NB Private Equity Partners Limited (LON:NBPE), the $1.3bn1 listed private equity investment company managed by Neuberger Berman, today announces its results for the six months to 30 June 2024.
Highlights from six months to 30 June 2024
- Net Assets of $1.3 bn – NAV per share of $27.87 (£22.05) a return of 1.0% in the six months
- Performance driven by 4.3% increase in private company valuations (ex-FX), which have been partially offset by continued volatility in quoted holdings and foreign exchange headwinds
- Positive operating performance continues with 11% aggregate weighted average LTM revenue growth and 16% aggregate LTM EBITDA growth from private companies2
- Robust investment activity: $72 million invested in new and follow-on investments in the six months
- $126 million of proceeds received during the first six months of the year
- 1H 2024 dividend of $0.47 per share paid in February 2024
- Well positioned to take advantage of investment opportunities with $386 million of cash / liquid investments and undrawn credit line available
| As of 30 June 2024 | YTD | 1 Year | 3 years | 5 years | 10 years |
| NAV TR (USD)* Annualised | 1.0% | 1.4% | 7.1% 2.3% | 70.5% 11.3% | 174.8% 10.6% |
| MSCI World TR (USD)* Annualised | 12.0% | 20.8% | 23.8% 7.4% | 78.8% 12.3% | 153.2% 9.7% |
| Share price TR (GBP)* Annualised | (1.8%) | 11.7% | 31.1% 9.5% | 75.7% 11.9% | 297.4% 14.8% |
| FTSE All-Share TR (GBP)* Annualised | 7.4% | 13.0% | 23.9% 7.4% | 30.9% 5.5% | 77.8% 5.9% |
*Reflects cumulative returns over the time periods shown and are not annualised.
Peter von Lehe, Managing Director and Head of Investment Solutions and Strategy at Neuberger Berman commented:
“Our NAV per share at 30 June 2024 was $27.87, translating to a NAV total return of 1.0% in the six months. Positive performance of our private companies continued and appreciated in value by 4.3% on a constant currency basis, offset by quoted holdings and foreign exchange headwinds. We’ve invested more than $70 million so far this year and our liquidity position remains strong, with total realisations for the first six months of the year of $126 million. We expect to continue to be active during the second half of the year, while maintaining balance sheet strength.”
Paul Daggett, Managing Director at Neuberger Berman, continued:
“We are pleased with the positive operating performance of our portfolio companies which we believe reflects the high-quality nature of the underlying assets. The companies in the portfolio generated weighted average LTM revenue growth of 11% and LTM EBITDA growth of 16%. We think this performance can be attributed to the active ownership of our underlying private equity managers, who continue to drive operational enhancements and revenue growth, both organically and through M&A, in a still challenging market environment. We believe the portfolio remains well positioned, supported by our two key themes of long-term secular growth and companies with lower expected cylicality.”
Chairman’s statement for the six months to 30 June 2024
NBPE ended the period with net assets of $1.3bn ($27.87 per share), reporting a NAV total return of 1.0% in the first six months of 2024. Performance was driven by a 4.3% constant currency return from our private companies. This was partially offset by weaker performance from our quoted holdings and foreign exchange headwinds.
Continued underlying revenue & EBITDA growth and portfolio well positioned
NBPE focuses on investing in companies that benefit from two key themes: long-term secular growth trends, and / or lower expected cyclicality. The portfolio is performing well, reporting weighted average LTM revenue and LTM EBITDA growth of 11% and 16%, respectively at 30 June 2024. This continued strong underlying growth and resilience from many of NBPE’s private companies underscores the value of our focus, with our private companies continuing to drive positive performance overall, driven by operational enhancements, EBITDA growth and M&A, despite a challenging environment.
$72 million of new investments against $126 million of realisations through 30 June 2024 with new investments this year off to good starts
During the first six months of the year NBPE invested $72 million in new and follow-on investments. Two of the new investments were in the healthcare industry, Zeus, a medical device component manufacturer alongside EQT, and Benecon, a company focused on health insurance alongside TA Associates. The third new investment was FDH Aero, a parts distributor in the aerospace and defense industry alongside Audax Private Equity.
Despite a subdued private equity exit environment, NBPE received cash proceeds of $126 million during the first six months of the year which includes transactions which were announced in 2023, but closed in 2024.
Approximately 84% of these realisations were from equity co-investments and a structured equity security, as the result of full exits, partial liquidity and sales of quoted holdings. The remaining 16% of realisations in the first six months were from legacy income investments. Subsequent to this reporting period, NBPE received a further $25 million from a partial liquidity event in Action. Together with additional proceeds during July and August, total realisation proceeds for the first eight months of 2024 were $158 million. These realisations compare to $171 million for the whole of 2023.
Remaining highly selective and continuing to evaluate new opportunities
NBPE today has 97% of fair value invested in direct equity and is the only London listed private equity investment company solely dedicated to investing in direct equity co-investments. One of the benefits of NBPE’s co-investment model is the ability to remain highly selective and make investments on a deal-by-deal basis, without the need for long-term unfunded commitments. The Board believes this is a significant advantage in today’s investing environment. NBPE builds its portfolio company by company, with the Manager picking what it believes to be the best opportunities from the pipeline of opportunities sourced from its $115bn global Private Equity platform. Maintaining balance sheet strength is a core focus for the Board, and we expect the pace of new investments to remain balanced with the overall level of realisations, and considered in the light of other capital needs, including dividends and share buybacks.
Ongoing commitment to the dividend
The Board maintained the 2024 dividend at 2023 levels. Semi-annual dividends of $0.47 were paid in February and August 2024, bringing total dividends paid to shareholders since 2013 to approximately $360 million. The Board remains committed to Private Equity Partners’ policy of targeting an annualised dividend yield of 3% of NAV or greater, giving shareholders the opportunity to participate directly in the performance of the underlying portfolio.
Strong balance sheet and simplification of capital structure
At 30 June 2024, NBPE had total available liquidity of $386 million ($176 million cash and liquid investments and $210 million undrawn credit line) and at 30 June 2024 NBPE’s investment level was 100%, at the lower end of its target range of 100% – 110%.
As previously announced, NBPE intends to repay the 2024 ZDP final entitlement of £65 million (~$82 million at 30 June 2024) at maturity in October 2024, simplifying the Company’s capital structure.
Discount remains wide while market volatility persists
Following a period of positive share price performance and improving sentiment more generally for listed private equity in late 2023, the environment for the first half of this year has been more uncertain with concerns centered around slowing economies. NBPE’s share price has not been immune to the volatility in the market, resulting in a negative 1.8% total return for the six month period to June 2024.
Discounts across the listed private equity sector remain unsatisfactorily wide. The Board believes that NBPE’s current discount of approximately 26% presents a compelling opportunity for investors looking to buy into a high quality, diversified portfolio of direct private equity co-investments alongside leading private equity managers in a capital and fee efficient manner.
The Board has supported the efforts for a change in the cost disclosure regime alongside the London Stock Exchange, other fund managers, brokers and parliamentarians and is heartened by the recent FCA announcement that investment trusts have been temporarily exempted from Packaged retail and insurance-based investment products (PRIIPs) and associated EU Law. This announcement is a helpful development for the Listed Investment Company sector as a whole and specifically for NBPE and we are encouraged by this first step on the road to longer term reform.
Portfolio of performing companies selected under the manager’s ‘all-weather’ investment approach is well positioned for a range of environments
While the current macro and geopolitical environment remains uncertain, there is cause for optimism with inflation moderating and central banks beginning to lower interest rates. This potential shift in monetary policy could provide a boost to economic activity and investor sentiment. We have already seen this to some extent, with the Russell 2000 index multiples rebounding and now exceeding 2019 levels. However, private equity valuations have not experienced the same increase, as PE funds maintain a long-term perspective on price multiples, similar to their approach in 2022 and 2023.
We believe active private equity ownership in today’s environment remains an advantage and NBPE’s portfolio companies are continuing to drive LTM revenue and EBITDA growth, demonstrating the strength of our investment portfolio and the benefits of our co-investment approach and advantages of our strategy.
Investment Manager’s review
NBPE’s investment portfolio appreciated in value by $51 million during the first six months of 2024. Performance was driven by the portfolio’s private companies (93% of direct equity fair value), which delivered an overall return of 4.3% in constant currencies, while headwinds from quoted holdings (7% of direct equity fair value) and foreign exchange detracted from performance. Taken together, NBPE’s NAV total return was 1.0% for the first six months of the year, but with continued strong operating performance in many of NBPE’s underlying companies.
Value gains driven by a number of core positions
The largest gains, measured in terms of dollar appreciation, were broadly spread across the consumer, technology, industrial and financial sectors. The largest ten investments by dollar value appreciation increased in value by $57 million during the first half relative to their combined year end valuations. These value increases were driven by a number of positive underlying company developments including organic growth driven by new store rollouts or customer wins, strong renewals and bookings activity, and by M&A. The largest ten negative value drivers in terms of dollar value, depreciated by $25 million relative to their 2023 year end valuations in aggregate. Negative performance was largely driven by highly specific factors in certain consumer, technology, and business services companies, but broadly the result of an overall operating environment that remained difficult, particularly for companies with large consumer end-markets or an ultimate reliance on consumer demand. Despite some positive momentum, these investments largely faced weaker demand or slower recoveries, while some companies reported inventory challenges and price compression.
Operational improvements and M&A continue to drive EBITDA growth
NBPE’s portfolio is focused on companies with resilient business models, with many providing mission-critical products or services or being leaders in their respective end-markets. Strong underlying growth and operational improvements continue to drive performance, despite a challenging operating environment. As at 30 June 2024, on a weighted average basis, the portfolio generated LTM revenue and EBITDA growth of 10.6% and 16.2%, respectively, which also includes the impact from M&A in the portfolio. Approximately 20% of the portfolio by fair value grew LTM revenues in excess of 20%, with 41% of the portfolio by fair value growing LTM EBITDA in excess of 20%.
Industrials, consumer and financial services (55% of fair value in aggregate) were the strongest growing sectors with LTM revenue growth in excess of 10% and LTM EBITDA growth in excess of 15%, on a weighted average basis; within industrials and financial services, M&A contributed meaningfully to the overall growth, in addition to organic growth and operational enhancements. Private equity managers also continue to drive synergies and cost savings through integration of previous M&A transactions, and this also contributed to growth. Business services (12% of fair value) was the only sector in the portfolio that saw negative LTM revenue and LTM EBITDA growth, primarily driven by lower volumes, slower recoveries and more challenging macro environments. In addition, there were certain companies in other parts of the portfolio, that reported softer revenue growth, primarily as a result of headwinds from macro challenges and depressed volumes, which in some cases had been offset by new business wins.
Overall, underlying LTM EBITDA growth remains strong, driven by a number of factors including a deep focus on operational improvements, favourable trends in raw material and freight costs, and M&A. Portfolio company optimisation is a continued focus by private equity managers, whether that is through improving planning, inventory management, sales and marketing, systems or talent in order to drive substantive operational improvements. We believe these initiatives have contributed meaningfully to overall portfolio LTM EBITDA growth and are occurring as part of private equity managers’ value creation plans.
Valuation multiple increased slightly relative to year end as companies continue to grow
As of 30 June 2024, the weighted average EV/LTM EBITDA multiple was 15.2x3. Multiples have declined by approximately two turns since 2021, however, they now appear to have stablised, with the aggregate multiple increasing slightly versus December 2023.
The weighted average Net Debt/LTM EBITDA multiple was 5.4x4, a slight increase relative to the prior period.
$72 million of total new and follow on investment activity
During the first six months of 2024, NBPE deployed approximately $63 million into three new platform investments and an additional $9 million to other new and follow-on investments. $25 million was invested in Benecon, a healthcare company which is a developer and manager of self-funded medical benefit programs for small and medium sized businesses in the U.S.. Benecon’s model allows for more efficient self funding of medical benefits programs, which effectively lowers healthcare costs for employer groups and members. We believe this was an attractive opportunity to invest in a large, underserved market with high barriers to entry in a company with multiple levers for value creation and strong operating performance. Additionally, we believe healthcare cost reduction is particularly relevant today and this was an opportunity to partner with TA Associates on a mid-life co-investment transaction. TA is a private equity sponsor with deep experience in US healthcare and a strong long-term track record.
NBPE invested $13 million into Zeus, a healthcare company focused on fluoropolymer tubing for medical devices and select industrial applications. The company’s components enable the delivery of minimally invasive interventional procedures which is an area with strong secular tailwinds. Zeus is a market leader with considerable barriers to entry which provides mission-critical components for medical devices in a specific niche that requires high precision products. Historically, the company has generated strong operating performance and we believe future R&D and active ownership could drive significant innovation, growth and increased profitability for the company. The investment was made alongside EQT Partners, a global private equity firm, with a 30-year track record across multiple investment strategies.
The final new investment in the first six months of 2024 was a $25 million investment in FDH Aero, a leading parts distributor to the aerospace and defense industry. The company has a leading market position and high barriers to entry, which has driven historic organic growth, augmented by a thoughtful acquisition strategy. The mid-life co-investment was made alongside Audax Private Equity, a leading private equity firm focused on middle-market companies which are positioned to accelerate growth, using Audax’s buy and build approach. The equity investment will be used to support organic and inorganic growth initiatives.
Portfolio realisations continue in a challenging environment for exit activity demonstrating the quality of assets and portfolio resilience
During the first six months of 2024, NBPE received $126 million of realisations. $65 million was received from equity investments from three full sales, two of which were announced during 2023 but which closed in 2024 and an additional $40 million was received from NBPE’s PIK preferred position in Cotiviti. Additional realisations primarily consisted of partial sales of quoted holdings, where exposure continues to decline. Approximately $21 million was received from legacy fund and income investments, consisting primarily of realisations from the NB Private Credit Opportunities Program and NB Specialty Finance Program, the latter of which has now fully liquidated. Going forward, the NB Private Credit Opportunities Program will be the primary source of realisations from income investments, and we expect this exposure to continue to reduce over time (currently 2% of fair value). Subsequent to this reporting period in July, NBPE received an additional $25 million from Action, consisting primarily of proceeds received as a result of an option for a partial liquidity event, where the Manager elected to take a measured amount of liquidity for portfolio construction reasons.
Competition for high-quality investments remains high; private equity managers focused on liquidity options
Despite the persistence of a number of challenges, including macro uncertainty, geopolitical tensions, elevated interest rates and volatility in the public markets, we believe there are also a number of positive dynamics at play in the private equity market environment. The market remains well capitalised and debt availability is high, while the cost of debt has generally decreased in recent months as spreads compress and with base rates now declining. With the demand for liquidity from private equity limited partners continuing, it is possible that deal activity and exits could increase in the short to medium term (although this has now been a long ongoing possibility) and lower borrowing costs should provide a tailwind for transaction activity. Sponsors are actively pursuing multiple avenues for full and partial liquidity in their portfolios, and the demand for partial liquidity solutions in particular may continue to present opportunities for NB Private Equity Partners’ co-investment model.
In terms of investment activity, overall deal activity has increased versus 2023 but remains below other recent years. The demand for high-quality companies remains particularly strong, with valuations for these businesses highly competitive. In part due to the competitive pricing in the market, we continue to believe M&A will be a significant source of value creation for private equity managers as managers look to create value in their companies by growing and diversifying businesses, while lowering the total entry cost of their positions.
High-quality assets growing strongly and well-positioned for possible liquidity; remaining highly selective for new investments while prioritising balance sheet strength
The underlying portfolio is performing well, driven by the strong LTM EBITDA growth and a focus on operational enhancements and M&A in the portfolio. While a challenging environment exists for certain companies in the portfolio, we believe overall, the portfolio is well-positioned in a mature set of highly attractive assets. Even though the opportunity for exits remains constrained, underlying private equity managers are generally focused on ways of returning capital to their investors. With an average age of the portfolio of 4.9 years (see vintage year diversification on following page), we think a number of companies have the potential to benefit from potential liquidity.
We believe the portfolio is invested in many market leading, mission-critical businesses where overall portfolio operating metrics continue to grow, and private equity managers continue to seek ways to drive value at the underlying company level. We continue to evaluate new investment opportunities for NBPE, but remain highly selective, seeking what we believe to be the best assets for the portfolio from the available opportunity set. We will continue to balance new investments with the pace of realisations and other capital needs while maintaining a strong balance sheet.
