EQT ponders alternative liquidity options amid exit slowdown

The firm is 'looking into' partial sales and continuation vehicles to generate more value among portfolio companies until the exit market is more robust, CEO Christian Sinding says on EQT's Q1 earnings call.

EQT is exploring alternate means of generating liquidity for investors amid a slower environment for exits.

The firm completed just one exit in the first quarter and only 10 in the 12 months to 31 March, according to its first-quarter earnings statement. This is compared with 29 exits over the year to 31 March 2022.

“I think that this year the exit market is going to be a little bit lumpy,” said Christian Sinding, CEO and managing partner of EQT Group, on a Thursday earnings call.

“I would expect that we’re able to execute on some exits, but if we can create more value in the companies and for our clients by keeping the business a little bit longer and going out into a more robust market, we’d rather do that… of course, given that there’s less cashflow coming to our clients, we would like to create monetisation opportunities. There are also other ones like partial sales, continuation vehicles and other elements that we’re looking into and we’ll see how the year turns out.”

The firm’s latest signed exits include Chinese tech firm Vbill and a partial sell-down in Indian tech company Coforge – both of which came from the recently acquired BPEA EQT unit in Asia-Pacific. These exits amounted to €1 billion, down from €2 billion for the equivalent period in 2022.

Speaking to Private Equity International after the earnings call, chief financial officer Kim Henriksson said the IPO window – which has become a more relevant exit route for EQT as the firm scales its funds – is now “basically closed for large transactions”. Listings have historically accounted for about 17 percent of EQT’s private equity exits, he noted.

EQT has “for some time” considered using continuation funds, he said, noting that it has not completed such a transaction to date.

“I would also say that performance and returns matters very much to us, but of course, also to our clients, and therefore selling very good assets in an environment that is shaky is not something that attracts us and we are not being put under pressure by our clients to do that something,” Henriksson added.

“I guess that if you take the market as a whole… there has been less distribution in the recent past and there are drawdowns coming from the industry and that can prove to be a challenge for the LPs. Taken as a whole, we are not being put under pressure to sell assets in order to distribute capital because I guess we did a lot of exits in ’21, which was good, and I think that is acknowledged by our client base.”

As of February, EQT was exploring a continuation fund deal to further grow its portfolio company Waystar, affiliate title Buyouts reported. EQT acquired a majority stake in Waystar in 2019 alongside CPPIB from Bain Capital in a deal that valued Waystar at $2.7 billion. EQT invested from its Fund VIII, which closed on €10.8 billion in 2018.

Neither Henriksson nor Sinding made reference to any active or ongoing continuation fund process.

EQT’s total assets under management hit €216 billion as of 31 March. Its latest buyout strategy, EQT X, had collected €17.2 billion as of March against a target of €20 billion and is expected to close during the summer. The firm said three funds were performing above plan in the first quarter, including flagship vehicles EQT VII and EQT VIII.

EQT completed more than 10 deals totalling €5 billion across all asset classes in the first quarter, up from €3 billion in the first quarter of last year. EQT X completed a public takeover offer for va-Q-tech, a Germany-based supply-chain solutions for pharmaceuticals, while EQT Growth announced two investments – IntegrityNext and GotPhoto.

Gustav Segerberg, head of business development, reaffirmed the firm’s plan to launch semi-liquid funds in the coming months, noting that investor education will be crucial. As PEI reported this year, semi-liquid vehicles could appeal to individual investors given their ability to meet redemption requirements more regularly than traditional closed-ended funds.

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