Partners Group targets smaller businesses as market dislocation catalyses bolt-on spree

Roll-up acquisition activity will continue until there is more stability in the larger end of the market, Partners Group chief executive David Layton said during its interim results call on Tuesday.

Partners Group has become more active at the smaller end of the market amid a greater focus on bolt-on acquisitions for existing and new platforms.

“Market dislocation is a great time to approach smaller businesses and to accelerate acquisition activity,” chief executive David Layton said during a presentation accompanying its interim results on Tuesday. “We are actively building, actively pursuing add-on acquisitions in just about all of our large platform companies right now.”

Layton said the firm has also scaled down its average investment size slightly in recent months. “In fact, a couple of businesses we have invested into were probably below, or at a level, that we would not have entertained in a 2021-type of environment,” he added.

“But we are actively in the process of building out those platforms. So, we are investing a little bit smaller, and we are going to roll up our sleeves and build those businesses. We think they have the potential to be interesting vehicles for us to invest more equity over time through add-on acquisitions and through other means.”

Large transactions are unlikely to become consistent until there is stability in the debt markets, Layton said, noting that this could occur in the latter half of 2022 or next year. “I think we are very hopeful that post-Labour Day we’ll be able to establish a little more supportive debt market than what we’ve seen here over the last couple of weeks,” he added.

Partners Group typically focuses on the mid-cap segment, which includes companies with enterprise values of between $250 million and $2 billion, and its preferred sweet spot is understood to sit at the larger end of that spectrum. So far this year, its acquisitions have ranged from $800 million to $2 billion, a spokeswoman for the firm told Private Equity International.

Recent deals include a minority stake in CVC Capital Partners-owned software platform VelocityEHS, and digital services provider Version1, according to its website. Its largest transaction in the year to date was the sale of a 50 percent stake in utilities services company United States Infrastructure Corporation to an investor group led by Kohlberg & Company. The deal valued USIC at $4.1 billion.

Partners Group deployed $13.4 billion in the private markets from January to June. Market volatility led to the postponement of some exit activities originally planned for H1 as it waits for a more benign market environment, per the earnings statement. Portfolio realisations in the firm’s private markets portfolio stood at $6.4 billion in the first half, compared with $10.5 billion in distributions in H1 2021.

Partners Group had $66 billion of private equity assets as of end-June. The portfolio delivered a negative 5.2 percent return in the first half of 2022 and positive 17.6 percent over a 10-year period.