We’re taking a deep dive today into how private equity firms can navigate today’s tricky exit market, as we find out from Nordic Capital’s Emil Anderson how his firm approached the sale of Macrobond to Francisco Partners.
Sticking with the difficult conditions, we take a look at a report from CMBOR on how the European private equity industry is relying heavily on buy-and-build strategies rather than platform investments.
We then round things out with an example of an add-on deal – this one involving an Anders Invest portfolio company.
We’ve written a lot about the stuttering exit market and how GPs are finding novel ways to return cash to LPs, so we’re always interested in finding out more when a private equity firm uses a traditional route.
With that in mind, Nina Lindholm spoke to Nordic Capital partner Emil Anderson to find out the inside story on his firm’s exit from Macrobond, a provider of global economic, aggregate financial and sector time-series data.
The sale to San Francisco-headquartered Francisco Partners, which is subject to customary closing conditions, values the Swedish company at nearly €700 million, giving Nordic Capital a return of approximately 6x, according to a source close to the matter. Stockholm-based Nordic Capital acquired Macrobond in 2018 via its Fund IX.
While Macrobond enjoyed interest from multiple suitors, the exit market remains “slower than usual” due to high inflation, rising interest rates and difficult public markets, according to Anderson.
Nordic Capital approached that problem by spending time “from the start of an investment to educate potential buyers and find the perfect fit for the company when the time is right”, Anderson added.
Nordic was also aided by the resilience of Macrobond’s market. “The sector for financial data providers seems to be strong at the moment despite wider market uncertainty, particularly due to the predictable subscription-based revenues,” said Anderson.
Read the full interview to find out more on how Nordic Capital grew Macrobond, as well a look at the wider financial data provider sector.
Buy and build
The difficult conditions that Anderson talked about have led a lot of private equity firms to focus more on investing in their portfolio than adding to it. BC Partners chairman of Europe Nikos Stathopoulos told me yesterday that “managers will need to be prepared to hold assets for longer”, for instance.
We’ve now seen some figures that support that theory.
European private equity portfolio companies made 369 acquisitions in the first half of 2023 – the third highest H1 figure on record – according to half-yearly data from CMBOR, the Centre for Private Equity and MBO Research, based at Nottingham University Business School and supported by Equistone Partners Europe.
The trend was “undoubtedly part driven by highly disruptive macroeconomic forces”, according to a release.
“As widespread uncertainty and falling valuations create a dearth of motivated sellers, private equity firms, many of which continue to sit on record levels of dry powder, have continued to channel capital and operational support towards supporting portfolio companies seeking to acquisitively grow market share.”
That record level of dry powder stands at $3.7 trillion, including $1.1 trillion in buyout funds, according to a Bain & Co report released earlier this week.
The CMBOR data showed that the value of the add-on deals had plateaued and was in line with the same period at last year, on €1.5 billion, while average deal value at €4.1 million was up slightly on H1 2022, at €3.2 million.
“These figures are a continuation of a pandemic-era trend of sponsor-backed companies recognising an opportunity to consolidate market share as valuations dip and, in response, making more acquisitions at lower valuations,” the release said.
Equistone provided a case-study for the report. It said that it had supported 18 bolt-on acquisition in the first six months of 2023. That they were spread across the continent – four by UK portfolio companies, seven by French, five DACH and two Benelux – “was symptomatic of the Europe-wide nature of this shift”, said the release.
I’d love to hear how your firm is changing tactics in the face of higher interest rates and macro uncertainty – or if you feel that things are stabilising and you can get back to platform investments. Drop me your thoughts at email@example.com
Just to round things out with an add-on example, Solex Thermal Science, a portfolio company of Anders Invest, has acquired Econotherm, a provider of waste heat recovery technology.
Econotherm is based in Bridgend, UK.
Anders Invest acquired a controlling interest in Solex in 2022.
Solex is a global supplier of systems for the heating, cooling and drying of bulk solids. The company is based in Calgary, Alberta.