Partners Group Private Equity's (LON:PEY)’s (PGPE’s) recent portfolio realisation efforts (supported by the gradual pick-up in M&A activity and an opening IPO window) included, most notably, the sale of SRS Distribution earlier this year (see our September 2024 note for details) and more recently Techem (3.8% of end-Q324 NAV, sold to a trade buyer in October 2024), as well as the successful IPO pricing of Galderma in March and KinderCare in October.
The positive valuation effects from these activities (21% weighted average uplift to latest published NAV) were coupled with a 5.1pp contribution to portfolio performance in 9M24 from earnings growth (average 11% increase in last 12-month EBITDA across top 20 holdings) and a slight 1.2pp tailwind from peer multiples. This was partly offset by an increase in portfolio net debt amid several debt package refinancings at a lower spread to strengthen capital structures and in turn support growth.
Moreover, the Q324 return was affected by a weakening US dollar, which makes up c 40% of the portfolio’s exposure by currency (although these FX headwinds have more than reversed so far in Q424). As a result, the company posted a moderate 3.1% NAV total return (TR) in 9M24.
The company’s shares continue to trade at 20–30% discount to NAV, which, according to the company’s new capital allocation policy, implies that 50% of its free cash flow will be used for share buybacks. As the company’s realisation proceeds collected in H124 were partly used to repay the credit facility (with the entire €140m amount undrawn at end-September 2024) and pay the interim dividend, no free cash flow was available for buybacks at the quarterly test at the beginning of July. Q324 realisation proceeds were a minor €8.2m and included primarily a €6.0m sale of Galderma shares through an off-market block trade to L’Oréal (which recently acquired a 10% stake in the business), as well as €1.6m from KinderCare (a US childhood education services provider) before the IPO.
The company’s stake in the latter is subject to a 180-day lock-up following the listing, and therefore the company has so far benefited only from an unrealised gain (a strong 50% uplift to end-August 2024 NAV based on the first day closing price). Further exit proceeds may, however, translate into positive free cash flow and share repurchases.
The company invested €10.2m in Q324, which includes €5.5m deployed into FairJourney Biologics (a biologics contract research organisation) and €1.1m into Pest Control Partnership (a greenfield entry into the European pest control market, see our September 2024 note for details). The major drivers in terms of value creation in Q324 included International Schools Partnership (which has shown continued solid financial performance, both organically and through M&A) and Telepass (which recently announced a partnership with Atlante to make over 1,000 electric charging points in Italy available via the Telepass app).