Time to clean house

Happy Friday. Here’s what we’ve got today…

• A look at private equity’s growing need to exit its investments

• The deal sheet, plus accessible sell-side equity research

When the Federal Reserve kicked off its rate hikes, markets took a dive, and private equity was forced to reckon with the denominator effect: limited partners’ total portfolios had lost more value relative to their illiquid private equity holdings, so their percentage allocation to private equity jumped above their pre-determined targets.

In such a scenario, new commitments become more challenging to obtain for firms actively fundraising. If the asset class is broadly overallocated, there are fewer new dollars to go around.

The recent market rebound has largely alleviated that particular concern, but private markets dynamics have opened up another potential sticking point for firms and their investors.

Heading into 2024, there’s a chance that the so-called numerator effect comes into play. In such a scenario, private equity’s total value in the portfolio rises relatively more than an investor’s other holdings (like public equities, fixed income, etc.).

The end result is the same — limited partners become over-allocated to private equity and are forced to reign in new commitments.

Why Is This a Problem Now?

The reason this is a concern isn’t because private equity-backed companies have seen runaway valuation growth relative to everything else. Rather, firms have had a difficult time securing favorable exits for their existing portfolio companies. That’s led to longer fund lifecycles and a lack of distributions back to their LPs.

Data compiled by Bloomberg show that private equity firms’ asset sales as a percentage of their new investments dropped below 40 percent for each of the last three years. That hasn’t happened since 2009.

With firms loathe to mark down their existing holdings, largely stable asset values combine with both new investments and the lack of distributions to push private equity’s allocation above the level that LPs want.

It’s quickly becoming a problem for firms hoping to raise their next fund. And, even if they don’t run up against the issue of overallocated LPs, those LPs will still be hesitant to re-up their commitment without having first seen meaningful cash returned from previous funds.

Market Dynamics

The past year has been a story of valuation mismatch, with sellers’ price expectations stuck at elevated levels and buyers unable to make the returns math work (for those prices) at current interest rates.

So far, sellers have generally opted to hold out for better days, kicking the can down the road in hopes of a future exit in an improved market. Alternatives like continuation funds or GP-led secondaries have also become more popular.

At some point, however, investors will have to face reality and pick up the pace of portfolio exits. That time might be coming soon — activity has ramped up early in the year as firms prepare to test the market with new first-half processes.

• Bain Capital and Parthenon Capital are considering a sale or IPO for Zelis, a healthcare technology company, at a rumored $15 billion valuation.

• Sycamore Partners is preparing to bid for Macy's, which recently rejected a $5.8 billion offer from Arkhouse Management and Brigade Capital Management.

• EnCap Investments is preparing to sell Grayson Mill Energy, a Texas-based oil and gas exploration and production company, in a deal that could be worth around $5 billion.

• Roper Technologies (NYSE: ROP) acquired Procare, a provider of cloud-based software and services for the childcare industry, from Warburg Pincus for $1.86 billion.

• Carlyle is preparing to sell HSO, a provider of integrated communication and collaboration solutions, for a rumored $1 billion, per Bloomberg.

• Hillhouse and Vitruvian Partners are bidding for Everlife, a healthcare services company owned by Everstone Capital, which could fetch around $1 billion.

• Tellurian, a natural gas developer, has hired Lazard to explore a potential sale of the $384 million market cap company.

• Madison Dearborn Partners is in talks to acquire Equals Group, a London-based fintech specializing in foreign exchange and payment services.

• BlackRock's (NYSE: BLK) Climate Infrastructure Fund has invested $500 million in Recurrent Energy, the solar project development unit of Canadian Solar (Nasdaq: CSIQ).

• Apollo Global Management acquired a €300 million stake in Applus Services, a Spanish provider of testing, inspection, and certification services.

• Carlyle agreed to acquire a $415 million student loan portfolio from Monogram, and made an undisclosed investment in the company.

• Aria Growth Partners acquired a minority stake in Ultra Violette, an Australian sunscreen and skincare brand.

• Vendis Capital invested in Skins Cosmetics, a Dutch retailer of luxury skincare and beauty products.

• Andre Agassi, David Kass, and Raine Ventures acquired a controlling stake in DUPR, a pickleball community platform.

• GS Foods Group, backed by Highview Capital and A&M Capital Partners, acquired Diamond Foods, a specialty food distributor.

• Suave Brands, a Yellow Wood Partners portfolio company, has agreed to acquire Chap Stick from Haleon for $510 million.

• WaterRowe has acquired CityRow, a provider of indoor rowing studios and classes.

• Fantuan, backed by Vision Plus Capital and Celtic House Asia Partners, has acquired the delivery business of Chowbus.

• Minute Media, a digital media and technology company, acquired STN Video, a digital video distribution platform, for $150 million.

• Vertex Commodities has agreed to acquire the operations of Pullman Sugar, a sugar producer and refiner.

• Arlington Capital Partners merged portfolio companies Pegasus Steel, Metal Trades, and Merrill Technologies Group to form Keel Holdings, a manufacturing and industrial services platform.

• Cyprium Partners has acquired a stake in OneroRx, a provider of pharmacy services and medical supplies to rural patients.

• LMC Landscape Partners, backed by Trivest Partners, acquired Cutters Edge, a provider of landscape management services.

• Peloton Equity and Fort Maitland Capital completed an investment in OnPoint Healthcare Partners, a healthcare management services company.

• Webster Bank acquired Ametros, a Boston-based healthcare management firm, from Long Ridge Equity Partners.

• FNZ has acquired International Fund Services & Asset Management, a provider of fund administration and asset management services.

• LDC sold its stake in Kerv Group, a technology-focused e-commerce and digital services company, to Bridgepoint.

• Cerebras Systems, a developer of AI-specific hardware, is considering a 2024 IPO, per Bloomberg. Existing backers include Coatue, Benchmark, Altimeter, Abu Dhabi Growth Fund, Eclipse Ventures, and Falcon Edge.

Tech, Vertical SaaS, & Misc. Enterprise

• Sierra, a startup developing AI systems for enterprises, raised $85 million in a new round of funding led by Sequoia Capital.

• Krutrim, a developer of India-focused large language models, raised $50 million at a $1 billion valuation. The round was led by Matrix Partners India.

• Bastille Networks, a supplier of wireless threat intelligence and security services, raised $44 million in Series C funding. Goldman Sachs led, with participation from Bessemer Venture Partners.

• Kittl, developer of a collaborative graphic design management platform, raised $36.4 million in Series B funding. IVP led, with participation from returning backers Speedinvest and Left Lane Capital.

• Anomalo, a provider of data quality monitoring software, raised $33 million in Series B funding led by SignalFire, with participation from Databricks Ventures and existing investors Norwest Venture Partners, Two Sigma Ventures, and Foundation Capital.

• Spellbook, a AI legaltech company, raised $20 million in Series A funding. Inovia Capital led, with participation from Thomson Reuters Ventures, The Legaltech Fund, Bling Capital, Moxxie Ventures, Concrete Ventures, Path Ventures, N49P, and Good News Ventures.

• Better Stack, a developer of observability software, raised $10 million in a round led by KAYA.

• Digs, a developer of a collaborative platform for homebuilders and homeowners, raised $7 million in new funding led by Oregon Venture Fund and Legacy Capital Ventures.

Fintech

• Axiom, a developer of a data access protocol for Ethereum users, raised $20 million in Series A funding. Standard Crypto and Paradigm led, with participation from Robot Ventures and Ethereal Ventures.

• Ceezer, a carbon finance software provider, raised $11.2 million in Series A funding led by HV Capital, with participation from Norrsken VC, Picus Capital, and Carbon Removal Partners.

• Marstone, a digital investment and wealth planning firm, raised $8 million in Series B funding. Mendon Venture Partners and South Rose Capital co-led, with participation from the Castle Creek Launchpad Fund and Equity Bank.

• Sequence, developer of a personal financial management app, raised $5.5 million in seed funding led by Aleph.

• Axyon, an Italian developer of AI-driven investment management tools, raised €3.9 million led by Montage Ventures and Techshop SGR, with participation from CDP Venture Capital, ING Ventures, and UniCredit.

• Bankflip, a data validation platform for financial services, raised €2.6 million in funding from JME Ventures, Draper B1, Demium, Enzo Ventures, and Notion Capital.

Consumer & Media

• Chunk Foods, a developer of plant-based whole cuts, raised $7.5 million in extended seed funding led by Cheyenne Ventures.

• Stan, an e-sports management platform, raised $2.7 million in pre-Series A funding from Aptos Labs, Pix Capital, Maelstrom Fund, GFR Fund, and General Catalyst.

Healthcare & Life Sciences

• Infinite Roots, a German biotech focused on mycelium-based products, raised $58 million in Series B funding. Dr. Hans Riegel Holding led, with participation from the European Innovation Council, REWE Group, Betagro Ventures, and existing investors Clay Capital, FoodLabs, Redalpine, Simon Capital, and Happiness Capital.

• Elo Life Systems, a Durham-based gene editing food technology platform, raised $20.5 in Series A2 funding led by DCVC Bio and Novo Holdings, with participation from Hanwha Next Generation Opportunity Fund, AccelR8, and Alexandria Venture Investments.

• IMU Biosciences, a London-based immune-oncology biotech, raised £11.5 million in Series A funding led by Molten Ventures.

• CardioSignal, a provider of a digital framework for detecting various heart diseases using smartphone motion data, raised $10 million in Series A funding. DigiTx Partners led, with participation from Sandwater and Maki.vc.

• Isaac Health, a virtual brain health and memory clinic, raised $5.7 million in seed funding. Meridian Street Capital and B Capital co-led, with participation from Primetime Partners, Co-Found Partners, VU Venture Partners, and AirAngels.

• Heal Security, a healthcare–focused cybersecurity intelligence platform, raised $4.6 million in new funding from Health2047.

• Naq, a provider of automated healthcare compliance and supply chain security services, raised €3 million led by No Such Ventures, with participation from existing backers.

Industrials, Greentech, & Other

• Sion Power, a manufacturer of lithium battery technology, raised $75 million in Series A funding. LG Energy Solutions led, with participation from Euclidean Capital and Hillspire.

• CheckSammy, a circular waste management service provider, raised $45 million from I Squared Capital and Zero Infinity Partners, with a revolving credit facility from TriplePoint Capital.

• Packmatic, a digital packaging marketplace and procurement platform, raised €15 million in Series A funding led by EQT Ventures, with participation from HV Capital and xDeck.

• Metris Energy, a commercial solar energy provider, raised £2 million in funding led by Octopus Ventures and Aenu.

• Blackstone is raising $10 billion for a new opportunistic credit fund.

• Arlington Capital Partners raised $3.8 billion for its sixth fund.

• Asterion Industrial Partners is targeting €2 billion for its latest European infrastructure fund.

• Innovation Endeavors raised $630 million for its fifth venture fund.

• Farrer Capital, launched by former Merricks Capital head of commodities Adam Davis, is seeking $500 million for a new agricultural commodities fund.

• InnoVen Capital, backed by Temasek, is raising up to $250 million for its second China-focused venture debt fund.

• Seae Ventures is raising up to $150 million for its second venture fund.

• Streamlined Ventures is raising up to $100 million for its fifth venture fund.

• Cross-Border Impact Ventures raised $90 million for its debut fund.

• LDV Capital raised $31 million for its fourth venture fund.

1. Private equity moves from disruptor to establishment.

• Liz Hoffman looks at what’s next for a maturing private equity industry. — Private equity faces pressures of growing old, Semafor

2. Free sources for sell-side research.

• Clark Square Capital provides a list of equity research options for times when you don’t have easy access. — Accessible sell-side research, Clark Square Capital

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