Searchlight’s Haarmann cites ‘wall of debt’ as deal source

Bluegem in strategic exit from fragrance biz.

It feels like a decent start to the year, with dealmakers we’ve spoken to for our outlook series pretty positive on the whole and some deals signed already in the first week.

On top of the mountain of dry powder that GPs are sitting on, one source of deal action this year could come from a “wall of debt” coming up for refinancing in 2024, Searchlight Capital Partners founding partner Oliver Haarmann tells us today in our latest outlook Q&A.

Of course, if deal count is to meaningfully increase from 2023’s figures, we’re going to have to see a lot more exits – and we’ve got another sale to report today, this time in the consumer sector by Bluegem. We’ve got the deal size on that one for you.

We then finish on a deal in the tech sector, with an add-on by LDC-backed Aspire Technology Solutions.

Refinancing

The “wall of debt” coming up for refinancing this year will be a major source of dealmaking, Searchlight Capital Partners founding partner Oliver Haarmann told PE Hub Europe in the latest instalment of our outlook series with senior dealmakers.

The refinancing of the 2017-19 bull market ‘wall’ comes at a time of much higher interest rates, meaning companies will look to raise capital, creating deal opportunities, he said.

Do you expect a pickup in dealmaking in 2024?

I am optimistic that dealmaking will pick up this year. While market conditions may continue to be challenging, I anticipate that improved optimism about the macro-economic outlook will give firms more confidence to invest versus the last year, where high levels of uncertainty held them back.

In my view, the greatest source of deal activity is going to come when the ‘wall of debt’ maturities comes due. During the bull market of 2017-19 many acquisitions at peak valuation levels were financed at very high leverage multiples in an era of low interest rates. From 2024 onwards, we will see a lot of debt tranches start to come due, which will force companies to refinance in a much higher interest rate environment. These companies will therefore look to raise capital and will do so through asset, subsidiary or even outright sales or through mergers with synergistic competitors to benefit from the combined companies’ higher EBITDA – creating a wave of opportunity for transactions.

As a result, I think our opportunistic credit platform will be particularly active this year, through which we are able to provide flexible capital to help good quality companies facing short-term liquidity challenges. Looking further ahead, there is then an opportunity to convert the debt into equity and support the longer-term growth of these businesses.

Check out the full interview for Haarmann’s thoughts on take-privates in 2024 and more.

Exit

Haarmann also felt that there will be more strategic acquisitions of private equity assets in 2024, and we’ve got one such deal to report today.

Consumer-focused private equity firm Bluegem has sold luxury home fragrance company Dr Vranjes Firenze to international beauty product company L’Occitane Group.

The deal was for around €150 million, PE Hub Europe understands.

Bluegem had bought a 70 percent stake in the Florence-based company, which produces products such as diffusers and candles, in 2017. Since then the company has more than tripled its sales, topping €42 million in 2023 with an EBITDA margin of over 30 percent, according to a statement.

Growth came from geographical expansion, particularly in the Middle East and Asia, as well as new product lines, such as personal fragrances.

We’ve seen a healthy flow of cosmetics deals over the last year. Here’s a roundup of some of them.

IT tie-up

LDC-backed Aspire Technology Solutions has acquired Glasgow-based Cloud Cover IT, a managed service provider.

Aspire is a UK-based cybersecurity and workplace managed service provider.

As part of this investment, Cloud Cover IT will become a part of the Aspire group and its software development and business applications division will be rebranded as ‘Flyte’.

OK that’s all from me this week. I’d love to hear from readers about how they’re feeling now 2024 is underway – send your thoughts over to me on craig.m@pei.group