US PE firm looks at Lukoil asset as sanctions bite; Tikehau-backed Mecachrome takes flight with Rossi Aero

Latest data from M&A technology provider Datasite indicates the war in Ukraine is bolstering activity in the industrials sector.

Good morning Eurohubsters, Craig McGlashan here with Wednesday’s Dealflow.

There’s lots to cover today, with private equity opportunities opening up in some unlikely places as Russia’s invasion of Ukraine further disrupts the geopolitical and economic outlook and fuels interest in energy and defence-linked assets.

Oil have that. After a series of setbacks, Russia is stepping up its invasion of Ukraine, with president Vladimir Putin announcing a “partial mobilisation” of reservists this morning.

While Ukraine has been winning back territory, Western governments have been seizing Russian assets. And one private equity company looks to be taking advantage.

Crossbridge Energy Partners is considering taking over an Italian refinery owned by Moscow-headquartered Lukoil, the Financial Times reports. The Italian government is looking for “an alternative to nationalising a plant that faces closure if it remains in Russian hands”, the report said.

The private equity company spent 12 days this month conducting due diligence at Lukoil’s ISAB facility in Priolo, three people close to the situation told the FT.

Crossbridge is a subsidiary of Postlane Capital Partners and is headquartered in Stamford, Connecticut.

Defensive plays. The war in Ukraine is also bolstering activity in the industrials sector, according to the latest data from M&A technology provider Datasite. It is benefitting from “supply chain consolidation and defence funding arising from the Ukraine war, holding steady at second place for market share”, a new report from the firm said.

TMT is top with 21 percent share of global M&A deal volume year to end of August, according to Datasite, with industrials second on 18 percent and healthcare third on 14 percent.

We saw some activity in the defence sector this week as Mecachrome, backed by Tikehau Ace Capital and Bpifrance, announced that it had bought a majority stake in Groupe Rossi Aero. Mecachrome is a French precision engineering company based in Amboise that works with the aerospace, automotive, defence and energy sectors.

Groupe Rossi Aero is a family-owned company headquartered in Villeneuve-lès-Bouloc, France. It manufacturers components for the aerospace industry. It will operate as a standalone company.

Bad press. While few in the West will likely worry about Russia losing assets, the potential takeover of Lukoil’s refinery comes as private equity firms find themselves under scrutiny for their stakes in fossil fuel companies.

Last week, PE Hub Europe covered a report from the Private Equity Stakeholder Project and the Americans for Financial Reform Education Fund that claimed that private equity firms have invested over $1 trillion in energy since 2010, with “the lion’s share” in fossil fuels.

More bad press for private equity was to follow. On Tuesday, Mikkel Svenstrup, chief investment officer of Denmark’s largest pension fund ATP, warned that private equity firms selling to themselves and each other was potentially the start of a pyramid scheme.

Meanwhile, the banks trying to sell part of the $15 billion debt package for the LBO of Citrix Systems by Vista Equity Partners and Elliott Management had to sell $8.55 billion of the package at a steep discount.

ESG incorporation. Despite that fossil fuel report, private equity firms are still busy in the ESG sector.

Thoma Bravo portfolio company Cority, a global environment, health and safety software provider, announced on Tuesday that it has bought Reporting 21.

The Paris target develops ESG-focused Software as a Service and provides consulting services. Clients include BlackRock, L’Oréal, Eurazeo, and UBS. Upon completion of the deal, Reporting 21’s software will be incorporated into Cority’s offerings.

Holiday package. The hot weather may be over in the UK, but a mainstay of British summer holidays is the subject of a private equity deal.

Blackstone and Bourne Leisure have announced the sale of Butlin’s to a new company backed by the Harris family.

Butlin’s is a string of seaside resorts headquartered in Hemel Hempstead, England. The Harris, Cook and Allen families were founders of Butlin’s and co-invested alongside Blackstone when it bought Bourne Leisure in 2021, taking a minority stake.

Upon completion, Bourne, also headquartered in Hemel Hempstead, will continue to operate its two heritage brands, Haven and Warner Leisure Hotels.

“We believe we are well positioned to drive the continued success of both the Haven and Warner businesses,” said Lionel Assant, European head of private equity, Blackstone. “Proceeds from the Butlin’s sale will enable us to continue delivering our ambitious investment programmes across both brands.”

In cahoots. General Atlantic is expected to become Kahoot’s largest shareholder after announcing it has bought SoftBank Group’s 15 percent stake in the company. General Atlantic will support Kahoot’s expansion plans with the company looking to expand its customer base and accelerate its product roadmap and commercialisation efforts.

Kahoot is headquartered in Oslo and was founded in 2013. The group specialises in digital learning and audience engagement and has grown to have a multifaceted product offering. Kahoot is used in 97 percent of Fortune 500 companies for corporate learning and engagement.

Buying talent. A new report on global IT and business services M&A from Hampleton Partners, an M&A and corporate finance advisory firm for technology companies, found that transaction volume in the sector reached a record 699 deals in the first half of 2022, a 92 percent year-on-year increase.

“Many IT services players are buying up providers in niche areas to fill in gaps in domain expertise and experienced specialists,” said Hampleton founder and principal partner Miro Parizek in a note accompanying the report. “In parallel, staff shortages have compelled CIOs to outsource tasks to managed service firms, which are therefore now in high demand and valuable.”

That certainly tallies with what we’ve been seeing at PE Hub Europe. In early September I wrote about Queen’s Park Equity-backed software development and digital transformation firm One Beyond’s acquisition of software developer Budapest-headquartered JayStack.

Farnborough, England-based One Beyond helps firms to digitise their businesses. It builds end-to-end software for firms or provides support teams for internal digital transformation groups.

It added a team of nearly 100 engineers, to take One Beyond’s headcount to around 320. The JayStack deal was the second add-on for One Beyond, after the £12 million purchase of Spain’s GuideSmiths in March 2021, which added around 50 people in Spain to the group’s headcount.

“The group provides a broad range of digital services, from .NET, JavaScript, UX design and all the common high-level software languages,” QPE managing partner Jose Rodriguez told me. “These acquisitions provide more talent, which in the UK is pretty scarce, but also high-quality talent, with a different set of skills that enable us to deploy not only more people, but better services for the corporates, which obviously have very dynamic needs as they embark in their projects.”

QPE is a London-based private equity firm.

You can read the whole interview here.

That’s it from me – enjoy your day and we’ll speak tomorrow.