PRIVATE EQUITY VALUE CREATION
FORUM & AWARDS
16 MARCH 2023
The Biltmore, Mayfair, London
It was our pleasure to host the inaugural Actum Group Private Equity Value Creation Forum and Awards, welcoming private equity industry experts from the
US, UK and the rest of Europe
Following the forum’s packed agenda, an awards ceremony and celebratory dinner were hosted by stand-up comedian and comedy writer, Jo Caufield. Winners, runners-up and guests filled the room with high spirits and laughter!
A huge thank you to all of our sponsors and to our guests for their support, positive feedback and suggestions. We hope to see everyone at the Private Equity Value Creation Forum and Awards 2024!
Our team had a fantastic evening,
and the event as a whole was utterly scintillating! Great chance to network also and meet others in the PE space –
a full-bodied spectrum of talent in attendance.
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The Actum Group Private Equity Value Creation Forum and Awards
brought together the private equity community to address risks and discuss opportunities, including the lessons learnt from previous economic cycles as well as the unique characteristics of today’s market.
• the political landscape and its impact on private equity tech-enabled services
• LP valuations in the context of recession
• opportunities and risks in turnaround / restructuring
• the sustainability advantage: creating long-term value.
Private equity practitioners, advisors, consultants and thought leaders shared their views and debated on practical opportunities and mitigation strategies within the context of an economic downturn. There was ample opportunity for networking with senior LPs and operating partners at leading GPs throughout the event.
The evening awards ceremony celebrated innovative Value Creation strategies, practitioners and more, as nominated by the private equity community. The winners were chosen by our panel of esteemed judges including: Sam Smith, Founder and former CEO, Advisor to the Board of finnCap Group plc; Dharmash Mistry, General Partner, Lakestar; Virginie Favre, Global Head of Market Data, Financial Services, Natixis
It was the who’s who of operating partners in big funds
Origin of delegates
From 76 organisations
Rest of Europe
Delegates by industry
- GPs 68% 68%
- Consultants/Advisors 12% 12%
- LPs 11% 11%
- Legal 6% 6%
- Other 3% 3%
Primary roles of delegates
LORD WILLIAM HAGUE OF RICHMOND
Former Leader of the Conservative Party, First Secretary of State, Foreign Secretary and Leader of the House of Commons, Senior Advisor, Teneo
MICHELE GIDDENS, OBE
SIR OLIVER LETWIN
Former Shadow Chancellor of the Exchequer, Shadow Home Secretary, Chancellor of the Duchy of Lancaster, Senior Advisor, Teneo
Head of ESG & Sustainability, PAI Partners
Managing Director, Head of Portfolio Value Creation, Canada Pension Plan Investments
HEIN MARAIS (MODERATOR)
Global Head of Value Creation and UK Transactions Leader, PwC
Managing Director, BC Partners
Chair, The Whittan Group, Reconomy Group, Stelrad Group PLC
Managing Director and Head of Europe, Private Equity Growth Practice, Teneo
RICHARD SMALL (MODERATOR)
Partner, Financial Regulation, Addleshaw Goddard
Senior Managing Director and Global Private Equity Growth Practice Head, Teneo
Co-Founder and Managing Director, Infracapital
Operating Partner, Permira
Independent Director, NED and NED-plus, The London Restructuring Network
NED, Clancy Group, Holyhead Boatyard,
SVM UK Emerging Fund plc
TIM NIXON (MODERATOR)
Senior Managing Director, Head of Consulting – US & UK, Teneo
Director General, British Private Equity and Venture Capital Association
ANDROS PAYNE (MODERATOR)
Managing Partner and
Teneo is the global CEO advisory firm, with 1,500 staff over 40 offices. Our Private Equity Growth practice area exists solely to accelerate Enterprise Value addition for PE-backed assets. We have 40 fully specialised staff in Europe and the US, and pride ourselves on our track record of real results for our investor clients
With offices in 152 countries and almost 328,000 people, PwC are among the leading professional services networks in the world. They help organisations and individuals create the value they are looking for, by delivering quality in Assurance, Tax and Advisory services.
Exploring unexpected angles, their agile community of solvers works with you to define new approaches to value creation—from making your business more resilient to bolstering your ESG framework. PwC looks holistically at all aspects of an organisation’s performance to propose enterprise-wide transformation initiatives or smaller-scale optimisation programmes.
Driven by data, their tech-powered teams use AI, machine learning and cutting-edge analytics to build scenarios for your value chain. Their expertise in finance, operations, deals, strategy, tax and accounting, enables PwC to go wide and take the long view to ensure your business is positioned to deliver sustained outcomes for the future.
company leaders master the challenge of delivering ambitious value creation plans by working collaboratively with all stakeholders to
align the organization and activate it for success.
Humatica’s tool-supported services and big-data benchmarks put hard facts around the critical behaviours and management practices that drive value creation for all stakeholders. Their fact-based transparency, coupled with deep leadership experience, enables rapid consensus on pragmatic improvements to activate organizations and deliver alpha.
Each year, over 2,500 leading companies and finance players around the world trust Addleshaw Goddard to deliver. They help them
in multiple industries and in over 90 countries. Not just once, but again and again. Many of our 48 FTSE100 clients have been with us for more than 20 years: one for 150.
Tomorrow’s problems won’t be solved with yesterday’s answers. And, AG believes that good business demands good legal advice. Which,
ultimately, comes down to just four words. Yes. No. Stop. Go. Assuming you’d value that clarity, imagination and impact, they would be delighted to talk business. Your business.
Co-Founder & Co-CEO, Bridges Fund
MICHELE GIDDENS OBE
“We are living through a period of great dislocation and uncertainty,” Michele Giddens OBE, Co-Founder and Co-CEO of Bridges Fund Management, exclaimed in her opening remarks as Chairperson for the day’s events. Giddens put into context how Actum’s inaugural conference – Private Equity Value Creation in a Recession – was as timely as it was relevant, taking place in the wake of the collapse of Silicon Valley Bank, yet another round of rail strikes and amid further disruptive economic forces.
“We’ve got double-digit inflation, rising interest rates, little or no economic growth; all of which have very real human consequences,” she said. “So the topic of today’s event seems incredibly timely: if private equity can no longer rely on cheap debt and a rising economic tide to generate returns, value creation is going to be absolutely critical.”
But amid these short-term pressures, the audience was reminded how it cannot afford to forget about the other transition that is taking place – that of the transition to an economy where we are using our natural resources in a more responsible way, and more people can fulfil their potential. Opening Remarks
“At Bridges we focus exclusively on investing in this more sustainable and inclusive economy – not just because it’s a moral responsibility for our sector, but also because it’s a generational investment opportunity,” Giddens explained. “Whatever the short-term noise, this new economy is as inevitable as it is essential. The path to net zero; the shift to more diverse and inclusive workforces […] These are inexorable long-term trends that prudent investors cannot afford to ignore.”
This transition, Giddens noted, becomes just as relevant to the day’s discussion on value creation. It can help to identify pockets of growth in a stagnant economy because businesses that address pressing societal needs will always have a growth opportunity. It can help to attract and retain talent, which is likely to be a key differentiator in the coming years, because the best people increasingly want to work for companies that have a good story to tell on sustainability, inclusivity and impact. And it can help to embed a data-driven culture that will drive faster, more agile decision-making in uncertain times, she said concluding how “ESG and impact initiatives need to be a crucial part of private equity’s value creation playbook over this next cycle”
The topic of today’s event seems incredibly timely: if private equity can no longer rely on cheap debt and a rising economic tide to generate returns, value creation is going to be absolutely critical
and Global Private Equity
Growth Practice Head,
Managing Director and
Head of Europe, Private
Equity Growth Practice,
B2B Value Creation in Recession
Value creation in portfolio companies has become increasingly important in recent years as companies have had to shift from primarily relying on financial engineering to drive target returns. Value creation initiatives are now key levers and considerations in maximising multiple expansions and valuations. Teneo’s David Reid and Ben Gregory suggested recent market conditions, however, have stymied traditional approaches to value creation and a new framework for growth is needed to create value.
Private Equity investors are facing a more complex market from deal origination to exit, as capital becomes more expensive and valuation multiples fall due to the current macroeconomic trends. Facing these headwinds, the Teneo team noted two key trends for operators to align on:
1. Profitability is being increasingly emphasised, with the correlation between profitable growth and valuation multiples now reaching 2x that of pure growth. Reacting to this, investors are placing increasing importance on margins, as
market conditions increasingly demand ‘safe homes’ for capital.
2. Market contractions and recession concerns have extended typical hold periods above five years as investors look to postpone sales until they can achieve target exit multiples and IRR.
The largest opportunities to improve valuations sit in strategic growth focused initiatives not just tactical cost cutting exercises.
Given these trends, value creation initiatives are an increasingly important tool for investors and management teams to use to maximise returns.
For portfolio companies, data collected from 1,100 companies by Teneo suggests that demand is weakening, with software spends forecast to come under increased pressure in 2023 and over half of reporting companies expecting to reduce spend. Analysis shows that the impact of this will be felt unequally across industries and geographies; buyers exposed to consumer spending or interest rates (e.g., Fintech, Real Estate) will feel the contraction most acutely vs more recession-proof industries (e.g., Law, Manufacturing).
Survey results indicate that contractions will be seen by vendors in three key ways:
1. Elongation of sales cycles outside of long-term averages, with some respondents indicating lengthening of 30%+ for enterprise deals.
2. A trend towards vendor consolidation as approximately 70% of buyers in the market indicate they are looking to consolidate vendors. This may represent an opportunity for platform solutions to capture market share from point solutions.
3. Increased competition for deals with over 50% of buyers indicating that they will evaluate a broader set of solutions during procurement.
This may mean lower cost vendors could have success pursuing a displacement strategy in the coming months.
Teneo’s dataset suggests that management teams seeing top quartile NRR% have taken proactive value creation action, launching approximately 1.5 more initiatives in the past 12 months than lagging companies. The most successful companies in this space have moved beyond value extraction initiatives (e.g., price increases on existing customers) and are focusing on true value creation activities.
Teneo’s perspective is that the largest opportunities to improve valuations sit in strategic growth-focused initiatives not just tactical cost cutting exercises. Changes to the way businesses approach portfolio strategy, packaging of products, salesforce prioritisation and support as well as operating models, are all likely to push businesses to achieve superior returns.
Former Shadow Chancellor of the Exchequer,
Shadow Home Secretary,
Chancellor of the Duchy of Lancaster,
Senior Advisor, Teneo
SIR OLIVER LETWIN
Financial Stability & Macroeconomic Review
Sir Oliver Letwin kickstarted the first keynote with a stark history lesson on how today’s geopolitical and economic landscape offers unnerving parallels with that which preceded World War I.
While the leap between private equity investment and global catastrophe may appear tenuous, Letwin explained how technological investment and advancements made during WW1 and now are alarmingly similar to today’s global tech race.
In the way that WW1 became a catalyst for telecommunications innovation, the twentieth century swiftly shifted towards an arms race and space race between the US and Russia. Each of these periods of technological advancement centred upon the world’s two largest global powers at the time gaining or maintaining global supremacy. Letwin noted how today’s tech revolution that is being largely contested between the US and China – or more generally, the West and East – is strikingly comparable with those during wartime or when the threat of war has been at its highest. And with the Doomsday Clock closer than ever to midnight – 90 seconds away at present – there is no escaping the value of technology, and therefore the investment needed to come out on top.
Between 1914 – 1917, The Eastern Telegraph Company, which would later become Cable & Wireless, helped the Allied forces’ war effort through its increasingly progressive communications innovations and profited enormously, while also playing a major role in securing victory. Today’s tech innovators are likely to have equally as large a role to play in achieving global peace or surviving warfare, as the world inches closer towards a midnight apocalypse.
So, in a period when extraordinarily low interest rates have abruptly ended, taking with it the investment model of arbitraging leverage, where do investors find security and enjoy growth at the same time?
For Letwin, the answer is simple – invest in tech development. Be it AI firms, big data, cloud computing and storage, genomics or the holy grail of fusion technology, here is where investment returns and growth will most likely be found, he said. Not only do these sectors lend themselves towards having huge potential for profit, but they are also more inclined to receive government support, such is their significance for nations locked in global economic rivalry.
In a period when extraordinarily low interest rates have abruptly ended, taking with it the investment model of arbitraging leverage, where do investors find security and enjoy growth at the same time?
HEIN MARAIS (MODERATOR)
Global Head of Value
Creation and UK
Transactions Leader, PwC
Senior Managing Director,
Intermediate Capital Group
Transact to Transform, Value Creation in Market Turmoil
Against a backdrop of social and financial instability, private equity investors are having to navigate their way through today’s macro chaos to create value in an environment that may appear to offer more in the way of impediment than improvement.
Technology and talent were two key levers discussed during the day’s opening panel highlighted as cursors for growth. And the combination of both is imperative in today’s tech-driven and talent-squeezed market, CVC Partner, Stefano Gastaut, said. “Talent is often key to much of our value creation. In today’s environment where technological advancement and application underpins much of a business’ transformation and development, the demand to hire young digital talent is huge, but difficult. Those that hire well will succeed.”
Yet issues surrounding talent stretches beyond that of simply recruiting tech geniuses, Pauline Spire, BC Partners Managing Director, suggested. Spire claimed that investment is needed across all elements of the workforce, while balancing this with investment in tech and automation.
Creating value in testing times is a challenge and one that PwC’s most recent CEO survey highlighted. Forty percent of the business.
Despite being clear and obvious catalysts
for growth, value can be found beyond
leaders PwC questioned thought their company was not sustainable in the long term, panel moderator Hein Marais, Global Head of Value Creation at PwC told the auditorium. While sustaining a business is one thing, building value is one step further, and one that Blackstone Senior Managing Director, Robin Goodman, was keen to stress by claiming there must be a concerted effort to ensure companies are resilient in today’s volatile conditions and uncertain times and not solely focused on growth.
Heeding similar concerns of applying a value creation-only model to portfolio companies, ICG Managing Director, Esther Nayyar, noted that while the benefits of transformation and value creation are clear, investors must be mindful of how these may impede and distract from the general day-to-day operations and performance of a business.
The panel agreed that among the most common and necessary focus points within any business today, regardless of size or sector, is that of cyber-security and cyber-resilience. All of CVC’s portfolio companies are cyber assessed, Gastaut said, adding how it applies as much of a focus on how to react to a cyber-attack as much as trying to prevent one. Such is the prevalence of cyber-attacks these days, Spire described how cyber-security used to be a discussion among BC Partners’ PortCo CTOs. But this is now an active discussion for all company CEOs such is its relevance and importance today, she added.
Rarely does a company grow blindly; and the significance of data cannot be under-estimated, the panel agreed. Blackstone, for example, has its own data science team that generates appropriate sector and macro analysis that revolves around its investments, Goodman said. “We work hard to embed this data into our PortCo’s alongside ensuring the companies themselves can generate and build their own data models so as to drive growth through their own analytics.”
Despite being clear and obvious catalysts for growth, value can be found beyond technology levers. This is especially so in today’s tumultuous market.
Pricing power in today’s economy is difficult and protecting margins can become a sensitive topic, Spire said. Supply chain issues; rising costs of raw materials; spiralling inflation; and keeping pace with paying employees reasonable market rates during a cost-of-living crisis must all be balanced alongside an acute awareness of how much of this increased cost for the company can be passed down to the customer.
So, while creating value continues as a mainstay of an investor’s philosophy, today’s market lends itself to sustaining growth as much as it does increasing it.
The Sustainability Advantage: Creating Long-Term Value Across Economic Cycles
Denise Odaro used the second keynote of the day to emphasise the growing importance of ESG factors to value creation in the private equity industry.
In Odaro’s opinion, there are two factors that impact every aspect of the human condition – time and decision making. To address the growing climate crisis, it is essential to consider these two factors together because the decisions and actions taken today will dictate the future state of the world at large and the businesses within it.
So, how do we manage the issue of climate and how does private equity create value in these circumstances? Odaro’s answer is sustainability, meaning finding the correct balance between today and tomorrow. In the long term, sustainability creates value for businesses because it prepares them for the transition to a low-carbon economy.
Odaro also believes that value comes from innovation, particularly in the face of economic headwinds, and that long-term value means resilience.
“Private markets offer a tremendous opportunity for change given the scope, scale and reach of private capital,” Odaro explained. In practice, this means screening portfolio companies for ESG risk from the beginning and striving to make them sustainability leaders through strategies tailored to their individual needs.
With the importance of ESG to creating sustainable and resilient companies in mind, the audience was left with three key questions to consider: Where do we come from, what are we, and where are we going? For Odaro, the private equity industry is the bridge to where we are all going.
Private markets offer a tremendous opportunity for change given the
scope, scale and reach of private capital.
RICHARD SMALL (MODERATOR)
Managing Director, Head
of Portfolio Value Creation,
Director General, British
Private Equity and Venture
Lead Research Economist
LP Valuations and the Link to Value Levers
For the Limited Partner community, value creation must work alongside a reasonable and measured risk position, panellists told moderator Richard Small, Partner at law firm Addleshaw Goddard.
In order for value creation and risk to co-exist as stablemates, the process of assessing where growth may be garnered in an investment must be thoroughly undertaken before entering into a transaction. To this end, Managing Director, Head of Portfolio Value Creation, CPP Investments, James Bryce, stressed that value creation is not a post-acquisition event, but that growth levers must be considered in advance of a transaction to best prepare, and therefore achieve the growth intended. And for this, the use of data has become an essential part of the investment community’s toolkit, the panel agreed.
The vast reams of data that can be generated on both a macro and micro scale is crucial in identifying where these growth opportunities may lie within an individual company, the wider sector or in relation to global trends and sentiment.
While pre-investment diligence has become part of a common approach exercised by private equity firms when considering the growth potential of a new portfolio company,
Value creation must look beyond its
ownership period. Value must be passed
onto future owners.
there are instances, such as today’s volatile and disrupted market, whereby some best-laid plans may be jeopardised. During such periods, an investor must be nimble in its approach to balancing value creation, growth and stability.
Today, pricing and procurement and costs are aspects of a business that have come under constant pressure and increased scrutiny. They have developed as a consequence of global supply chain disruption, rising raw material costs and a cost-of-living crisis and have led in some instances to LPs recalibrating their portfolio mix, Michael Moore, Director General, British Private Equity and Venture Capital Association said.
Bryce added that because of mounting cost pressures, businesses and business owners must assess whether they are operating in the most efficient way and strongly consider whether many or any of these costs should be passed onto customers.
The importance of ESG and how this fits within a value creation or growth strategy was another discussion point the panellists deliberated.
Lead Research Economist at EBRD, Cagatay Bircan reminded us of a business’ fiducial duty to return shareholders a profit, posing the question of what should be done if certain ESG projects and initiatives do not fit with this ideal. The panel agreed that climate change, for example, cannot be ignored and that by not addressing this facet of ESG, companies run the risk of falling foul of regulations. Furthermore,
consumer conscience and habits can equally dictate change within a business to this regard. If a company is considered to not tackle green issues within its business model, the court of public opinion may well influence how successful such an enterprise continues to be.
With this in mind, in the way that value creation is not a post-acquisition event, many value creation levers are not applied solely for the duration and immediate benefit of the incumbent investor, Bryce said.
“Value creation must look beyond its ownership period. Value must be passed onto future owners,” he said using the example of a go-karting company to stress his point. The business in question independently decided to replace its existing carbon-spluttering go-kart engines with greener electric alternatives. Regulation did not force this but the move was considered something that would not only intrinsically improve the company and its green credentials, but also increase the value of the business upon any future sale.
Whether ESG expenditure is considered extraneous or essential, sustainability is an increasingly key value creation lever, the panel concluded.
Conservative Party, First Secretary
of State, Foreign Secretary and
Leader of the House of Commons,
Senior Advisor, Teneo
If a nation or a company can be on top of this surge of change, then they will be in a very good position for the future.
LORD WILLIAM HAGUE OF RICHMOND
Political and Regulatory Landscape Review
Lord William Hague delivered a speech centred on the end of geopolitical normalcy and the key trends that will impact the world over the coming decades. In Hague’s opinion, it is important for businesses and investors to both prepare for and react to these trends if they hope to remain resilient to changing economic headwinds and to excel in a changing world.
There are three major fault lines in world geopolitics, Hague said. The first of these lies in Eastern Europe, stretching from Finland to Georgia and encompassing the growing struggle between Russia and the West. In Hague’s view, there is no political prospect for an end to the war in Ukraine, and the conflict is unlikely to reach a conclusion in the near future unless either side experiences an unexpected collapse. Ongoing fighting could importantly increase the likelihood of eventual Chinese support for Russia, leading to further economic sanctions by the West and growing disruptions to global business and trade.
Another major fault line is in the South China Sea, separating China and Taiwan. Because of the high risk that it would pose to the Chinese government, Hague does not believe that a Chinese invasion of Taiwan is likely in the next few years. However, such an operation is possible in eight–10 years depending on the strength of ongoing Western deterrence.
The final fault line is in the Persian Gulf – between Saudi Arabia and Iran – and represents growing regional power rivalries in the Middle East.
With these fault lines in mind, Hague outlined 10 trends that will shape the globe, and consequential business decisions, in the coming years.
1. Structurally higher inflation as a result of supply chain disruptions, decoupling from China, higher defence spending, and the high cost of energy transition. “It will be very difficult for central banks to return to their desired inflation rates without higher interest rates for longer than they are expecting,” Hague said.
2. The reordering of world energy supplies, particularly in the emergence of coordinated energy strategies in the West.
3. The emergence of critical mineral strategies in Western countries in the form of joint partnerships with mineral-rich nations and support for the refining of strategically important minerals. In a future conflict with China, a loss of minerals access in the West could be incredibly detrimental, meaning states need to ensure they will have access to critical materials in the face of geopolitical headwinds. “Sweden recently had a big find of minerals in the Arctic Circle, and everyone across Europe is very excited,” Hague explained, “They wouldn’t even have heard about it only a few years ago.”
4. Higher worldwide defence expenditure, particularly in Japan and Germany, triggering a revival for defence industries.
5. The growing importance of ESG for politicians and governments and its link to a strong national defence. “ESG will be a major new regulatory issue for many firms over the next couple of years, opening up issues such as climate litigation and greenwashing,” Hague said
6. The decline of global governance and international agreements on issues other than climate.
7. The rise of new networks of cooperation in the world such as the AUKUS alliance between Australia, the UK, and the US and the deepening relationship between Russia, Iran, and China. These networks will become increasingly important to energy, security, technology, and business in the coming years.
8. Continued decoupling between the West and China in areas such as semiconductors, critical minerals, and pharmaceuticals.
9. Governments are now thinking more than before about risk and resilience.
10. The increasing speed of innovation. “We are entering the fastest period of innovation in the history of human civilisation, and the state sponsorship of innovation is accelerated by these other trends,” Hague said. Areas including artificial intelligence and quantum technologies will be the focus of not only commercial, but also geopolitical competition. And governments will be prepared to dedicate large amounts of resources in order to establish an advantage.
In Hague’s view, businesses must be prepared to react to and seize upon these global trends if they are to succeed. “If a nation or a company can be on top of this surge of change, then they will be in a very good position for the future.” Similarly, it is businesses in the private sector that are often making a difference in today’s geopolitical conflicts. For example, in Ukraine “it’s Microsoft who will take all Ukrainian services to the cloud, it’s Palantir creating a digital model of the battlefield, and it’s Elon Musk and Starlink turning on satellites over the country,” Hague said. And while many of these may have received government backing, it is the private sector and entrepreneurs that have developed and continue to generate innovation.
TIM NIXON (MODERATOR)
Senior Managing Director,
Head of Consulting –
US & UK, Teneo
Managing Director, Co-Head
of Technology Financial and
Director at Advent
in Value Creation Strategies
In a technology-led world, it may be assumed that each and every successful business is one that is driven by the best, the newest or the fastest software, automation and IT. And for certain sectors, this is true. There are other sectors, such as that of traditional services businesses that are adopting technology and changing how the industry operates in a tech-led environment.
The emergence and proliferation of tech-enabled service companies has provided private equity houses with a new breed of businesses in which to invest. It has also opened the door for investors and business leaders to transform their companies from traditional service providers, such as law firms or transportation companies, into tech-enabled enterprises. This set the scene for the day’s third panel discussion, led by Teneo’s Senior Managing Director, Tim Nixon.
But distinguishing the difference between a services company that uses technology and a tech-enabled services company can sometimes become muddied. As such, the panel agreed it is key to understand the definition of a tech-enabled business before exploring how an investor’s value creation strategy can work within them.
There are two main routes a traditional services company can follow to transition into a tech-enabled service: buy or build.
Douglas Hallstrom of Advent International suggested a tech-enabled service is one where the fundamental value proposition of the service is performed by technology or code and starts to replace more and more parts of the business through this coding.
With this in mind, the advantages of a tech-enabled business over that of a traditional service provider is often very clear, even when its definition may not be.
Permira Operating Partner, Riccardo Basile, said that for a private equity house investing in tech-enabled businesses, it is as much about the sector in which it sits than the technology it has. “The best investments we make are those where the company is in the very early stages of tech enablement and we help them through that process,” he said. “A good example is that of a business Permira sold last year – Tricor – which we invested very early in its development and turned from a traditional accounting, payroll and tax advisory service provider into a fully tech-enabled business offering the same business proposition, yet doing so more efficiently through the technology Permira helped introduce to the business.”
Asked by panel moderator, Tim Nixon, what the minimum requirements a business needs to make a compelling investment case in and around the services sector, Luca Bassi, Managing Director of Bain Capital noted that when lines of code allow an individual to perform services much quicker and efficiently, it allows the company to shift from lower gross
margins to higher gross margins; you shift from higher fixed costs to lower fixed costs and begin to see higher levels of scalability and greater margins.
So, if higher margins are a fundamental target of tech-enabled companies, how does this translate into a business’ valuation?
While Hallstrom said there may not be a standard multiple that can be placed upon the valuation of a tech-enabled services company versus that of a services company, the addition of increased tech and automation naturally increases the efficiency, quality and volume of work that can be conducted by a company. This in itself is what boosts a company’s margins and therefore its overall valuation.
There are two main routes a traditional services company can follow to transition into a tech-enabled service: buy or build.
Hallstrom pointed towards the financial services sector as one that over decades has invested huge amounts of money in building its own software and IT in-house, much of which has proved unsuccessful. “I think a non-software business attempting to build technology solutions internally has proven to be the wrong approach,” Hallstrom said. “One thing we encourage most of our portfolio companies to do is leverage as much third party packaged software solutions as possible. People that run services companies do not appreciate what it takes to run a truly software-based business, and vice-versa.”
Value Creation Through Tech
In a world now more reliant on technology than ever, the infrastructure that enables homes to receive superfast broadband or that allows businesses to house vast capacities of data storage is crucial.
Given the essential nature of technology infrastructure, equity investment is inescapable regardless of market conditions, Co-Founder and Managing Director of Infracapital, Ed Clarke said.
As a post-COVID society becomes accustomed to working from a home that houses increasingly more internet-enabled and internet-of-things devices, cable and wireless connectivity requires far greater broadband than traditional copper networks can provide. Consequently, a wave of investment is being pumped into full fibre broadband in an effort to provide gigabit fibre-to-the-premises (FTTP) technology.
A global roll-out of fibre networks needs vast amounts of capex, which Clarke said incumbent providers have been reluctant to finance. This has opened the door for an emerging altnet market.
Altnets build their own independent telecommunications networks as an alternative to the larger incumbent networks and have become an attractive investment proposition, Clarke explained.
The number of UK altnets hovers around 100, according to fixed and mobile network testing and analysis company Ookla.
One such altnet is that of Infracapital-owned Gigaclear, which builds and operates exclusively rural FTTP networks in 22 counties in the South West, the Midlands and the South East of England. Gigaclear’s network is developed through commercial investment and the government-subsidised Broadband Delivery UK programme.
The UK government has allowed the market to itself roll out FTTP and its intrinsic and accompanying infrastructure. The emergence of so many altnets additionally provides a huge opportunity for consolidation to take place across this emerging sector, Clarke said.
The UK government is targeting 85% gigabit-capable coverage by 2025, and nationwide fixed broadband speeds of 1 Gbps or better by 2030. To help achieve this, the government created the UK Gigabit Programme, investing £5bn, of which at least £1.2bn will be available by 2025 to provide connectivity for areas difficult to reach. Furthermore, with upcoming changes to regulation that will allow pension funds to invest into venture capital to back high-growth tech startups, even more funding could be poured into the sector.
Given the essential nature of technology
infrastructure, equity investment is inescapable regardless of market conditions.
ANDROS PAYNE (MODERATOR)
Managing Partner and
NED, Clancy Group,
Holyhead Boatyard, SVM UK
Emerging Fund plc
Independent Director, NED
and NED-plus, The London
Chair, The Whittan Group,
Reconomy Group, Stelrad
Lessons Learnt From
Previous Economic Cycles
The final panel of the day, led by Andros Payne, Managing Partner and Founder, Humatica, convened to discuss some of the lessons learnt from previous economic cycles that can help firms navigate rough economic waters.
While there is still uncertainty around what a future recession might look like, the panel predicted that we will likely need to learn how to deal with a longer period of low growth and structurally higher inflation. Private equity firms can no longer expect the markets to help them, and they will need to do the heavy lifting to create value in the face of an economic downturn.
Ian Gray, NED at The Clancy Group, Holyhead Boatyard and SVM UK Emerging Fund plc, noted that firms need to ensure that they have sufficient capacity to weather an economic storm, and that portfolio companies need to be stress tested. “You need to ask yourself what it would take to break a company, and then why that won’t happen,” Gray said.
In order to practically deal with these headwinds, firms need to back themselves to drive the best operational performance, consistently be on a war footing, and build a team that can deal with every area in which value can be lost or won.
If your company is okay, that is the opportunity to take advantage of the ones that aren’t okay.
The panel then turned to the issue of cost reduction and how to improve the efficiency of businesses in a downturn without impairing their ability to execute. Often, costs are driven into a business by complexity, so determining exactly what a business is, what it is doing, and reducing complexity accordingly is essential to removing costs. Additionally, focusing on margin is an important element to success, and time should be spent determining what drives margin on certain products, customers, and locations. “It isn’t just about how we can reduce costs, it’s also how we can improve margin,” Bob Ellis, Chair at The Whittan Group, Reconomy Group, Stelrad Group plc said. “Think about your margins in basis points.”
How to execute these cost reductions successfully is another crucial question, and the most important element is having a suitable leader. “The first thing you need is somebody at the helm who has a vision and believes in it. Once you have that in place you can take the appropriate steps,” Donald Muir, NED, Travelex, said. When a business is experiencing hard times, it must first determine where it is and where it wants to go. Only then can the team pull in a unified direction and drive confidence among its stakeholders. “The capacity to bear the burden, maintain a strong outlook, and not get distracted is essential for a leader,” Tristan Nagler, Partner, AURELIUS, explained.
The panel concluded with a final question: what advice would each panellist have for fund managers and deal teams when they find themselves facing a challenging business environment. A resounding theme emerged on the importance of preserving a portfolio company’s cash. “You need be sure that you understand your portfolio companies’ cash and that you are very clear on what it is, how it is forecast to move, and what the drivers are,” Alan Gullan, Independent Director, NED and NED-plus at The London Restructuring Network, explained. Similarly, the calibre of a business’ management team is essential, and particularly their willingness to accept help when needed. Finally, it is important not to let a crisis go to waste, and firms should keep their eyes up and take advantage of opportunities to gain market share, attract talent, and weaken competitors. “If your company is okay, that is the opportunity to take advantage of the ones that aren’t okay,” Ellis said
Global Head of Market Data, Natixis
Credit Rubric, BC Partners, Barclays
General Partner, Lakestar
Founder and ex-CEO, finnCap Cavenish PLC
Chairman, Trustpilot, The Goat, Ventatus, SohoNet, SalesManago and Resi
Editor, Actum Group
KATHLEEN VAN AERDEN
Head of Research, Actum Group
VALUE CREATION DEAL
OF THE YEAR
This award is divided into four main categories and is judged on investments realised in 2022. These are deals that have created the most value measured by the percentage increase in EBITDA between acquisition and exit, coupled with value creation metrics delivered.
• Large: The Large Deal category covers deal values more than £500m.
• Upper-Mid: The Upper-Mid Deal category includes deal values in the range of £100m to £500m.
• Lower-Mid: The Lower-Mid Deal category covers deal values in the £20m to £100m range.
• Growth: The Growth category looks at deals with values up to £20m.
VALUE CREATION ESG AWARD
The Value Creation ESG Award covers the Environmental, Social and Governance impacts a sponsor has made upon a company.
Judges consider Environmental initiatives that have been introduced to a business such as making a company carbon neutral, reducing the use of travel across the company and making workspaces greener.
The Social element of this award is judged on how proactive a sponsor encourages diversity and inclusion across a company’s workforce and management. Additionally, it looks at the work a company does for its community and charitable initiatives it may champion.
Governance initiatives take into account how a sponsor has ‘professionalised’ a company by installing best practise procedures, creating relevant reporting lines or establishing a Board and ensuring
the company meets all of its sector-specific regulatory requirements.
GROUP PORTFOLIO COLLABORATION
Judges look for examples of sponsors that use high levels of knowledge-sharing and cross-pollination of ideas throughout its various portfolio companies. This could include annual or quarterly events attended by CEOs and centralised online portals where management teams can make contact with investment managers and fellow management teams for advice
VALUE CREATION INNOVATION AWARD
Judges award this to a private equity house that has introduced novel ways of growing a company or applied new or revolutionary value creation strategies and levers that have led to material improvements to a particular business or sector. Judges also take into account innovative R&D within companies that has resulted in new, cuttingedge product development or launches that have made a significant impact and impression on its specific sector.
BEST USE OF TECHNOLOGY IN VALUE CREATION
In this category, judges explore how private equity firms have deployed technology to identify, develop or execute value creation levers. This could include the use of data or software in ways that had not previously been considered or applied by the portfolio company.
VALUE CREATION INITIATIVE OF THE YEAR
In this category, judges look for a standout initiative implemented in the last 24 months that has had a material impact on the operations of a business. This could include, among other things, complementary or
transformative bolt-on acquisition; new product launches; new pricing models; digital enhancements or implementation; or internationalising a company. The award covers initiatives made in the last two years to allow them to demonstrate value.
VALUE CREATION TEAM OF THE YEAR
In this category, the judges look for a case study that demonstrates a high degree of collaboration and teamwork between sponsor, executive management, and third-party consultant to successfully deliver a specific value creation goal over the last 12 months.
VALUE CREATION ADVISORY FIRM OF THE YEAR
This advisory firm award is separated into categories that cover Revenue & Growth; People and organisational strategy; Digital transformation; Operational Process Improvements; and ESG.
Submissions made by advisors in each category demonstrate the achievements that have been made during value creation projects for private equity backed businesses and the success they have since earned for the company.