Success means going deeper and thinking differently
Success means going deeper and thinking differently
-
François Jerphagnon Member of the Executive Committee and Head of Expansion
Despite the tough macroeconomic backdrop, the resilient, high-quality businesses that we target have seen no drop in valuation. This reflects a polarization between the best companies and the rest. Those that are lower growth and more cyclical attract few bids, which partly explains the 30% decline in European M&A volumes during 2023. However, prices for bolt-on acquisitions – a key part of our value-creation approach – became about 10% cheaper last year.
Success depends on getting two key risk factors right: the quality of the management team and the company’s growth profile. To assess these properly, we must develop long-term relationships with companies before we invest: for example, we had known the management of Vulcain for five years before they joined the portfolio in late 2023. This allows us to make better judgments about each other and the drivers and opportunities for the business. However, Ardian’s challenge in investing money is the same as in raising it: we must be the best choice.
The best companies shrug off tough times. We spend years getting to know them and bring a full set of value-creation skills to the table.
The answer is identical in both cases: a high-quality and sharply differentiated proposition. To win deals with the teams we want to back, we must show we have comprehensive value-creation skills. Five years ago, human resources were a much lower priority; today talent is scarce, and managements want our help. The same goes for digital transformation where Ardian has a specialist team, and for addressing sustainability risks and opportunities.
Equally, we must be prepared to think differently because sector specialization is no longer enough. To find great opportunities, we are going deeper into sub-sectors and market niches to identify and track companies such as LiftKet, a big provider of chain hoists to the stage and events sector where security and reliability are paramount. This company we acquired last year has the growth, resilience and mission-critical proposition that bring true pricing power.
Once we have acquired these special companies, we help them accelerate their growth. We use less leverage than most others because we always want to invest our companies’ cash flows in growth, especially international build-ups. The quality of our networks means we can source the right acquisitions and increase their international revenues, typically from around one-third to 50% during our ownership period.
How we benefit from investors’ flight to quality
How we benefit from investors’ flight to quality
-
Florian Kluge Chief Operating Officer, Investor Relations and Co-Head of Investor Relations Europe
Last year was the most challenging the private markets industry has faced, yet it was also one of Ardian’s most successful years ever for fundraising. Investors committed in excess of $20 billion to our company, which demonstrates how our diverse product offering allows us to find routes to growth no matter the market environment. During 2023, appetite among LPs for liquidity produced extraordinarily attractive opportunities for our global Secondaries team, which invested $7 billion in high-quality buyout and infrastructure portfolios. The environment also benefited our Co-Investment strategy, while Infrastructure and Private Credit were suited to a period of inflation and rising rates.
Recent turbulence has reinforced a longer-term trend in private markets: a flight to quality among investors that favors large, well-diversified managers such as Ardian. This trend shows up clearly in the average number of Ardian products that each of our investors holds, from three five years ago, to four today. Having successfully navigated the global financial crisis also carries weight with investors when market conditions become more challenging.
Ardian’s scale and diversification equips us to invest successfully through economic cycles. This allows us to deepen our relationships with investors and continue to raise significant sums.
Rising interest rates have produced a major change in the financing costs for private market deals. We have never been an aggressive user of leverage, which benefited our portfolios during the global financial crisis, and coupled with our focus on high-quality, resilient assets, this has enabled us to adapt to the end of ultra-cheap money. For example, we prioritize using leverage on transaction level vs fund level. This is more complex to implement but also, in our view, safer.
The large, diversified platform that we have built gives Ardian the strength to innovate and find additional sources of growth and opportunity. In fundraising, we are quickly developing a large Private Wealth operation, which in 2023 accounted for 23% of the funds we raised, illustrating the immense potential we see in this part of the market. Equally, the strength of our brand and network means we can partner with teams of seasoned industry experts to seed new, thematic investment activities. Following the launch of Hy24, our hydrogen joint venture, in 2021, last year we agreed further partnerships to launch Ardian Semiconductor and our Nature-Based Solutions.
Lastly, we offer state-of-the-art reporting services via our dedicated Trustview reporting platform but also ad-hoc tailor-made reports upon the request of investors. Our reporting is transparent and delivered swiftly. We receive constant praise from our LPs for its quality as it enables investors to make allocation decisions.
