Market turmoil hits European VC in Q3, reveals new report

BY Fraser Tennant

European venture capital (VC) dealmaking fell significantly in Q3 amid uncertain macroeconomic conditions and market turmoil across the continent, according to new analysis by Pitchbook.

In its ‘European Venture Report’, Pitchbook reveals that venture dealmaking across Europe dipped in Q3 2022 as market conditions become increasingly challenging, with deal value falling 36.1 percent quarter-over-quarter to €18.4bn – the lowest figure since Q4 2020.

However, against this backdrop, non-traditional investors have remained active in Europe’s start-up scene, with several types of non-traditional investors completing deals through Q3 2022. These include private equity giant Advent International which invested €250m into Spain-based artificial intelligence advertising company Seedtag to fuel expansion into the US.

“Despite markets entering correction territory globally, non-traditional investors have continued to participate in VC rounds,” said Nalin Patel, lead analyst, EMEA private capital at Pitchbook. “However, with overall deal value falling in Q3, and anticipated to flatten further, we believe non-traditional investor involvement will mirror wider market sentiment.”

The Pitchbook report also reveals resilient VC exit activity, with exit count on track for its second-best year ever with 878 year to date (YTD). “Given that we have moved from a macroeconomic environment beneficial to VC exits in 2021 with low interest rates, low inflation, and high valuations to one with increasing interest rates, stagflation, and dropping valuations in 2022, VC exits have remained resilient,” added Mr Patel.

In terms of VC fundraising activity, the market remains healthy, with 145 closes totalling €19.7bn in aggregate – a pace which, should it continue, will see fund count finish below, and capital raised land above, figures from 2021 at the year’s conclusion.

“While pace throughout 2022 YTD kept up with 2021, Q3 has delivered the decline in dealmaking activity many analysts anticipated this year,” concluded Mr Patel. “We believe capital efficiency, rather than growth at all costs for latestage investments, has established greater importance in recent months and expect this to continue until 2023.”

Report: Q3 2022 European Venture Report

Nordic Capital exits The Binding Site in $2.6bn deal

BY Richard Summerfield

European private equity firm Nordic Capital has agreed to sell The Binding Site Group, a global leader in specialty diagnostics, to Thermo Fisher Scientific Inc., in an all-cash transaction valued at $2.6bn.

The transaction, which is expected to be completed in the first half of 2023, is subject to customary closing conditions, including regulatory approvals. Upon completion, The Binding Site will become part of Thermo Fisher’s specialty diagnostics segment and is expected to be accretive to adjusted earnings per share by $0.07 for the first full year of ownership.

The Binding Site, which is headquartered in Birmingham, UK, has more than 1100 employees globally and is an active and influential contributor to the broader scientific community. The company is an established leader in a fast-growing segment in which patient care has shifted toward early diagnosis and monitoring via regular testing. Its business has been growing approximately 10 percent annually and is on track to deliver more than $220m of revenue in 2022.

“This transaction perfectly aligns with our Mission and is an exciting addition to our existing specialty diagnostic offerings,” said Marc N. Casper, chairman, president and chief executive of Thermo Fisher. “With extensive expertise and a large and dedicated installed base in cancer diagnostics, The Binding Site will further enhance our specialty diagnostics portfolio. The Binding Site is extremely well-respected by researchers and clinicians alike for its pioneering diagnosis and monitoring solutions for multiple myeloma. We also know early diagnosis and well-informed treatment decisions for multiple myeloma can make a significant difference in patient outcomes. We are excited by the opportunity to enable further innovation in this area for the benefit of patients and look forward to welcoming The Binding Site team to Thermo Fisher.”

“This announcement marks the beginning of a new and exciting chapter for The Binding Site and is a testament to our team’s singular commitment to improving patient lives through the development and delivery of innovative solutions,” said Stefan Wolf, chief executive of The Binding Site. “The Binding Site has long been at the forefront of medical diagnostics and by joining the world leader in serving science, we will be even better positioned to accelerate scientific discovery and expand our product offering for the benefit of our colleagues, customers and, most importantly, the patients we serve.”

“We are proud to have partnered with The Binding Site,” said Dr Raj Shah, a partner and head of healthcare at Nordic Capital Advisors, and Jonas Agnblad, a partner at Nordic Capital Advisors and a board member of The Binding Site. “Their cutting-edge technology and innovative specialty diagnostic solutions improve millions of patient lives globally. During Nordic Capital’s ownership the company has experienced strong growth and transformation, achieved by a dedicated focus on R&D investment, commercial focus and global expansion. We are grateful to The Binding Site team, for their dedication and for building strong scientific foundations which support the changing needs of patients and clinicians. This transaction marks the culmination of a very successful partnership, a successful outcome for Nordic Capital’s investors and the start of an exciting next phase for The Binding Site.”

Nordic Capital has been the majority owner of The Binding Site since 2011 when it completed the acquisition together with Five Arrows.

News: Thermo Fisher Scientific to Acquire The Binding Site Group

Cyber security: recession proof?

BY Richard Summerfield

Amid ongoing economic and geopolitical challenges, the cyber security sector remains strong, according to a new report from ICON Corporate Finance.

Thus far, the sector is proving recession-proof and remains a growth area, defying current troubling macroeconomic headwinds. As such, the cyber security sector is leading the way for M&A and fundraising activity in 2022, with deal activity for Q1-Q3 up 60 percent compared to 2020 for M&A and up 22 percent for fundraising.

The report notes that going forward, enterprises must recognise that they must continue investing in cyber defences regardless to protect against an increasingly sophisticated threat landscape, and because of significant geopolitical and economic uncertainty. This, in turn, is acting as a catalyst for M&A and fundraising deal activity.

According to ICON, the first three quarters of 2022 saw 353 cyber security M&A deals, with a total value of $125bn. As a result, the sector is on track to surpass pre-coronavirus (COVID-19) levels. With vendor platform consolidation, largely backed by private equity, being a chief driver behind the sustained deal activity.

Fundraising activity also remained in line with long-term trends, with $15.4bn of venture capital money invested in the sector globally across 572 deals in the first three quarters of the year.

“Enterprises recognise that they must continue hardening their security defences to keep above water in the arms race between good and bad,” said Florian Depner, director of ICON Corporate Finance. “Cybersecurity is mission-critical and companies have no choice but to keep investing given the uplift in malicious activity, and state-backed attacks.

“We also anticipate that Private Equity will continue injecting much-needed growth fuel into later-stage scale-up companies; a trend demonstrated by the BlackRock-backed $250m (£221.7m) investment in Swiss-based storage management and personal backup services provider Acronis.

“These factors, combined with Private Equity backing buy-and-build strategies and vendor platform consolidation, and the fact that the three-year cyber security index for public sector stocks rose 61.5%, while NASDAQ rose just 35.5%, makes cybersecurity players undeniably desirable.”

Going forward, ICON predicts that consolidation will continue at pace as trade and PE acquirers are ready to capitalise on market opportunities.

Report: Cybersecurity Sector Update – Q3 2022

FS struggling with compliance-driven tech, claims new report

BY Fraser Tennant

Regulatory compliance is the biggest single factor affecting the adoption of new technologies across the financial services (FS) sector, leaving firms vulnerable to cyber attacks and other risks, according to a new report by CMS.

In its ‘Technology Transformation’ survey of 85 senior counsel and risk managers across the FS sector, CMS found that risk managers remain engaged with digitalisation, citing the top drivers for adoption to be a response to regulatory requirements (40 percent), M&A (38 percent), customer demands (31 percent) and the adoption of transformational new technologies such as artificial intelligence (AI) (31 percent).

“The FS sector is at a crossroads, with traditional firms often having a vast number of legacy systems in place which are particularly difficult to replace or upgrade,” said Alexander von Bossel, a partner at CMS. “With technology becoming increasingly complex, technical failures, vulnerability to cyber attacks and the risk that these systems do not meet customer needs grow proportionally.”

The study also shows that the expected future risks are different to those FS firms face today. The FS sector is currently most concerned with risks related to compliance and regulation (73 percent), IT performance (62 performance) and cyber breaches and data security (51 percent).

The risks that FS firms expect to see in the future, however, include AI (56 percent), smart contracts (53 percent) and cloud migration (53 percent) – new technologies that are generally less well understood.

However, when it comes to addressing these risks, respondents cited internal resistance to change (54 percent), lack of in-house skills or expertise (52 percent) and lack of budgetary sign-off (49 percent) as the primary obstacles to minimising technology-related risks.

“FS firms may have no choice but to face the challenge of upgrading, but in addressing it, they will also reap the wider benefits of new technologies,” added Angela Greenough, a partner at CMS.

Ultimately, CMS finds that FS firms are at a real tipping point, with large incumbents eying smaller firms and FinTechs for their IP and skills to remain competitive, while considering upgrades to legacy systems.

Mr Von Bossel concluded: “Every sector faces emerging threats, but for FS firms, greater risks may lie in inaction rather than action.”

Report: Technology Transformation

Darling Ingredients acquires Gelnex in $1.2bn transaction

BY Fraser Tennant

In a move to boost production of collagen made from grass-fed cattle, US animal food manufacturing company Darling Ingredients Inc. is to acquire Brazilian collagen products maker Gelnex.

Under the terms of the definitive agreement, Darling will acquire all of the shares of Gelnex for approximately $1.2bn in cash.

With 11 state-of-the-art facilities on four continents around the world, Darling is the largest publicly traded company turning edible by-products and food waste into sustainable products, and a leading producer of renewable energy.

The company operates more than 250 plants in 17 countries and repurposes approximately 15 percent of the world's meat industry waste streams into value-added products, such as green energy, renewable diesel, collagen, fertiliser, animal proteins and meals and pet food ingredients.

“Driven by strong growth in demand for collagen products in the global health and nutrition market, we anticipate the collagen peptides market to double in the next five years,” said Randall C. Stuewe, chairman and chief executive of Darling Ingredients. “Gelnex is a well-run business and will be immediately accretive.”

Headquartered in Brazil with five facilities in South America and one in the US, Gelnex has the capacity to produce 46,000 metric tons of collagen products annually, which it exports to more than 60 countries around the world and employs about 1200 employees.

“Collagen is the most abundant protein naturally found in the body, and it plays an increasing role in the health and nutrition market by consumers seeking benefits to their hair, nails, skin, joints, bones and muscles," added Mr Stuewe. “Collagen products can be used in a broad range of applications, including powder blends, capsules, tablets, nutritional bars, drinks, dairy, confectionery and more.”

The transaction is subject to customary regulatory approvals and is anticipated to close in the first quarter of 2023.

Mr Stuewe concluded: “This acquisition will allow Darling to continue to grow its presence in the health and nutrition market and increases our production capacity for grass-fed bovine collagen in South America to help meet the future demand of our collagen customers worldwide.”

News: Darling Ingredients to buy collagen company Gelnex for $1.2 bln