EQT Warns on Fundraising Challenges Amid Global M&A Slump

Sweden’s EQT AB said a slowdown in deals globally means the company will likely hold onto its investments for longer after slow exit activity in 2022.

(Bloomberg) — Sweden’s EQT AB said a slowdown in deals globally means the company will likely hold onto its investments for longer after slow exit activity in 2022.

With deal activity “substantially slower compared to last year, fundraising is becoming more challenging, and will take longer, even for flagship funds,” Chief Executive Officer Christian Sinding said in a full-year earnings report on Wednesday. Also, “ownership periods are expected to be extended,” he said.

The Swedish firm, which has a market capitalization of almost $30 billion, last quarter completed the acquisition of Hong Kong-based Baring Private Equity Asia to expand growth in the region. That helped boost assets under management by 55% to €113 billion ($122 billion). Gross fund exits fell more than 60% to €11.1 billion last year.

Still, the strong start to the year in equities markets is improving the prospects of exiting investments via initial public offerings, Sinding said in an interview.

“When we talk to our advisers, they are starting to prepare for IPOs in the more robust and growing sectors. So if that continues we might see some IPOs also from our portfolio,” Sinding said.

The most positive scenario would see such listings in the first half of the year, and a “more muted” one points to the latter half, he said, adding that in the debt market, private credit will likely perk up as well.

“I spoke with a big bank yesterday and they’re starting to open up also for financings,” and so are collateralized loan obligation syndications, he said. “When they start to build again, that creates liquidity, which is an early sign.” 

Transactions of as much as $3 billion “should be possible,” even if large transactions will take time to materialize, he said.

“With a young portfolio, global scale, and substantial volumes of ‘dry powder’ to deploy, we will selectively pursue both exits and thematic investments in all markets,” Sinding said.

Going forward EQT remains “vigilant” for a prolonged deterioration in market conditions as markets remain volatile. The CEO said the company has implemented measures throughout the year to reduce costs. It is recruiting at a slower pace and “is currently only making selective hires” to grow in areas including Private Wealth, North America and Asia, it said.

The Stockholm-based investment firm reported an adjusted Ebitda of €829 million for the full year, in line with estimates, and the board proposed to increase its dividend to 3 kronor ($0.29) a share from 2.80 kronor previously.

EQT’s portfolio “remained resilient,” despite the macroeconomic challenges the company said, pointing to the rise in inflation and interest rates, the energy crisis, and the ongoing war in Ukraine. Portfolio companies and assets demonstrated “solid revenue growth” across the Private Equity and Infrastructure key funds, “apart from a few pockets of underperformance,” it said.

Fundraising for EQT X, with a target fund size of €20 billion, was expected to be concluded in 2023, with €15.4 billion raised by year-end 2022, and a further about €1 billion committed to date in 2023.

(Updates with CEO comments on IPO market from fourth paragraph)

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