high interest rates, fear of recession, war etc. In general, it’s a challenging exit climate. At Main, we focus on the software industry, especially profitable, resilient recurring software companies. If you build high-quality assets, there will be strong exit opportunities. The way we will cope with this challenge is by focusing on these assets in this challenging climate. Generalist firms, they hardly do any exits, and we, on the contrary, do a lot of exits.

We did four exits in H1 of 2023, last year we did five. So, we were active on that side. It is a bit of a contrarian strategy, but it works out fine because buyers do pay good multiples for high-quality assets. Main, in June, sold cleversoft to LLCP. Other exits include Inergy to FSN Capital-backed ilionx in mid-June, ChainPoint to ParkerGale Capital-backed Source Intelligence in May and Onventis to Keensight in January.

Currently, we are working on an exit in Sweden and in the DACH markets, and both will be record exit proceeds for us.

Are any subsectors recession resilient?

I think especially software, like B2B software. HR technology remains important, which is a sizeable industry. We see most activity currently in the real estate management software and facility management software subsectors. That’s also an area where we expect to invest substantially in H2.

Main recently acquired Patchmanager, RailCube and Sensire. What do they tell us about the dealmaking environment?

These are mostly companies that have a scalable organisation and a standardised product that can be sold internationally. They show above-average growth, above 25 percent per year on a profitable basis. In the US, we invested in Cloud Coach, a project automation software company, and in Qics, a Netherlands-based company. We know these markets well, but the common thesis is that we can scale all those companies organically and cross border. The plan is to fuel it by add-on acquisitions because we are present in different markets. We expect more of those – smaller, profitable, high-growth software companies.

What about corporate carve-outs in this climate?

Main, in June, bought Centric HR, which was carved out from Centric. Main is currently working on a corporate carve-out in Belgium and has looked at some carve-outs from a healthcare group in the Netherlands. Now, at a time when we are close to a recession and with reorganisations taking place at big corporates, this is something that provides opportunities for private equity firms, and for us.

What’s happening on the bid/ask front? Are sellers getting more realistic?

I think they are and, at the same time, buyers are still a bit uncertain in this climate. You see less deal activity at the moment, but I think that will improve as soon as interest rates go down.

What’s going on with valuations?

There was some recovery in the tech sector in the last six months. Before that, it was a steep decline. The more resilient established software companies suffered less, maybe down 20 percent in terms of valuations. But since 1 January, most of those firms have performed well. On average, their market caps grew by roughly 50 percent in seven months. The recovery in resilient, profitable software technology is massive and it’s ongoing. It’s reflected in valuations in the private markets for software technology companies – the profitable ones.

Editor’s note: PE Hub Europe’s interviews with private equity professionals will appear throughout August. Read our interview with Battery Ventures’ Zak Ewen here.