Here we answer some additional questions from the audience we didn't get time for in the live discussion between Steffen Pauls and Marcus Brennecke.
Q: What are the sectors where you see the biggest value creation opportunities in the next 5 years? Could you name three focus industries where you see the most promise?
A: Technology, healthcare, pet clinics, agritech, fiber broadband.
Q: EQT has announced in the fall that it is launching a growth strategy with a high-profile hire from Microsoft. Why do you believe EQT has what it takes to win in this segment? One could argue the growth landscape and competition over deals is different from classic private equity, where EQT has more experience.
A: EQT has had growth in its DNA since inception. We have always focused on growing businesses (proof of that is that the entire PE Portfolio has historically grown by double digits in sales) and pushed this even more in the last years through thematic investing. Moreover we have a very successful Ventures fund. We want to bridge the gap between very interesting companies which have outgrown EQT Ventures and are not yet PE investments size-wise or from a profitability standpoint.
Q: How have career paths at EQT changed in the time since you joined the firm? How is the company different for new joiners today than it was when you joined and is there anything you think new joiners should know?
A: When we hire young people our goal is to keep them throughout their entire career and develop them from Associate to Partner. In the past, Associate jobs were offered to people who had a minimum of two years of relevant work experience. Based on our purpose and diversity approach we are now thinking differently. We want to have a diverse team across all departments so we start even earlier with “Get to know” meetings and selectively offer specific internships. Diversity also plays a big role when we hire people on a more senior level. As a very purpose-driven organization we focus a lot on the right cultural fit with EQT and our values.
Q: What are the main challenges for valuation of an impact investment at EQT? Are there any rules of thumb or frameworks that you are excited to share?
A: EQT wants to future proof companies and deliver shareholder value through positive societal impact. We therefore pressure test any potential new investment using this criteria. As an example we invested in Otto Bock, the world’s market leader in prostheses and in WS Audiology, one of the world’s leading hearing aid companies. Both of these investments are helping society. Another example is Christian Hansen Natural Colors: this company only uses natural ingredients for the coloring of food and beverages. The valuation topic itself is not so difficult as we believe that companies making a positive impact for society will have a higher valuation going forward.
Q: Would you not agree that it is a fantastic time to buy private companies now, on the back of expected asset price inflation, more money flowing into the system (e.g. good financing conditions) and into PE funds? I would expect purchase multiples to increase further in coming years. Coupled with great operational know-how which should boost EBITDA, good investors should be able to generate stellar returns over the coming years. Why focus so much on exits and less on new deals now?
A: We are living in a volatile world with geopolitical risks like Brexit, the Russia-Ukraine conflict, Northstream pipeline, US-China trade war and of course our pandemic crisis. On the other hand the central banks are pumping new money into the system and we see hedge funds recently collapsing due to the banks involved lending too much money. We also have the SPAC development and we see huge and somewhat crazy valuations. I deem all these developments as very unhealthy. Therefore we are trying to take advantage of high valuations and de-risk some of our funds. With other portfolio companies we are holding and developing them further from good to great. That said, we also raised our new EQT IX fund, a 2020 vintage fund, during Covid-19 and entirely via Zoom meetings reaching our hard cap of €15bn within less than a year. This new fund has already invested approximately 45 percent in nine highly interesting thematic investments, mainly in HC and TMT.
View the conversation between Steffen Pauls and Marcus Brennecke below and feel free to share within your network. To stay informed about future Deal Talk events, follow Moonfare on LinkedIn. And if you haven’t yet created your Moonfare account, you can register in a few minutes by clicking here.
During our fourth Deal Talk episode, Moonfare Founder and CEO Steffen Pauls speaks with Permira's global Managing Partner Kurt Björklund.
Here we answer some additional questions from the audience we didn't get time for in the live discussion between Steffen Pauls and Johannes Huth.