PAI’s Frédéric Stévenin sees large-cap carve-outs as 2024 deal opportunity

‘Valuations across real economy sectors remain stable, underpinned by solid fundamentals and sustainable growth horizons,’ says Stévenin.

Frédéric Stévenin, PAI Partners

Carve-outs of non-core assets from large corporations trying to hit top-line growth and better margins should provide a valuable source of deals for private equity firms, Frédéric Stévenin, managing partner at PAI Partners, told PE Hub Europe in the latest of our outlook Q&As for 2024.

PAI has been focused on the real economy this year, with deals such as European Camping Group’s acquisition of Vacanceselect via its flagship funds and European Pizza Group, in partnership with Nestlé, at the mid-market level. The Paris-headquartered private equity firm sees valuations in that sector remaining stable, boding well for exits.

What are your dealmaking expectations for 2024?

We anticipate challenging macroeconomic conditions to persist in Europe. Despite European inflation trending down from its peak, it remains high. However, consumer confidence in Europe remains robust, with consumer spending rebounding to pre-pandemic levels.

Despite the economic headwinds, we continue to invest in attractive opportunities within defensive and resilient segments of the real economy, where PAI has a long track record of taking advantage of subsector dislocation to unlock value. The core thesis now revolves around transformation and the value creation playbook is more and more operationally driven. Private equity firms must demonstrate that they can transform businesses into strategic assets that can command a premium by going ‘back to basics’ and traditional industry skills.

We believe that the sale of non-core assets will continue to offer attractive opportunities, including strategic partnerships and carve-outs – an area where PAI has a strong track record and to which we are particularly suited.

What were the highlights of your dealmaking in 2023?

In 2023, despite the challenging macroeconomic environment, PAI invested in nine companies across our funds, reflecting our commitment to identifying and capitalising on opportunities that align with our strategic vision and value-creation goals. In our flagship funds, these include European Camping Group’s acquisition of Vacanceselect and our acquisitions of NovaTaste, the Looping Group, ECF Group, Azets Group, Infra Group and Alphia. These flagship investments were complemented by our investments in La Compagnie des Desserts and European Pizza Group, in partnership with Nestlé, in the Mid-Market Fund.

What opportunities do you see going into 2024 and what are you most looking forward to?

Looking ahead to 2024, PAI is well positioned with a substantial pool of capital following the successful final close of PAI Partners VIII. We aim for disciplined deployment and steady liquidity, with a strong, actionable pipeline. We are excited about the prospect of transforming traditional companies into innovative, high-performing and strategic global players.

What do you have to say about the current exit market?

While the exit environment remains challenging, PAI maintains a healthy exit pipeline. Valuations across real economy sectors remain stable, underpinned by solid fundamentals and sustainable growth horizons. Our strategic approach to exits ensures that we navigate market conditions effectively, delivering value to our portfolio companies and investors.

Which sectors are attractive in the current market?

PAI invests behind thematics within traditional industry sectors that are at the heart of economic activity, including: food and consumer, business services, healthcare and general industrials. We take advantage of structural shifts – such as evolving consumer trends and premiumisation, reshoring and the security of supply chains, accelerating energy transition, sustainability and digitalisation – to transform businesses in these traditional industries. By navigating these structural shifts, we believe we can generate alpha and unlock significant value for our stakeholders through the cycle.

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 Edgar Kolesnik, partner at Abris Capital Partners.