Tikehau Capital is pessimistic about the macroeconomic outlook for next year but one of the main factors behind the gloomy economic outlook is creating renewed interest in an area of its focus, Emmanuel Laillier, head of private equity, told PE Hub Europe.
Aerospace deals involving Tikehau this year through its Ace Capital division include its acquisition of Visco, a company focused on high-precision mechanical machining for industries including defence, aerospace, armaments and energy, in July; its reinvestment in Tecalemit Aerospace, which manufactures pipes and hoses used in civil, business, military and space aircraft, also in July; and its portfolio firm Mecachrome buying a majority stake in Groupe Rossi Aero, a manufacturer of aerospace components, in September.
Tikehau Capital’s private equity business has €4.7 billion of assets under management and, as well as aerospace, focuses on growth equity, energy transition and green assets and cybersecurity and special opportunities. It typically invests €20 million to €150 million alongside management teams, entrepreneurs and founding families who stay on as majority shareholders.
The aerospace sector suffered during covid thanks to the drop in global travel, but over a longer period, some investors have shunned the industry due to it falling foul of their ESG requirements, including because of its links to the defence industry. But since Russia’s full-scale invasion of Ukraine earlier this year – a major contributor to the slowdown in global growth – investors’ attitudes have changed, according to Laillier.
“Aerospace had difficulties during covid but the trend remains strong,” he said. “Our last fund was raised during covid. It was a very good entry point for the LPs. For a lot of investors then, fund of funds, aerospace was not ESG, as suppliers had 5-15 percent of their customers in the defence industry. But that was 2018 and that attitude has changed a bit.”
Tikehau is hopeful that the European aerospace industry can begin to look a bit more American, from a financing perspective at least.
“Aerospace in the US is funded by private equity,” said Laillier. “We’re trying to replicate that in Europe.”
Tikehau is not alone in spotting that shift in attitude towards aerospace and, in particular, defence. The CEO of one private services firm told PE Hub Europe in the summer that since Russia’s invasion, “defence is no longer a bad word” and “the LP mindset towards defence has changed”.
While Tikehau is “really bearish about the macro situation”, there will be some opportunities in those sectors, according to Laillier.
In technology “it will be difficult for loss-making companies to find growth, but proven, profitable ones will be OK”, he said. “The demand to digitise is here to stay, also as companies seek to improve profitability and find savings.”
Decarbonisation is also a sector that Tikehau is optimistic about. “All the big, listed companies are making real commitments,” said Laillier. The firm reinvested alongside Bpifrance in energy-transition company GreenYellow as Ardian took a majority stake.
More generally, there are both head and tailwinds for investing in Europe.
“The stock market is lacking new companies,” he said. “But some opportunities could be created by the economic war between the US and China, particularly in reshoring.”
Conditions are also difficult for exits.
“We are never desperate sellers,” said Laillier. “The main issue today is access to financing. Both the cost – it was 5-7 percent, now it’s more like 8-10 percent. Also, the level of leverage has decreased, from 4.5x EBITDA to 3-3.5x. Very often, financing is not available at all.”
Laillier moved to London from Paris – where the company’s head office is located – earlier this year, signalling Tikehau’s desire “to scale-up the group’s presence and brand equity within the UK private equity industry, which is a strategic hub for the sector in Europe”. Read more about the move here.