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PE firms with fresh capital eye debt-pressured sellers in 2024; firms build up operating partner groups in slowdown

Hey Hubsters, what’s up?

This is Chris, on for the Wednesday Wire.

Here's what we're looking at today:

• How firms are approaching the slow M&A environment
• Garnett Station and WCAS staffing up with operating partners
• Neuberger, Lexington stepped up as lead investors on Wellspring GP-led

Let's get to those stories.

Still slow
I feel a little gloomy and doomy lately. Talking to folks in the market, things are not looking great for some portions of the PE industry, while others may be poised for greatness.

I’ll explain: many, many firms are facing a tidal wave of challenges going into next year in their portfolios as a wall of debt maturities from the 2017-2019 era start to come due. S&P reported over the summer that around $106.7 billion of speculative-grade nonfinancial debt matures this year, more than doubling to $247.7 billion in 2024 and rising further to $389.3 billion in 2025.

S&P expects the trailing 12-month speculative-grade corporate default rate to reach 4.25 percent by March, rising even further if inflation ramps back up or the economy falls into recession.

Buyers sitting on fresh capital are waiting eagerly for that moment when GPs facing this situation have to make a decision: sell, likely at a lower price than what they could have gotten in the bull market era; find a way to extend at higher prices and kick in more equity to support companies in challenged positions, maybe even sell part of an ownership stake; or, give up and turn over the keys to the lenders. Subscribers can read the full column in the premium wire.

Ops Partners

In this environment of slower M&A, we’ve noticed a trend of firms staffing up on their operational side. Makes sense, as many firms will need to not only tend to portfolio challenges, but even in new deals, operational value-add has taken on a whole new level of importance in a market with more expensive debt.

Today, we have two ops partners hires – Garnett Station Partners said it hired Pedro Timo as an operating partner, focusing on improving supply chains across the portfolio. Before, Timo worked as chief development officer and chief supply chain at Fat Tuesday. Read more here on PE Hub.

And Welsh, Carson, Anderson & Stowe hired Megan Callahan as an operating partner focused on healthcare IT. Callahan is joining from Twill, where she worked as chief operating officer overseeing commercial, clinical and people functions. Read more here.

Leads

Neuberger Berman and Lexington Partners are co-leading a GP-led continuation fund deal for several assets, including SupplyOne, Buyouts is reporting this morning. The deal could be valued at around $900 million and is approaching closing, sources said. Read more here on Buyouts.

That’s it for me! Have a great rest of your Wednesday. Hit me up at christopher.w@pei.group with tips n’ gossip, feedback or chili recipes or find me on LinkedIn.

Read the full wire commentary on PE Hub ...

Also of note (may require subscriptions)

Alaska Permanent Fund will look to build a direct investment program as a way to reduce fees and expenses from its private equity portfolio. (Buyouts)

Fundraising for the healthcare sector may have dipped from its 2021 highs, but 2022 was the second-highest haul for healthcare-focused funds in history. Investor interest in healthcare is especially piqued by resilient subsectors, including healthtech, healthcare services and life sciences. With all of this in mind, healthcare investment appears likely to resume its growth trend in the years to come. (Buyouts)

There is still confusion around key terms in sustainable investing, but the backlash against incorporating ESG considerations into investment decisions presents an opportunity for the industry to get its house in order. (New Private Markets)

The impact investing market may have grown significantly, but it is still 'early days' when it comes to building a financial track record, say delegates at the Impact Investor Summit: North America. (New Private Markets)

By tapping into innovative new products and structures, the debt finance market is making the most of the current high-cost environment. In a special report, Private Equity International examines the impact that NAV financing has had on the sector; how pharma royalties are being used as a highly specialised debt tool; and how the industry can future-proof itself against macroeconomic change.

Campbell Lutyens has opened an office in Germany – the second global office opening it has disclosed in the space of two weeks – in response to growing demand from clients and investors in the DACH region. (Secondaries Investor)

Venture Capital Journal is out with its latest VCJ 50, complete with a refined methodology that focuses on capital raised for classic venture capital funds and excludes capital raised for growth equity. The result is a list of the 50 largest venture fundraisers based on the amount of direct investment capital they raised from January 1, 2018, to March 31, 2023, for investing in seed-, early- and multi-stage deals.