6.1%

forcast annual inflation rate for 2022

+9 points

for business Confidence in Luxembourg

1.6%

for financial services prices at the end of March 2022

8th rank
in the European Digital Economy and Society Index (DESI) for Luxembourg

All the news that’s fit to browse - April 2022

John Penning (Luxempart): Diversifying Private Equity investments

“Luxempart has significant liquid financial means and its long-term investment horizon differentiates us from traditional PE funds,” says John Penning, Managing Director of Luxempart. Interview.

 

 

Can you describe your company in a few words?

Luxempart is a family-controlled investment company listed on the Luxembourg Stock Exchange. We invest the company’s assets (ca. €2.2bn) via two complementary strategies: The larger portion is dedicated to our direct investment activity, where we provide long-term and flexible capital to entrepreneurial companies in our core areas: Luxembourg, Belgium, German-speaking Europe, and France. We invest between €50m and €100m per transaction and help entrepreneurs develop their companies. We have no predefined investment horizon, and some assets, such as Groupe Foyer (where we hold ca. 33%), have been in our portfolio for a very long time. In order to diversify our private equity (PE) investments, we also have an indirect investment activity where we invest through third-party private equity funds. This allows us to invest in additional geographies (outside Europe) and in different strategies, namely growth and venture investments.

 

What trends are impacting the PE industry?

Private Equity invests in a broad range of industrial sectors. Therefore, it is driven by the trends that impact global economies. Currently, the two main elements are geopolitical uncertainties and inflationary tendencies. These lead investors to take a very cautious stance towards new transactions (deal volumes in Europe are decelerating), and to focus on their existing portfolio of companies, to help them weather the storm. External financing also takes a more conservative approach as the expected rise in interest rates will have a lasting impact on financing structures. We believe that overall deal volumes will decrease in 2022, but high-quality assets will be even more sought after. That suggests valuation levels should remain at a high level for the deals that materialize. Companies with higher exposure to the current macro-economic risks will most probably be kept by their current shareholders for a longer period.

 

What risks and opportunities do you identify?

Most companies are facing the challenge of improving their pricing power to enable them to pass on the increase in their cost base. Some, mainly industrials, also have to cope with shortages due to still disrupted supply chains. We live in interesting times. But all challenges create significant opportunities! There will be potential for consolidation, and well-capitalized companies will be able to acquire weaker competitors and hence increase their reach. Luxempart has significant liquid financial means and its long-term investment horizon differentiates us from traditional PE funds. We can take the time to sit out uncertainties and opportunistically reinforce existing portfolio lines or seize investment opportunities in companies that have to reinforce their capital structure. Our ability to do this in both listed and private companies enlarges the playing field for us. Given the fact that our portfolio has very solid foundations, our investment teams can dedicate most of their time to seeking such new opportunities.

 

 “Currently, the two main elements are geopolitical uncertainties and inflationary tendencies. But all challenges create significant opportunities!”