Side Letter: PE’s take-private party; VC’s shared equity shake-up – updated

Buyout shops continue to get mammoth deals over the line. Plus: employees are getting a bigger share of equity; and agribusiness shop Manna Tree has closed below target. Here’s today's brief, for our valued subscribers only.

Just happened

PE: taking a larger slice of equity (Source: Getty)

With a little help from PE’s friends
A flurry of take-privates this week suggests PE’s mega-deal market isn’t completely frozen over. On Monday, Silver Lake and CPP Investments announced a $12.5 billion takeover of software business Qualtrics. Blackstone, meanwhile, has this week agreed a $4.6 billion take-private of event and hospitality company Cvent. Apollo Global Management, for its part, has agreed an $8.1 billion takeover of speciality chemicals company Univar. Besides both being public-to-privates, the latter two deals involve co-investments from a subsidiary of Abu Dhabi Investment Authority.

It is worth noting that Silver Lake’s Qualtrics deal is fully financed by equity from Silver Lake and co-investors, $1.75 billion in equity from CPP Investments, and $1 billion in debt. The fact the deal includes so much equity is likely a sign of the times: tighter financing markets saw total debt multiples retreat to 3.7x in the third quarter of 2022, down from 3.9x in H1, according to EisnerAmper. The average equity commitment on platform deals, meanwhile, increased by 2.5 percentage points to 57 percent, versus 54.5 percent for all of 2021.

Though buyout firms deployed a record $195.1 billion to complete 47 US take-privates last year – per PitchBook – global buyout volume dropped 35 percent to $654 billion in 2022 as banks slowed lending to large transactions, according to Bain & Co. The debt-LBO syndication market has been pretty much closed since March 2022 for anything north of $500 million, one private capital head at a European bank told Side Letter late last year. Whether that remains the case this year is unclear, with Apollo’s deal reportedly including a substantial chunk of debt.

If these recent transactions are anything to go by, mega-deals in 2023 aren’t completely off the cards. They are, however, likely to remain largely the preserve of those with the support of very hefty co-investors and the capacity to deploy substantial equity.

While we’re on the subject…
Company founders are also becoming more generous with their equity. That’s according to a survey of 1,200 employees, executives and founders of early-stage companies across the US, Germany, France and the UK from equity management platform Ledgy. The survey showed that 64 percent of founders are set to increase their equity plans in the coming year. What’s more, three times the number of founders say they’re spending “a lot of time” on employee equity when fundraising, compared with last year.

Results differed between markets: in Germany, 29 percent of companies plan to make their equity plans less generous in 2023, more than double that of neighbouring France. In the US, 60 percent of companies used tax-optimised equity schemes in 2022, more than anywhere in Europe. These results took place in a tougher environment for early-stage companies, with only 43 percent of founders securing external investment in 2022, down from 51 percent in 2021, per the survey. In a market plagued by uncertainty, it seems founders are doing everything they can to retain and satisfy their employees.

This trend has extended into PE. In October, Private Equity International conducted a deep dive into the nascent shared equity model. This followed KKR’s barnstorming exit from garage door manufacturer CHI Overhead Doors last year, which generated an average cash reward of $175,000 for every CHI employee. KKR’s pioneering work in this space contributed to the formation of Ownership Works, a non-profit with a mission to increase prosperity by sharing ownership with all workers. The movement has won support from some of PE’s biggest LPs, including California Public Employees’ Retirement System and Washington State Investment Board.


Meet in the middle
BPEA EQT has held a $400 million first close on its debut mid-market fund, according to AVCJ. Baring Private Equity Asia EQT Mid-Market Growth Fund struck its first deal in the fourth quarter of 2022, co-investing in Malaysia software provider Viewpoint alongside CPP Investments, per the latter’s latest quarterly report.

BPEA EQT’s appetite for a mid-market strategy was first reported by Private Equity International in September. “As our fund size has increased, there is this kind of white space that we’ve left behind, which is the mid-cap space where we’ve historically been very successful in operating, where we continue to see dealflow,” BPEA EQT head Jean Salata said at the time.

Smaller appetites?
Manna Tree Partners, the agribusiness firm co-founded by Ellie Rubenstein, daughter of Carlyle’s David Rubenstein, has closed its latest fund below target, our colleagues at New Private Markets report (registration required). Its second food-focused fund collected $390 million against a $450 million target after an 18-month fundraising period that ended in November 2022. The final close figure includes $90 million of co-investment capital. According to co-founder Ross Iverson, the firm chose not to continue fundraising in 2023 “based on market conditions”.

Manna Tree’s debut fund closed on $141.5 million in 2020, just north of its $140 million target. Existing portfolio companies include Gotham Greens, Nutriati and the New Primal. Back in 2020, Manna Tree scored an exit with the IPO of food company Vital Farms.

Make no mistake: Manna Tree won’t be the only fund to compromise on its target in this challenging fundraising environment. Even the most established firms, such as TPG, have indicated that meeting targets is by no means guaranteed in 2023.

Dig deeper

Institution: Connecticut Retirement Plans and Trust Funds
Headquarters: Hartford, US
AUM: $46.1 billion
Allocation to alternatives: 11.6%

Connecticut Retirement Plans and Trust Funds confirmed a $175 million commitment to Vistria’s latest buyout fund, a source at the pension told Private Equity International.

The fund, Vistria Fund V, will invest into companies in North America across the financial services and healthcare sectors. The pension has invested consistently into Vistria-managed funds, committing $50 million to Vistria Fund III and $150 million to Vistria Fund IV.

Connecticut has an 11.6 percent allocation to private equity, which was valued at $5.4 billion as of December 2022. As illustrated below, the $46.1 billion US pension’s recent private equity commitments have primarily focused on North American vehicles seeking buyout-styled returns.

For more information on Connecticut Retirement Plans and Trust Funds, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Alex Lynn with Helen de Beer, Katrina Lau and Carmela Mendoza

– This article was updated on 23 March to reflect the fact that Manna Tree Partners scored an exit with the IPO of Vital Farms, not Beyond Meat.