GP consolidation to deepen in difficult fundraising environment – IPEM panel

The high cost of operations, capital constraints and an attraction to specialists are all factors driving M&A activity among PE firms.

As raising capital becomes more challenging in the current environment, big private equity players will likely take advantage and begin snapping up smaller firms, a panel has heard.

“What’s driving this is very large [PE] businesses that are listed… they now operate like a normal [corporation] considering inorganic growth,” said Benoit Vauchy, a partner at Permira, at IPEM 2022 in Cannes on Wednesday.

He added, however, that the “death rate” wouldn’t be as big as some might predict. “Private equity GPs are really [a] tough piece to kill. It takes a long, long time, because you’ve got long visibility of revenues, you’ve got big portfolios.”

Andrea Bonomi, founder and chairman of Investindustrial, noted that about one-fifth of PE houses are seemingly “bumping along” without any real growth.  “They’re just alive. You see them – they have a brand… Even though visibly they are not out of the market, they are trying not to be out of the market.”

Bonomi also noted that mergers and acquisitions in PE houses are not that straightforward, as the businesses lean heavily on people and culture. “It’s very difficult…. M&A in PE houses is a win-or-lose game.”

Some recent examples of PE M&As include EQT’s acquisitions of both Baring Private Equity Asia for €6.8 billion, giving it a “pan-Asia presence at scale”, and European life sciences firm LSP for €450 million. In May, Apollo Global Management said it was committing up to €1 billion of managed capital to Sofinnova Partners investment vehicles, including new products that the firms will look to co-develop, and was buying a minority equity stake in Sofinnova. Also this year, Carlyle Group acquired London-based life sciences investment firm Abingworth.

PE firms have also been aggressive in acquiring secondaries players, with CVC Capital Partners’ acquisition of Glendower Capital and Ares Management’s purchase of Landmark Partners being two examples.

Nick Jansa, head of EMEA at Ontario Teachers’ Pension Plan, also weighed in on the consolidation trend at IPEM, noting that highly specialised firms are attractive targets.

“Whether fundraising or investing, it’s critical for all of us to make sure we can navigate onward,” Jansa said. “I think being a generalist is immensely challenging in these markets.”