Tech, business services power through amid Covid-19 rout

The quarter ending on 31 March registered 254 sponsored buyouts in Europe, the lowest volume figure since 2015. Of the 53 deals seen in March – a month otherwise characterised by news of sale processes being postponed or pulled – 28 came from technology and business services.

Admittedly, the overall outlook is not pretty.

With GDP forecasts being slashed across the world and supply chains disrupted, dealmakers may struggle to agree valuations. Moreover, the debt financing market, which has boosted the private equity industry's investment capacity in the last decade, is bound to see lenders dial up their scepticism.

Larger deals that had been scheduled for an early 2020 auction face massive hurdles.

"Any €500m-plus deal will struggle right now," says the head of sponsor coverage at a global advisory firm. "If the 2008 crisis is any reference, we will have to wait for the first brave sponsors to come out to make all-equity transactions and fingers crossed get it refinanced in six months' time."

That said, sellers that had already endured the scrutiny of marketing and site visits are managing to close asset disposals to private equity firms.

In value terms, European sponsored buyouts with disclosed valuations in Q1 amounted to €51.8bn, including KKR's £4.2bn acquisition of Viridor Waste and ThyssenKrupp's sale of its elevator business for €17.2bn to a consortium of Advent, Cinven and RAG-Stiftung.

Resilience
With 14 sponsored buyouts in March, the technology sector is perhaps unsurprisingly the one showing more resilience in these first weeks of the pandemic, especially given the onward drive of digital commerce and remote working.

Drilling down into the sector deals over the past month offers further clues about the types of tech businesses investors seem to be more comfortable with right now.

UK mid-market sponsor LDC made an £11m investment in James and James, a provider of online order fulfilment to e-retailers; while Netherlands-based Exxellence Groep, which provides software solutions for governments to optimise their services, was taken over by Main Capital; and One Equity Partners acquired Germany's MCL, a provider of IT services to workspace, security and cloud services.

The software business auction pipeline has proven to be one of the most resilient in Europe, as seen in Mergermarket's coverage of private equity situations in recent days.

Vitruvian Partners is moving ahead with the sale of Unifaun, a Swedish transport management software company, with first round bids due early in April; while Austrian marketing software firm Emarsys has engaged Morgan Stanley for a sale that has attracted names like Bridgepoint and Montagu.

Even the sale of Deltatre, a media service based in Italy and exposed to the sports and entertainment industry, was reported to be still alive last week, with Ardian and Apax among those interested in the asset, although the process is dogged by financing risk.

Another 14 sponsored buyouts were registered in the business services segment in March, in a sign that investors could be more comfortable deploying money on asset-light companies and businesses that, compared to manufacturers, could be less exposed to supply chain disruptions.

Among these deals were Agilitas's acquisition of Learning Curve Group, a UK training specialist focused on helping learners improve their employability, and Norvestor's buyout of PHM Holding, a property maintenance service in Finland.

Within the sector, a special interest was noted in businesses providing services to the healthcare industry – historically a safe harbour during crises. LBO France acquired Dominique Dutscher, a France-based distributor of R&D laboratory consumables and equipment; Palero Capital bought Germany's Sanimed, which offers mobility solutions to patients at home and in nursing homes; and LDC invested in Ashtons Hospital Pharmacy Services, a UK specialist in medicines management for hospitals.

This is an extract from an article originally published in Unquote sister publication Mergermarket

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