Hunting for spinoffs in 2023; PE firms slow utility sector investments

S&P Global Market Intelligence offers our top picks of global private equity news stories and more published throughout the week.

It is tough going in the global economy these days, and that means some large, established businesses are looking to lighten their load. When they do, private equity will be waiting.

Corporate carveouts, spinoffs and divestments are expected to spark some private equity dealmaking in 2023. They are among the few bright spots in an otherwise gloomy forecast for private equity M&A over the next six to 12 months.

Spinoffs create a potential win-win at the bargaining table, but a valuation gap exists. Most buyers will not pay the relatively high 2021 prices for assets in 2023 and sellers have been slow to reset valuations amid a widespread decline in multiples.

An exception may be large corporates aiming to divest noncore assets. They are more likely to accept a lower valuation if the deal off-loads debt or generates cash that can be reinvested in core strategies, said Scott Wolff, managing director at middle-market private equity firm American Securities LLC.

"They're still likely to move forward with some of those exits even if it's not at the max dollars because it's the right thing for them to do strategically," Wolff said.

Prospects for private equity dealmaking was just one of the topics covered in "How to Navigate 2023’s M&A Headwinds: The Big Picture, Macro to Micro," a recent S&P Global Market Intelligence webinar hosted by the Association for Corporate Growth.

Watch a replay of the webinar.

CHART OF THE WEEK: Private equity backs off utility sector M&A

⮞ As North American electric and multiutility holding companies prepare to report fourth-quarter 2022 earnings, there are signs private equity interest in acquiring utility assets is cooling.

⮞ Rising interest rates are making private equity firms more hesitant to pursue deals in the sector, Mizuho noted in a January report.

⮞ That means some utilities looking to fund equity needs, like Black Hills Corp., may seek alternatives to minority stake sales.

DEALS AND FUNDRAISING

* GI Manager LP, or GI Partners, reached a deal to acquire Atlas Technical Consultants Inc., an infrastructure and environmental solutions provider, for $1.05 billion in an all-cash transaction that includes outstanding debt. The parties expect to close the transaction in the second quarter, subject to Atlas shareholders' approval and regulatory clearances.

* Vista Equity Partners Management LLC acquired security awareness training platform KnowBe4 Inc. in a cash deal valued at $24.90 per share.

* Funds managed by Apollo Global Management Inc. affiliates led the acquisition of $900 million worth of convertible preferred stock in Western Digital Corp. In connection with the investment, Reed Rayman, a partner in private equity at Apollo, will join the board of the data storage company.

* Patient Square Capital LP closed its first fund with about $3.9 billion in total capital commitments, above its $3 billion target. Since June 2021, the healthcare-focused private equity firm has rolled out $3 billion in equity capital, and its portfolio includes companies specializing in therapeutics, pharmaceuticals, medical devices and more.

* Ariel Alternatives LLC raised $1.45 billion in commitments for the Project Black LP fund, along with a planned $200 million coinvestment from JPMorgan Chase & Co. The fund, which is the first private equity initiative of Ariel Investments LLC will invest in middle-market companies and focus on high-margin sectors.

ELSEWHERE IN THE INDUSTRY

* TRM Equity's TRM Equity II acquired essentially all of the assets of Innovative Hearth Products LLC, a producer of indoor and outdoor fireplaces, stoves and accessories. TRM plans to continue investing in Innovative Hearth and expects the deal to strengthen the company's balance sheet.

* Funds advised by Permira Advisers Ltd. will buy a majority stake in Acuity Knowledge Partners (UK) Ltd. from Equistone Partners Europe Ltd. Equistone will reinvest in Acuity as a minority shareholder, while Acuity's management team remains significantly invested in the business.

* Main Capital Partners BV is selling Onventis GmbH, a German cloud-based procurement solutions provider, to Keensight Capital. The management team of Onventis will remain in place and invest alongside Keensight.

* KKR & Co. Inc. led a consortium to purchase a 30% stake in Telenor Fiber AS, Telenor ASA's newly formed fiber business in Norway, for 10.8 billion Norwegian kroner in proceeds.

FOCUS ON: HEALTHCARE

* South Korea's MBK Partners purchased Tokyo-based Unimat Retirement Community Co. Ltd., an elderly care service provider.

* Ascend Capital Partners Manager LP, or Ascend Capital Partners, invested in Allied Physicians Group PLC and Adjuvant.Health LLC. The investment also involves a partnership between CareAbout, an affiliated management services organization of Ascend Capital, and Adjuvant.Health to improve healthcare delivery and clinical quality.

* 3i Group PLC will sell Q Holding Co.'s precision components division to Cirtec Medical Corp. and SaniSure Inc. for an estimated $172 million. Cirtec will buy the Rock Hill and Sturtevant operations, and SaniSure will purchase the silicone tubing business.

For further private equity deals, read our latest In Play report, which looks at potential private equity-backed M&A, including rumored transactions, each week.