Energy transition, aerospace and defence, and agriculture are sectors to watch for private equity in 2024, when dealmaking should rise thanks to a stabler economic backdrop, Roberto Quagliuolo, deputy head of private equity and co-head of Italy at Tikehau Capital, told PE Hub Europe in the latest of our outlook Q&As with senior dealmakers.
Tikehau Capital has made a series of investments this year, including an investment in Anthesis, a sustainability consulting company; a majority stake in Creators of the Outside World, a provider of cycling infrastructure and sustainable street furniture; and 100 percent of Formecal, a manufacturer of high-precision machining for the aerospace industry.
The Paris-headquartered private equity firm also made a series of exits this year, as Quagliuolo touches on in the article.
Do you expect a pickup in dealmaking in 2024 compared to next year? What’s making you optimistic about dealmaking next year and what are you worrying about?
We anticipate a pickup in activity in 2024, primarily driven by a more stabilised economic environment. This positive shift is also likely to be accentuated by the increasing liquidity requirements of many investors. These investors may prioritise returning capital to their LPs, rather than maintaining their latest valuation marks. The trend is indicative of a broader focus on financial prudence and strategic capital management as market participants recalibrate their priorities in response to the evolving economic landscape.
How was your dealmaking experience in 2023? What were the high and low points, in terms of deals/exits signed and in terms of wider conditions?
In 2023, we successfully executed 11 new investments across Tikehau Capital’s decarbonisation, aerospace, cybersecurity and regenerative agriculture strategies. We also reinvested in seven of our portfolio companies over the course of the year.
On the exit side, we achieved successful exits or partial exits from four portfolio companies, generating robust returns for our limited partners. These exits encompassed sales to strategic buyers, such as the sale of Total Eren (a renewable energy player) to TotalEnergies and the IPO of EuroGroup Laminations (a producter of “motor cores” for electric vehicles and industrial applications) on the Euronext Growth Milan stock exchange.
The distinguishing features of these transactions were the selection of sectors with non-cyclical fundamentals and a focus on entities demonstrating positive current trading conditions.
These transactions align with the thematic focus of our private equity business, which we consider is strategically positioned to capitalise on global mega-trends shaping the next capital expenditure cycle. Within our vertical strategies, we continue to focus on thematic sectors, including aerospace and defence, cybersecurity, decarbonisation, growth partnerships and regenerative agriculture.
Which sectors and/or subsectors do you expect to do well in 2024 and why? Which do you expect to struggle?
We anticipate significant growth in energy transition, aerospace and defence, and agriculture, aligning with the thematic focus of our private equity business, as well as the broader market.
The energy transition sector is poised for notable advancements as global efforts intensify to transition towards sustainable and renewable energy sources, coupled with increased emphasis on adapting to climate-related risks. Simultaneously, aerospace and defence should experience robust growth, driven by increasing geopolitical complexities and the demand for cutting-edge technologies. In addition, the agriculture sector, underpinned by regenerative practices, holds immense potential for investment to address the expanding requirements of companies dedicated to preserving soil health, providing sustainable products, and advancing solutions that facilitate this crucial transition.
As we position ourselves to leverage these growth opportunities, the strategic alignment of our private equity business should ensure that we remain at the forefront of industry trends, poised to navigate and capitalise on emerging opportunities in these dynamic sectors.
Do you expect an increase in take-privates next year? If so, why?
Yes, we anticipate an increase in take-privates in the upcoming year, particularly for low-liquidity stocks. This expectation is driven by the stabilisation of market valuations in this segment, coupled with the incorporation of a potential decrease in future demand into current assessments. The environment presents an opportune moment for strategic moves to privatise, aligning with market conditions and maximising returns in the context of stabilised valuations and nuanced demand projections.
What’s your outlook for exits in 2024? Do you expect a pickup in IPOs or will it be mainly financial and strategic sales next year?
The IPO market will remain very challenging in 2024, with complexities likely to persist. Consequently, our outlook leans towards other exit routes proving more viable next year.
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 Paul Morrissey, senior managing director and head of Blackstone Growth Europe.