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Bain remains patient for private equity TMT recovery

Bain Capital Private Equity’s flagship fund didn’t close any technology media or telecom deals during the second quarter of 2023 – but it wasn’t for lack of trying, said Max de Groen, a partner with the private equity giant. 

The PE firm’s experience offers a glimpse into a trend across North America, where sponsor buyouts fell 83% in 2Q23 from the same quarter a year ago, to the lowest level since late 2011, Mergermarket data shows.  

In whole sectors of technology – like infrastructure, software and internet – not a single deal in the size range targeted by major private equity firms, like Bain, came to fruition during the period, according to de Groen, who specializes in TMT. 

“There was significant interest in potential transactions from a number of private equity firms like ourselves, but it was harder to cross a trade given seller value expectations and leverage market conditions,” he told this news service in an interview last week.

Macroeconomic uncertainty kept many sellers out of the market, entirely, while those who did engage found a disconnect between bidders and targets in private-to-private transactions.

“There were actually a number of processes that we participated in where there were serious discussions and parties like us did significant work, but in the end, we weren’t able to come to an agreed-upon value with those private sellers,” de Groen said.

A sudden rebound in technology stocks during the first half of the year also factored in, making “the take-private path less interesting,” he said.

Financing remains very expensive, whether via growth loans that are based on annual recurring revenue, or more traditional debt, he explained. 

Signs have begun to emerge suggesting that private equity’s dry powder might find more opportunities toward the back half of the year. 

Financing markets are showing a bit of strength and there is an increase in private sellers preparing to launch processes, many signaling an openness to a wider range of values, de Groen said.

As worst-case scenarios for the economy fade, “venture capital and private equity owners who have been holding assets for a period of time start feeling some pressure from their limited partners to go sell,” he said.  

Congestion in leveraged buyout syndication markets – another headwind that has dogged private equity since the first half of 2022 – has improved over even a few months ago but remains a challenge.

“Generally, the limited partners who invested significantly, feel like they’re pretty full up,” de Groen said.

Bain is carefully exploring LBOs alongside entities capable of writing sizable checks.

“With our strategic partners, the investors we work most closely with, there is demand for co-invest, but you have to be selective and have a clear thesis and approach around an asset that is compelling,” he said.

A bifurcation of the market has emerged, as some sponsors and other investors overextended their funds at inflated prices during 2021 and 2022 and have now been forced to pull back and retrench.

Bain was judicious in 2021, and now seeks to capitalize, de Groen said.

“There’s a subset of the investment world who, like us, were active but maybe less active and didn’t deploy as much of their fund, who now see more potential value in this environment versus 12 to 24 months ago,” he said.