Southern Europe has rich investment opportunities thanks to its need for digitalisation, with consumers and businesses lagging adoption rates in Northern European countries, Steven Tredget, a partner at Oakley Capital, told PE Hub Europe in the latest instalment of interviews with dealmakers on the outlook for 2024. “This creates ample opportunity for market disruptors to be created through the support of an institutional investor,” Tredget said.
What were the highlights of your dealmaking in 2023?
Oakley has had a remarkable year in 2023 – especially against a persistently turbulent environment with stubbornly high inflation, economic uncertainty and market volatility. We realised €1.7 billion for our investors including from IU Group, Oakley’s largest exit to date; we invested €1.3 billion across four new platform deals plus 20-plus bolt-ons for existing portfolio companies; and we raised €4.8 billion across three funds, including our flagship Fund V, which was almost double the size of its predecessor, Origin II for which we held a single close four months after launch, and the IU Group Continuation Fund, which was Europe’s largest single asset continuation fund since 2021.
Our four platform deals reflect our core sector specialisms and reinforce our track record as the first institutional investor in around 90 percent of our deals, and our reputation as partner of choice for exceptional entrepreneurs and management teams. All four are founder-led businesses and include premium K12 schools group Thomas’s London Day Schools, Liberty Dental Group, a dental laboratories carve-out transaction pursuing a pan-European roll-up strategy, Alerce, a primary transaction pursuing a buy and build strategy to establish the Iberian logistics software champion and Webcentral, our fifth deal in the webhosting space.
Looking back, our ability to overcome the challenges of the past 12 months proves, again, the unique strength of our origination strategy and value-add proposition. As well as being the partner of choice for founders, it also means helping their businesses to capitalise on megatrends to accelerate growth, thereby generating outstanding outcomes for all stakeholders involved. During the year, our existing portfolio sustained its double-digit revenue growth track record.
Our exit from IU Group and subsequent reinvestment was a key highlight for Oakley in 2023. When we first invested in 2017, IU had 15,000 students. Today, it has over 100,000. With Oakley’s help, this edtech, digital disruptor has grown to become Germany’s largest university with a strong international presence. IU has democratised access to education – 70 percent of students come from non-academic households – leveraged AI to scale up its offering and improve teaching delivery, and has expanded overseas through strategic M&A.
The continuation fund not only allowed us to return capital to our investors, but also allowed us to continue supporting IU in its mission to democratise access to quality education around the globe.
What are the opportunities you see going into 2024 and what are you most looking forward to?
This year, we raised close to €5 billion across three funds, doubling our assets under management. Next year, we’ll be looking to build on the momentum we enjoyed in 2023. Thoughtfully deploying the capital our investors have entrusted us with will be, as always, our key priority.
Our 2024 pipeline is robust, and we are already underway deploying capital from our latest funds. In fact, Fund V is already around 30 percent deployed. Our playbook is much the same, with a continued focus on the megatrends that have long driven Oakley’s outsized returns and investment success.
Of course, with LPs demanding liquidity, many market players are focused on delivering exits and distributions. But as always, we will be thoughtful in the way we take our portfolio companies to the next stage of their journey. So, with exits, we are more likely to entertain bids from strategic bidders and avoid speculative approaches. We will prioritise buyers with strong sector expertise and solid value creation strategies, so that our portfolio companies can continue to prosper under their stewardship.
What’s driving deals in the tech sector?
Technology in the European mid-market remains among our core focus sectors. Despite the macroeconomic uncertainty, the pipeline of Oakley deals has remained strong. We continue to engage with our extensive network of founders and entrepreneurs who know and trust us, and who help us originate new deals outside of competitive auction processes.
We are always speaking with founders, and what we have learned is that – perhaps unsurprisingly – founders are facing the same headwinds as GPs. The current environment is showing them the value of working with an experienced investor that can not only help them to de-risk now, but also possess the expertise to help them scale and grow in the future. Oakley’s value proposition is particularly well-aligned with this emerging preference.
Moreover, the tech businesses we back provide mission-critical and non-discretionary services, and they benefit from significant macrotrends and societal shifts that have persisted – and we believe will continue to persist – regardless of macro headwinds. The two tech investments we made this year exemplify the value of an ‘all-weather’ strategy. Be it Webcentral’s webhosting business or Alerce’s logistics software, their products and services have enjoyed sustained demand, and the two companies will continue to benefit from the digital transformation still underway today in the sectors they service.
And we’d be remiss not to mention the transformative power and potential of Generative AI. We are excited to partner with the experienced tech entrepreneurs behind Touring Capital to invest behind this new wave of technology and support our portfolio companies to harness its vast potential.
Why does the PE model work well for companies in the sector?
Oakley’s buy-and-build model is particularly well-suited to mid-market tech companies. These are often companies which have made some substantive headway in their development but remain in the early stage of their overall growth – which lends to strong potential for consolidation, especially within fragmented markets. Rather than betting on an expanding market to fuel individual company growth, our investments aim to accelerate this process of consolidation and create market leaders who can grow market share.
Our investment in Ecommerce One illustrates the effectiveness of this approach. The company is now an emerging leader in digital solutions for online merchants, thanks largely to its series of recent acquisitions and add-ons. Moreover, many of these platform-building deals are funded through equity rather than debt financing, which is more favourable particularly in the current market conditions.
There are rich investment opportunities in Southern Europe for example as there is still much scope for further digitalisation, with both consumers and businesses lagging adoption rates in Northern European countries. This creates ample opportunity for market disruptors to be created through the support of an institutional investor.
Editor’s note: PE Hub Europe will be running 2024 outlook Q&As with senior private equity dealmakers through December. The previous instalment was with Frédéric Stévenin, managing partner at PAI Partners.