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As competition intensifies for private equity to show meaningful and differentiated value creation in portfolio companies, operating teams are increasingly leveraging AI and advanced data analytics in their portfolio improvement strategies. Carlyle, Vista Equity, EQT, and Accel-KKR are all using AI in their operating teams. (Read More)
Chart of the Week: A new survey conducted by Value Add found that nearly two in three private equity firms are actively helping portfolio companies integrate AI capabilities in their business operations as of April 2023. The survey found that the largest PE firms (i.e. mega-funds) were 2x more likely to be using AI in portfolio operations than middle-market firms.
Apollo Global Management has agreed to take Arconic Corp private in a $5.2B deal. The company manufactures industrial parts for the aerospace, automotive, building, and energy industries. Its core business is turning aluminum into turbine blades and other industrial parts. Arconic spun-off from Alcoa, the world’s 8th largest producer of aluminum in 2016. Apollo said it will make strategic investments in Arconic that include upgrades to machining technology and cleaner manufacturing. (Source)
Warburg Pincus and Advent International are in advanced talks to acquire BioPharma Solutions from Baxter International for approximately $4B. BioPharma Solutions provides contract manufacturing to the pharmaceutical and biotech industries. The company reported $644M in sales last year, down -4% Y/Y (+2% FX-adjusted). Baxter International is reportedly still taking other offers for the business unit, and Reuters reports Warburg and Advent are still seeking lenders to back their offer. (Source)
TPG Inc is in talks to acquire alternative asset manager Angelo Gordon, which specializes in real estate credit, at a $2.2B valuation. TPG has approximately $135B in assets ($20B in real estate) versus Angelo Gordon which has about $53 billion in assets, the majority of which is in real estate. TPG CEO Jon Winkelreid said on an earnings call last year that the firm was looking to “add a broader credit strategy,” which is likely what’s driving the Angelo Gordon deal. With interest rates rising and the regional banking sector unsteady, following the collapse of First Republic, private credit has turned into a very appealing asset class for investors. In last week’s newsletter, we spoke about how credit was the big topic at the Milken Global Conference. (Source)
Advent International closed its $6.4B take-private deal to acquire Maxar Technologies, a satellite imaging and manufacturing company. There were reportedly no competing bids to Advent’s offer, which was originally announced in December 2022. Maxar CEO Daniel Jablonsky says taking the company private will allow it to innovate faster in the competitive space satellite industry. Maxar is the result of several spin-offs and mergers between US and Canadian companies in 2017 to create a large American space satellite company. Restructuring operations and registering as an American company has helped Maxar win several large US government contracts in recent years, including a $3.2B contract from the National Reconnaissance Office and a $192M contract from the National Geospatial Intelligence Agency. (Source)
Alan Patricof, founder of Apex Partners and VC firm Greycroft, believes AI is the most-disruptive technology of our lifetime. "I have been in the VC business since 1970 — just at the major start of the chip revolution with Intel; then the biotech revolution with the discovery of gene splicing by Genentech in 1976; then the PC revolution in 1977 with Apple et al; then cellular in 1982; then the internet in 1980's; then cloud in the 90's. AI and Chat GPT is a bigger and more profound revolution than all of these in my opinion." (Axios)
SEC Chairman Gary Gensler says his agency is a few months away from imposing a rule that would force more transparency on management fees charged by private equity and hedge funds. Gensler says they might enforce quarterly disclosures for all funds that charge management fees that include information such as how fees were used, expenses, and fund performance. He also said the SEC may restrict funds from charging certain types of fees. (Private Equity News)
More signs that private credit markets are heating up … A Goldman Sachs survey found that 30% of firms are looking to increase private credit investments and that family offices have shifted to a “risk-on” strategy (Bloomberg). Meanwhile, $88B pension fund New Jersey Division of Investment is eyeing private credit opportunities. The fund’s portfolio manager Jessie Choi, said “banks are sitting on the sidelines” providing unique opportunities for lenders who can come to the table (Top1000 Funds).
Buyout activity is still very slow in Europe, especially deals between PE sponsors. We’re on track to see just $74B in PE-to-PE deals in Europe this year vs $190B in 2021. Bain’s global chair of private equity Hugh McArthur comments, “it’s a very tough time to exit anything and sponsor-to-sponsor deals are the most acutely impacted.” Some of the slowdown could also be attributed to heightened scrutiny around sponsor-to-sponsor exits, a strategy Vincent Mortier of asset manager Amundi called a “Ponzi scheme.” Warren Buffet has also been an outspoken critic of sponsor-to-sponsor deals, saying they lead to “dishonest” exits. (Financial Times)
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