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Asset valuations key concern in survey; listed PE firm stocks slide in H1

S&P Global Market Intelligence offers our top picks of global private equity news stories and more published throughout the week.

Have private equity fund managers come to terms with the sell-off in the public markets in the first half of 2022 and with what that means for the valuations of their portfolio companies? That question is weighing on the minds of investors, according to a Preqin report.

“So far, our view is that managers have done comparatively little to mark positions down to reflect market conditions,” write the authors of Preqin’s report on the outlook for alternative assets in the second half of this year.

A survey of institutional investors Preqin conducted in June suggests they agree. Asked to list challenges for private equity over the next 12 months, those investors most frequently cited the exit environment and asset valuations.

While it is possible values will rebound, Preqin predicts in its report that lower valuation multiples are more likely over the long term.

Analyst Brian McKenna of JMP Securities said questions around private equity portfolio company valuations arise “a fair amount,” particularly during periods of market volatility. But McKenna said he has “always felt comfortable” that the private equity firms he covers are diligent in updating their marks.

“Most of these companies, especially the largest guys, they have a real in-depth, really detailed process that they go through at quarter-end and how they value their companies,” McKenna said.

Softening valuations have discouraged private equity from taking portfolio companies public this year and contributed to a sharp slowdown in exit activity compared to 2021. Entries also hit a 12-month low in July.

There are pockets where private equity dealmaking appears relatively resilient, including the cybersecurity space. For the fragmented identity and access management segment of cybersecurity, private equity firms are taking the opportunity to combine vendors and create competitive players as market forces drive consolidation in the subsector.

Read more about private equity M&A activity in the identity and access management subsector of the cybersecurity industry.

CHART OF THE WEEK: Listed PE firm stocks pummeled in H1

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⮞ The S&P 500 index shed 20% of its value in the first six months of 2022, but it still outperformed the four largest publicly listed alternative asset managers.

The dismal total return performance of Apollo Global Management Inc., Blackstone Inc., The Carlyle Group Inc. and KKR & Co. Inc. in the six months ended June 30 reflects the uncertain macroeconomic environment, which dramatically slowed private equity exit activity a significant input into the firms’ bottom-line earnings.

It is not all bad news for the private equity giants, which collectively held more than $416 billion in dry powder at the end of the second quarter and can put that uncommitted capital to work acquiring new portfolio companies at discounted valuations.

FUNDRAISING AND DEALS

* KKR, along with GCM Grosvenor, provided significant structured investment to Arevia Power LLC. The renewable energy developer will use the proceeds to develop a multi-gigawatt portfolio of early-stage solar and wind projects in the U.S.

* Thoma Bravo LP made a takeover offer of A$2.10 per share for Nearmap Ltd., which was unanimously recommended by the Australian aerial imagery and geospatial mapping company’s board.

* Bain Capital LP is in pole position to buy the microscope unit of Japan-based Olympus Corp. for about $2.2 billion, Reuters reported, citing three people with direct knowledge of the matter. Carlyle and KKR also made binding bids for the business, sources told the news outlet.

* KKR and EQT AB (publ) emerged as short-listed bidders to acquire Global Switch Holdings Ltd., Bloomberg News reported, citing people familiar with the matter. Gaw Capital Partners, PAG and Stonepeak Partners LP will also participate in the next bidding round for the London-based data center company.

ELSEWHERE IN THE INDUSTRY

* New State Capital Partners LLC closed the purchase of business continuity solutions provider AFIMAC Global Inc.

* Kinderhook Industries LLC agreed to buy Gulf Tanks Holdings Inc. from WillScot Mobile Mini Holdings Corp. for about $323 million. The target company provides logistics-based environmental solutions for industrial waste containment.

* BV Investment Partners LP divested RobbinsKersten Direct Inc., or RKD Group, a provider of omnichannel fundraising and marketing services to the nonprofit sector.

* An Aurora Capital Partners affiliate closed a tender offer to purchase all issued and outstanding common shares of waste management solutions provider Sharps Compliance Corp.

FOCUS ON: HEALTHCARE

* Pharos Capital Group LLC sold its stake in TechLab Inc., a rapid and noninvasive diagnostic test manufacturer, to SSI Diagnostica A/S, which is backed by Adelis Equity Partners AB.

* Arsenal Capital Partners invested in Innovative Products & Equipment Inc. The target company will be merged with Eckhart, an existing portfolio company of Arsenal, to create an automation services provider catering to the medical-device, life sciences and other high-growth end markets.

* Audax Private Equity sold WellSpring Pharmaceutical Corp., or WellSpring Consumer Healthcare, to Avista Capital.

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