PAI Partners completes $7.6bn close

BY Richard Summerfield

French private equity (PE) firm PAI Partners has closed its latest flagship fund, PAI Partners VIII, with $7.6bn, surpassing its fundraising target despite challenging fundraising conditions for buyout groups in light of rising interest rates.

According to a statement announcing the close, fund VIII is about 40 percent larger than its predecessor fund, PAI Europe VII, which closed at €5.1bn in 2018. The fund is expected to be invested in companies in Europe and North America.

“This successful final close for PAI Partners VIII, at a size 40 percent larger than its predecessor in a challenging environment, reaffirms the confidence investors have in PAI’s Real Economy strategy and our ability to perform consistently through the cycle,” said Richard Howell, a managing partner at PAI. “We are grateful for the strong support from both existing and the many new investors that joined the Fund, who share our vision for creating value in traditional industries. We are excited about the investments we have made thus far and look forward to identifying further opportunities that align with our strategy.

The latest fund received “strong support” from leading public and private pension funds, sovereign wealth funds, financial institutions and family offices. PAI Partners, which has about €26bn of assets under management, attracted investment into the fund from groups including the Teacher Retirement System of Texas, Austin, the Washington State Investment Board, Olympia and the Illinois State Universities Retirement System. In total, the fund benefitted from a re-up rate of about 90 percent and more than €2bn of capital sourced from new investors. Fund VIII has already deployed approximately 35 percent of its total capital with seven investments to date, including ECG/Vacanceselect, NovaTaste, the Looping Group, ECF Group, Azets Group, Infra Group and Alphia, Inc.

PAI invests behind thematics within traditional industry sectors that are at the heart of economic activity and that are underpinned by solid fundamentals and sustainable growth horizons. The firm also has a track record of investing in the food and beverage sector. In 2016, the firm helped create ice cream company Froneri, after a merger between Nestle’s European ice cream business and PAI Partners-owned R&R. PAI currently also holds a minority stake in beverage contract manufacturer Refresco Group B.V., after buying the business with British Columbia Investment Management Corporation in 2017.

News: PAI Partners closes new $7.6 billion fund, surpassing target

European PE and VC weak but optimistic, reveals new reports

BY Fraser Tennant

Amid high inflation and interest rates, slowing economic growth, constricted financing markets and uncertain geopolitical conditions, private equity (PE) and venture capital (VC) activity across Europe weakened in the first half of 2023, according to a new report by Invest Europe.

In its ‘Investing in Europe: Private Equity Activity H1 2023’ report, the association reveals that PE and VC capital funds invested €32bn in the first half of 2023, 54 percent lower than 2022’s strong figures and in line with levels last seen in 2016.

Moreover, a total of 3524 companies received backing in the first half, a more moderate 26 percent decline from last year, reflecting smaller average investment sizes across buyouts, growth and VC. Fundraising also weakened from last year’s record level to €33bn. A total of 370 funds raised capital from investors, 15 percent below the average of the last five years. However, VC fundraising was relatively robust and in line with levels recorded in early 2020.

However, while this activity data provides insight into the impact of challenging market conditions on PE and VC in the first half of 2023, a second report released this week, ‘The Insight: State Of The European Private Equity Industry’, in association with global management consultancy Arthur D. Little, gives a more optimistic view of industry expectations over the short and medium term.

“Conditions are as challenging as they have been at any point since the financial crisis,” said Eric de Montgolfier, chief executive of Invest Europe. “Nonetheless, the industry is resilient and adaptable.

“Fund managers are clearly supporting companies through volatile markets while making preparations for the future, not only in terms of increased activity, but also in sustainability,” he continued. “This incldes greener funds for long-term investors, as well as new vehicles that can bring the benefit of PE and VC returns to a wider group of individuals.”

Reports: Investing in Europe: Private Equity Activity H1 2023 / The Insight: State Of The European Private Equity Industry 

WeWork files for Chapter 11

By Fraser Tennant

In a major collapse for an organisation once valued at $47bn, office-sharing company WeWork Inc. has filed for Chapter 11 bankruptcy in order to strengthen its balance sheet and streamline its real estate footprint.

The Chapter 11 process allows WeWork to implement a restructuring support agreement (RSA) with holders representing approximately 92 percent of its secured notes to drastically reduce the company’s existing funded debt and expedite the restructuring process.

The filing, which is limited to WeWork’s locations in the US and Canada, lists the company’s total debts as $18.65bn against total assets of $15.06bn. As part of the filing, the company has requested the ability to reject the leases of certain locations, which are largely non-operational, and all affected members have received advanced notice.

“Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet,” said David Tolley, chief executive of WeWork. “We defined a new category of working, and these steps will enable us to remain the global leader in flexible work.”

During the RSA process, the company has pledged to further rationalise its commercial office lease portfolio while focusing on business continuity and delivering best-in-class services to its members. Global operations are expected to continue as normal.

“I am deeply grateful for the support of our financial stakeholders as we work together to strengthen our capital structure and expedite this process through the RSA,” continued Mr Tolley. “We remain committed to investing in our products, services, and world-class team of employees to support our community.”

Founded in 2010, WeWork’s vision was to create environments where people and companies come together and do their best work. Since then, the company became the leading global flexible space provider committed to delivering technology-driven turnkey solutions, flexible spaces and community experiences.

“It is the WeWork community that makes us successful,” concluded Mr Tolley. “Our more than half-million members around the world turn to us for the best-in-class spaces, hospitality and technology that our 2500 dedicated employees and valued partners provide. WeWork has a strong foundation, a dynamic business and a bright future.”

News: SoftBank's WeWork, once most valuable US startup, succumbs to bankruptcy

Private equity searching for value in a changing market

BY Richard Summerfield

Despite a challenging year marked by rising interest rates and slower growth, successful private equity firms (PE) are adapting to the changing environment, according to Dechert LLP and Mergermarket’s sixth annual Global Private Equity Outlook report.

According to the report, which is based on responses from senior executives within PE firms in North America, EMEA and APAC, 26 percent of respondents, the largest share, believe that interest rates will have the single biggest impact on the deal environment over the coming 12 months.

Also, in response to the US regional bank crisis of earlier this year, 35 percent of respondents intend to move more toward private credit providers. This shift has been visible across all parts of the world.

Ninety-two percent of general partners (GPs) say they are currently utilising earn-outs a strategy to manage the valuation gap that emerged last year in response to macro and market conditions.

Fifty-eight percent of respondents believe that the market conditions for exits will be either neutral or somewhat favourable over the coming year, suggesting GPs are confident in a recovery but remain realistic about the challenges ahead. However, this is a significant fall from 84 percent of respondents who shared that view a year ago.

Ninety-four percent of respondents are likely to consider pursuing take-privates at present, a marked difference from last year when less than 50 percent said they were likely to do so. Increased regulatory scrutiny is expected to have a negative impact on dealmaking over the next 12 months, however. Forty-six percent of respondents reported that they expect antitrust authorities to have a negative impact and 25 percent expect a significant negative impact on their dealmaking plans over the next 12 months.

“Despite a decline in fundraising and dealmaking coupled with debt becoming costlier and scarcer, private equity marches forward,” said Markus P. Bolsinger, co-head of Dechert’s global private equity practice. “The shift towards take-private transactions is an example of how they are not just surviving but thriving in the face of market volatility, finding value in public markets where others see uncertainty.

“Given the additional regulatory complexity and public scrutiny of these deals, active engagement of skilled professional advisers from the very start is a necessity, particularly in the US, where stockholder-plaintiffs have recently secured significant damages awards in the Delaware courts against acquirors in take-privates,” he added.

Going forward, the report suggests that GPs should build portfolio resilience, that parties on both sides of transactions need to think creatively to ensure success, that firms capitalise upon public markets and that GPs should use environmental, social and governance (ESG) as a lever to create value through new revenue, reduced costs, improved access to finance and higher employee engagement and productivity.

Report: 2024 Global Private Equity Outlook

Companies face AI, deepfakes and other threats as cyber security continues to evolve

BY Richard Summerfield

As artificial intelligence (AI), deepfakes and other threats continue to evolve it is imperative that companies upgrade their cyber security systems as soon as possible, according to OnePoll and Gemserve’s new report: ‘Through the Cyber Lens: The Evolving Future of Cyber Security’.

The study surveyed 200 chief information security officers (CISOs) across the UK and Europe, assessing the readiness of CISOs to confront the evolving challenges in the cyber security space, particularly those derived from the burgeoning influence of AI, while also exploring their expectations for the future.

According to the report, CISOs are increasingly concerned about the use of deepfake AI technologies in cyber attacks. Eighty-three percent of respondents noted that generative AI will play a more significant role in future cyber attacks, with 38 percent expecting a significant increase and 45 percent anticipating a moderate rise in attacks utilising these technologies over the next five years. However, despite the imminent nature of the threat, only 16 percent of respondents believe their organisation has an excellent understanding of these advanced AI tools, and thus are likely unprepared.

“As the AI revolution transforms the landscape of cybersecurity, CISOs stand at the forefront of this change,” said Mandeep Thandi, director of cyber and privacy at Gemserv. “AI is reshaping the contours of cyber defence by augmenting human capabilities, predicting threats, and fortifying organisations against the volatile cyber threat landscape.”

Many CISOs also noted that they do not have the resources to face up to the many challenges they encounter. Around a third of respondents believe they lack the budget required to do their jobs most effectively, while a similar proportion are finding it difficult to recruit and retain staff with the right skills and experience.

A much higher percentage of respondents (92 percent) believe they have robust and tested incident management policies and procedures in place, but there are significant technology and knowledge gaps that should give cause for concern. Only 31 percent of respondents believe they have both security information and event management (SIEM) tooling and cyber threat intelligence, even though the majority of respondents (78 percent) expect the cyber threat landscape to become more complex and challenging over the next 12 months.

Going forward, CISOs will be hoping they are provided with the resources they need to help them navigate the challenging and uncertain future and reduce the efficacy of cyber attacks.

Report: Through the Cyber Lens: The Evolving Future of Cyber Security