Earlier this week, I was moderating a panel at the private capital forum IPEM in Paris discussing where value and growth investing now stand in private equity amid the uncertain macroeconomic environment.
Joining the panel were Benjamin Sass from the small-mid cap buyout team at Quilvest Capital Partners, Josée Sulzer from Dassault's family office, Joshua M. Adams, a carve-out specialist at OpenGate Capital, and Reza Malekzadeh of VC firm Partech.
Reza, representing the growth camp, believes that its market has entered a "fairly interesting cycle" with opportunities emerging, particularly regarding bolting-on companies for its portfolio.
Huge waves of restructurings are happening in some growth companies that, for example, hired people "far too ahead of the curve," with such businesses now in need of transition from growth at any cost to growth to proper unit economics.
"You would meet companies that are growing very fast, but when you looked at it, they were spending $2 to get $1 of revenue, and that just doesn't make sense," he said.
Josee agrees, pointing to the "craziness" of some start-ups she has seen in the past years, which received up-rounds over up-rounds but continues to remain unprofitable years down the line.
"Now that we are back to a normal environment with positive interest rates, those prices don't work anymore," she said.
Meanwhile, value investors, represented by Josuha, are finally making a comeback, with OpenGate having signed 50% more NDAs with its counterparties on carve-out deals during this summer compared to the same time last year. He expects the carve-out market to gain even more traction by Q4 to early 2024.
"The carve-out market specifically is a bit unique because corporate sellers have ultimately reached a point where they've identified through their strategic reviews that there will be things to solve, but it's just not the environment to do that. So they're putting in tremendous amounts of work to get ready for that."
Meanwhile, Benjamin emphasizes how its value creation plan often centres around helping founder-owned or family-backed businesses it invests in through institutionalising their organization, organic growth and acquisitive bolt-ons, with an emphasis on limiting the use of leverage in this environment.
Wrapping up the panel, Josee highlights that they are not differentiating between strategies whether value or growth. Instead, they are focused on the team’s background, their stability, and, most importantly, execution.
"We need a good executioner. The world is moving very fast and some things never go according to forecast if you look at COVID or the war between Ukraine and Russia... we need managers who can execute not only in growing a business but also those who have enough influence to help their portfolio companies change their businesses if there is a need."
In the “#Value vs #Growth: Investing for the Next Vintage” panel at #IPEMParis2023, panelists discussed how 2024 will be a busy M&A market. “Corporate carve-outs are going to be a big theme,” said Joshua M. Adams of OpenGate Capital. “The common question for sellers is use of funds.”
Other panelists included Reza Malekzadeh of Partech, Benjamin Sass of Quilvest and Josée Sulzer of Groupe Industriel Marcel Dassault S.A.
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