While 6 months ago we published a paper highlighting the difficulties that are expected to disrupt the private equity landscape, we are bullish on IDI’s outlook for the years to come. In the space of a few months, IDI has announced a major transaction with Omnes Capital, and demonstrated the resilience of its NAV (+3.6% YTD) and its ability to create value through its latest sale of the Formalian Group, achieving a significant IRR of 32%.
The Private Equity landscape
The Private Equity universe has been a hot topic since the beginning of the current macroeconomic and geopolitical crisis. In our last sector note we mentioned Amundi’s CIO claiming that private equity could be a “big bubble” akin to a Ponzi scheme, the chairwoman of the FTC alluding to possible regulations, the US antitrust authority, Linda Khan, willing to dig into anticompetitive practices and the scares caused by rising interest rates along with the withdrawal of banks from the sector.
Omnes acquisition marks a new chapter for IDI
Despite these headwinds, private equity players, including IDI, are proving resilient. On September 12, IDI opened a new chapter in third-party management with the acquisition of 100% of Omnes’s private equity and private debt business and 45% of Omnes’ renewable energy, venture capital and co-investment activities. This significant transaction will double IDI’s third-party management size to approximately €1.5 billion AuM (which includes the $620m AuM of IDI Emerging Markets).
Resilient Q3 results and solid disposals
While there was a slight 1% decline in the NAV from €83.62 in H1 22 to €82.72 in Q3 22 with the drop in the IHS valuation (African Tower Co), investors shouldn’t worry about the NAV progression in 2022. It is worth mentioning that IDI only revalued liquid and listed assets, including IHS, in Q3 (not the unlisted assets). Furthermore, the NAV is up 3.6% YTD, and growth should have remained in positive territory for 2022, a feat given the unfavourable macroeconomic environment. While it is true that the environment is increasingly adverse, IDI is not showing any fragility on the portfolio rotation side. In November 2022, IDI realized the majority of its investment in Groupe Positive (ex-Sarbacane) and reinvested a portion of the proceeds alongside EMZ, achieving a net investment multiple of 3.1x and an impressive net IRR of 70% over 2 years. On December 19, 2022, IDI sold its entire stake in the Formalian group to the Caille family’s investment holding company, Vivalto SAS. This last transaction allowed IDI to realize a cash-on-cash multiple of nearly 3x and an IRR of 32%, which is in line with the historical multiples realized by IDI. Although Formalian and Groupe Positive do not, in our view, represent a significant portion of the NAV, these latest transactions bode well for IDI’s ability to make disposals at attractive levels.
Positive outlook despite the challenging environment
With the NAV up 3.6% YTD and the current 42% discount to NAV, IDI looks increasingly compelling. Furthermore, we see the Omnes deal as positive since the HoldCo will diversify its revenues and pocket a regular source of income. IDI should also benefit from a size effect for future deals. Finally, despite the challenging environment, IDI is doing well as evidenced by its last two exits. If financing is scarce, IDI can count on a professional team, a quality portfolio and privileged relationships with funds to overcome the economic downturn. In short, IDI is well positioned to surmount the challenges ahead.
We will revise our NAV estimate following the publication of the annual results in March 2022 and incorporate the Omnes acquisition at that time. The essential figures concerning Omnes are effectively yet to be made available to assess the full impact on IDI’s new balance of business which is likely to be more labour intensive.
