Riverside Europe is sensing a shift in the continent’s dealmaking dynamics, as “probably the best seller’s market, frankly, that anybody in our industry has ever known” ends, according to managing partner Karsten Langer. Sectors such as technology and healthcare could be among those that benefit most as economic conditions tighten, he added.
TPG-backed People2.0 bought Brookson Group, a compliance and business services platform based in Warrington in the UK, from Riverside last month. It was part of a string of exits by Riverside Europe but one that came as the company looks more at purchases.
“We made the decision at the beginning of 2021 to focus on exits quite a lot,” Langer told PE Hub Europe. “Just from my fund in Europe, in the last year we did one IPO and five trade sales. On the other hand, we had a hard time buying things while remaining disciplined on pricing. That is shifting a bit now. We’ve announced two investments this year so far.”
This movement came after Riverside’s European team closed its sixth European fund last year. At €465 million, it was the company’s largest European vehicle so far.
Langer is looking to deploy that dry powder into what he sees as a more friendly environment for buyers.
“There are not huge swings in the market, price wise,” he said. “But clearly it is becoming a little bit easier to be a disciplined buyer. The pendulum is swinging a bit from being an extreme seller’s market – probably the best seller’s market, frankly, that anybody in our industry has ever known – in the last 18 months to being a more balanced market. Maybe it will even become a buyer’s market.”
The shift in dynamics comes amid wider market volatility, with rampant inflation across Europe and central banks seeking to fight those rising prices by lifting interest rates.
That backdrop makes it harder for Riverside to invest, although as Langer said, “everybody’s in the same boat”.
Europe is “probably going into a period where the economy is going to grow slower than it did in the last couple of years since the covid lockdowns” and “you might even think that there’s a recession on the horizon”, said Langer.
Those conditions alter the menu of firms that Riverside might look to buy.
“Companies that have a lower downside, maybe because they sell products that consumers really need day in, day out – like food and medicines and so on – are going to be more sought after,” said Langer.
Technology is particularly attractive because it offers a double whammy for investors, both in terms of price and resilience to a downturn in the economy, said Langer.
“The trend winds in favour of technology won’t change with a recession,” he said. “That software is eating the world and everything’s becoming tech enabled is not going to change just because there’s a recession for a couple of quarters.
“Investors will be savvy enough to understand that you can at that point invest in technology and maybe make some of the best investments of your career. Not because they’re going to be dirt cheap, but they’re going to be relatively cheaper.”
These relatively lower prices were because the technology sector had “the biggest run-up in valuations and in hype during the past couple of years”, said Langer. “If you look at what public markets have done recently, you would expect that some of that correction in prices will translate into the private markets as well. I don’t think we should expect as great adjustments in technology in the private markets as in public markets because they never went as high in the first place. But also because private capital takes a slightly longer view.”