Exclusive: Sun European’s managing director on private equity deal-making in the City post-pandemic
Private equity giant Sun European Partner announced earlier this month that it had signed a deal to offload the electromechanical key player C&K for more than £410m.
The sale is considered one of the hottest private equity tickets in the Square Mile so far this year.
Time for Morning Wire to catch up with investment veteran and City insider Mark Corbidge, managing director and a member of Sun European’s Investment Committee.
Before joining Sun European in 2019, he was a Partner at TPG Capital where he was responsible for the industrials group in Europe. Sun European Partners is the European affiliate of Sun Capital Partners, the US private equity firm.
With more than two decades of experience in European private equity under his belt, Corbidge zooms in on the current investment climate and how the pandemic has changed the landscape.
Let’s kick off with the pandemic. That changed everything. What impact has Covid had on your business?
The most immediate impact which springs to mind was how we conducted due diligence on acquisition targets. Our Operations team also spent a lot of time helping portfolio companies navigate the unprecedented challenges and opportunities and sharing best practices.
To an extent we were fortunate that our strategy had already shifted away from investing in the restaurants and retail sectors as these were hard hit by the pandemic. However, at the start of the pandemic we still owned both Dreams and Sharps.
“There were logistical issues to deal with such as how do you deliver a bed when people have to maintain 2m distance?”
Mark Corbidge
Having implemented new technology and streamlined the logistics network over our holding period, we then had to negotiate a sale of the business remotely, which we achieved, to Tempur Sealy, a US mattress manufacturer in May 2021.
I am glad you mentioned Dreams, which you recently sold. Can you tell us some more about that deal?
The sale of Dreams to Tempur Sealy International was one of Sun European’s 2021 highlights. We acquired Dreams in 2013 and during our ownership we significantly improved its digital capabilities, streamlined the logistics network and product offering, increased operational efficiencies and strengthened the senior leadership. At the point of sale, Dreams had grown into a major retail brand with consistent, strong growth and a market-leading position.
Back to Covid for a second. What impact do you expect the end of Covid restrictions to have on the private equity market?
Aside from being back in the office, we’re now able to do site visits and meet management teams in person again. Although technology has greatly improved our ability to work off site, there are some things you simply cannot replicate. For example, drones can be used for many virtual site visits, but due to fire risks, they cannot be used in a chemical factory, for example.
“During Covid you couldn’t walk around on a site visit and talk to staff on the ground to get a real feel for the company.”
Mark Corbidge
The private equity sector is so reliant on the ability to build trust and confidence with colleagues and partners, so being able to meet again in person and build rapport is so important. Although there has been an incredible level of deal flow last year, being able to operate without social restrictions will hopefully support future deal flow.
So is the Covid-related technology boom over? We’re seeing tech stocks stall in public markets; is it fair to say that’s been reflected in recent valuations on private markets as well?
We don’t always focus on pure technology plays for various reasons, including inflated valuations as you mention. When considering investments, we like to find opportunities where technology can accelerate value growth in companies.
For example, one of my colleagues has recently led the acquisition of law firm, Fletchers,, where we will use workflow automotive technology and AI enabling lawyers to use their time more efficiently and better serve clients in the process.
When looking at private equity in slightly broader sense, what do you consider its role in society?
Privateequity firms seek to partner with management teams or founders that are looking to grow their business and accelerate value creation through operational excellence. private equity firms can help these businesses with operational tools to improve efficiency.
“During the pandemic, private equity has been a lifeline for many companies, providing capital, extending terms and supporting businesses navigating the ever-changing landscape.”
Mark Corbidge
For example, we were able to extend terms of trade from 60 days to 120 days, encouraging tradesmen to pivot away from competitors, helping our portfolio companies continue their growth trajectory.
Finally, how are you seeing the move to ESG manifest itself in private equity?
We are seeing a shift towards tighter regulation around ESG reporting standards and a cultural shift to PE firms looking to invest more sustainably. A recent PwC survey reported that 79 per cent of investors admitted that the way in which a company manages its ESG risks and opportunities is an important factor in their investment decision making. We aim to retain investor confidence by investing heavily into ESG, while continuing to deliver on returns.
We’re especially interested in companies which are operating in the environmental sector. For example, in November 2020, we invested in Adler & Allan, an environmental risk reduction specialist which has cleared oil spills off the coast of Wales in 2018, recovering 3,000 litres of oil and 28 vessels from the shore and seabed, and returning the surrounding environment to a better condition than before the crisis.
In 2020, it worked with Natural Resources Wales to excavate 30,000 tonnes of fuel-soaked soil preventing lasting environmental impact and protecting the local landscape. Our investment supported four bolt on acquisitions last year – expanding the range of specialist environmental services.