Main Capital, Palatine part of private equity add-on flurry

Blackstone’s Verdun Perry discusses secondaries evolution; Innova Capital makes two add-ons.

Add-on deals have been popular this week, and all year for that matter, potentially due to private equity’s cautiousness towards platform deals in the current macro environment. I’ve rounded up some of this week’s add-on transactions, and we hear from a lawyer on why PE is drawn to them.

Add-ons this week include Palatine-backed FourNet making its third add-on deal with a managed service provider; Innova Capital’s Bielenda Natural Cosmetics buying a Polish cosmetics manufacturer; Main Capital Partners-backed Oribi Group acquiring a platform for registering workers on construction sites and Innova portfolio company EMI Group acquiring an access automation service provider.

We then have a look at the secondaries market, as my colleague Rafael Canton speaks to Blackstone senior managing director Verdun Perry about secondaries, as well as diversity within the industry.

We will finish with a look into an exciting event next spring that you won’t want to miss.

Adding on

Add-on deals made for a good chunk of this week’s deal activity. This a theme we will continue to see in private equity, according to Christopher Field, partner at global law firm Dechert.

As the deals are smaller than platform investments, there is less to worry about around debt, he told me. “If you can only deploy equity, an add-on is a smart way to do it; you already know the portfolio company,” he added. “The portfolio company already knows its market really well. Your statistical chances of success are much greater.”

An added advantage comes from an EBITDA uplift, according to Field. “When you buy an add-on – generally at a lower EBITDA multiple – and you push it into the platform, it immediately gets the benefit of the higher EBIDTA multiple,” he said. “When you finally come to an exit, GP-led secondary or whichever liquidity event you might do, you get that expanded benefit.”

This week’s add-on deals included Palatine-backed FourNet making its third add-on deal with a managed service provider; Innova Capital’s Bielenda Natural Cosmetics buying a Polish cosmetics manufacturer; Main Capital Partners-backed Oribi Group acquiring a platform for registering workers on construction sites and Innova running another add-on deal, with its portfolio company EMI Group acquiring an access automation service provider.

Secondary opportunity

Moving over to secondaries. My colleague over on PE Hub Rafael Canton caught up with Blackstone’s senior managing director Verdun Perry as part of an ongoing series of Q&As with private equity thought leaders. The story contains Perry’s views on what makes secondaries compelling in today’s market and insights on making the PE industry more inclusive. Here’s a snippet from Rafael’s story:

How has the secondaries market evolved?

The size of the market has grown tremendously over the past 23 years. In 2000, the global secondary market was roughly $1.3 billion in total volume annually. This year, we expect roughly $130 billion in volume.

If you look at the total value in private market funds today, it’s roughly $10.2 trillion. That includes buyout, venture, private real estate funds, private infrastructure funds and private credit. Of that $10.2 trillion, only about 1 percent trades on the secondary market, which we call the turnover rate. That number is tiny. But if we go back 23 years, the turnover rate was one half of 1 percent.

The size of the secondary opportunity has grown significantly, both because primary fundraising for private market funds has grown exponentially, as well as the increasing turnover rate.

The biggest evolution, frankly, is awareness. If you had come to me in 1999 and said tell me about secondaries, I would’ve said, “I’ve never heard of it.” That was true for most people.

Today, I would estimate around 80 percent of the LP community is familiar with secondaries. The fact that more people are aware of the opportunity to exit a long-term illiquid asset class should they need to or want to sell has effectively generated more volume.

I highly recommend reading the full story, which you can find here.

Save the date

Before signing off, I want to highlight something you should get in your calendars.

NEXUS 2024, co-hosted by PE Hub Europe and Private Equity International, will bring unmatched market insight and LP-GP connections to life in Orlando on March 6-8.

The agenda has been created in conjunction with PEI Group’s editors, ILPA and our LP advisory board. It features topics front of mind for CIOs from CalSTRS, Massachusetts Pension Reserves Investment Management, Maryland State Retirement and Pension System, New Mexico State Investment Council and more.

Keynote speakers include Howard Marks, co-founder and co-chairman of Oaktree Capital Management, Jonathan Gray, president and COO of Blackstone, and David M Rubenstein, co-founder and co-chairman of Carlyle Group.

We are talking three unmissable days of one-of-a-kind agenda content covering opportunities across private equity dealmaking in North America and wider private equity markets.

Backed by the most trusted brands in private markets, you will leave the event with actionable advice for how to move your firm ahead of the pack.

Early bird pricing for Private Equity International’s NEXUS 2024 expires Friday, 8 December.

PE Hub Europe subscribers save over $1,800 off their registration and can bring their colleagues at the same rate. (after this date will be a $1,300 saving)