In the second of our outlook Q&As for 2023, PE Hub Europe spoke to Karsten Langer, managing partner of Riverside Europe.
Riverside invests in lower-mid-market-companies and since its foundation in 1988 has backed more than 850 companies worldwide and made 210 exits. It has $13.1 billion in assets under management.
Recent deals in Europe include November’s signing of a definitive agreement to take a controlling stake in BioDue, an Italian company that develops, manufactures and commercialises food supplements, medical devices and cosmetics
What is the outlook for private equity deals in general in 2023?
Dealfow volume is likely to be lower in 2023 than in 2022, as more companies may face internal issues that cause owners to postpone coming to market. This will especially concern companies that have not been successful in protecting their margins in the face of cost increases and weaker demand. But there should be sustained demand for capital from entrepreneurs who see a weaker market as an opportunity to consolidate their position and accelerate growth.
Which investment areas do you expect to be the ‘winners’ and ‘losers’ in 2023?
Buyers will initially favour business models that are resilient through a softer economy due to ‘stickiness’ of customers and sustained demand, and the ability to protect margins. This will be true of many businesses in healthcare and subscription-based tech businesses. As we progress through the cycle and bid-ask spreads narrow, capital goods businesses may gain favour again, as investors eye an opportunity to participate in accelerating expansion.
What other key factors will drive the deals environment in 2023?
‘Bankability’ of assets may prove a bigger factor than in recent years in determining which deals get done. Both lenders and equity providers will be more selective and will favour those assets that exhibit resilience in terms of their cashflows and customer demand.
What is the outlook for exits? Do you expect all avenues – IPOs, trade sales, sales to other PE firms – to be open or will some have an advantage over others?
High quality, resilient companies are likely to continue to trade at a premium in 2023. These are the companies that start the year on a growth footing and display resilient demand and cashflows. I expect PE to be a strong buyer category, as it looks to deploy record funds raised in 2021 and 2022. Corporates may reduce in importance as a buyer category as rising interest rates cause them to reassess their balance sheets.
Editor’s note: Throughout December and January, PE Hub Europe will be publishing Q&As with private equity industry leaders. Check out our interview with Partners Group’s Bilge Ogut here.