Financial investors unfazed by exogenous shocks
If any proof was needed, it has now been provided. In the world of private equity managers, even historically drastic jumps in interest rates, energy crises, and fearful corporate buyers shrink to mere management tasks after a short time. Sooner or later, every exogenous shock bounces off the world of financial magicians. Deals are now being done again, and exits even from sometimes highly valued company investments are succeeding. Admittedly, these are not yet the double-digit billion amounts that were almost routinely reported in 2021. But things are looking up.
Software AG, for example, has just sold two of its core divisions to the US IT group IBM for 2.1 billion euros. The technology investor Silver Lake, which owns almost all of Software AG, is thus recouping nearly all of its investment just one year after investing in the company. Silver Lake and PC entrepreneur Michael Dell had already made 70 billion dollars for investors in the cloud company VMware through the 92 billion dollar sale to Broadcom.
Better positioned to recognise undervaluations
At the same time as the Software AG deal, the French private equity firm Eurazeo is now selling the Dutch eye surgery specialist Dorc to Carl Zeiss Meditec AG, adding another facet to its medical technology portfolio. Here, too, Eurazeo, which only acquired a majority stake in Dorc in 2019, has achieved a generous sale price of 2.6 times the amount invested.
After the downturn of the past two years, it is by no means a matter of course to exit from investments in companies that were highly valued during the zero-interest boom. 2023 was undoubtedly a difficult year for financial investors: According to S&P Global, the volume of global private equity deals in the first nine months of 2023 fell by 44% to USD 365 bn. compared to the same period in the previous year. The number of transactions involving financial investors fell by 36% to 13,000.
The new billion-dollar exits show: Even in times of high interest rates, private equity firms are able to make a lot of money with their company investments. They are also better positioned than the stock markets to recognise undervaluations in medium-sized companies and exploit them by delisting. Sometimes, the increase in value is even very rapid.
