Is it all doom and gloom in private equity? What capital market trends can we expect to see heading into next year? Find out below.
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On 2 November 2023, TRAFiX, a leading provider of order and execution management software for global capital markets, announced it had secured strategic growth investment from private equity company Marlin Equity Partners. Marlin’s investment represents the first institutional capital raised by TRAFiX since its inception in 2013, with the funds being used to further cement its position within the capital markets software ecosystem. More details on the deal can be found publicly here.
Behind the scenes, GreySpark was partly involved in the deal, applying commercial due diligence consultancy services for Marlin ahead of the investment.
On 8 November 2023, GreySpark analyst Elliott Playle sat down with GreySpark senior manager Wani Yosepa to briefly discuss GreySpark’s role in the deal, GreySpark’s service offerings, the current private equity landscape, and more.
Elliott: Hi Wani, thanks for joining me today. At the start of the month, we saw a deal between TRAFIX, which is a provider of order execution management software, and Marlin Equity Partners, a global private equity firm. Without going too much into the specificities, could you tell me a little bit about GreySpark’s involvement in the deal and GreySpark’s capabilities in this regard.
Wani: Sure. At a high level, we were working in a commercial due diligence (CDD) capacity, providing CDD services to Marlin. I can talk a bit about what we cover in that process. In the private equity space, when a client is looking for an acquisition target, they want to understand and build depth of the target company. They want to interrogate the target company’s materials and have conversations with management, while conducting research on the target. We can provide trusted advise to the company, the target vendor themselves, or partners they might have to support them through that process. Of course, we specialise in capital markets — that’s all we do — and we have the know-how that our clients are looking for. For example, what vendors are building, how it all comes together, the different market structures, the ecosystem, different plays in that particular segment, and how they can best meet their goals. In the case of TRAFiX and Marlin, how all this pertains to equities trading and listed derivatives trading.
Elliott: Just on the topic of private equity then, we know it’s been a hot topic in the capital markets this year. Obviously, as we saw in 2021, we had significant deal-flow and investors’ money pumping into private equity. Interest rates were low and there was a lot more of a risk-on environment than there is right now. Then, in 2022 and for part of 2023, we’ve seen private equity dealmaking tail off, with investors less willing to throw caution to the wind. However, that’s meant there are near record-high levels of dry powder, so it’s not all doom and gloom. Would you say you’ve seen a slowdown in private equity activity, recently?
Wani: Yes, I think there’s a few different angles here. So, just referring back to Marlin, the company has been active in the capital markets. They invested in Exegy, a multi-asset trading technology provider. Marlin understand the space and has extensive experience working in it. I think that this gives them the confidence to deal-make, and look for a good deal when opportunities arise. That’s what we are seeing. If you have a high quality asset that clients want to use and that’s growing well — such as is the case with TRAFiX — then opportunities are still presenting themselves. It makes sense for these companies to find someone who’s willing to inject capital that can take them to the next level. On a wider perspective, there has definitely been a slowdown in private equity post-COVID, and the main factor are interest rates. What you find, in the private equity space, is that people often talk about multiples. On average, the multiples in private equity firms have reduced, because structurally, the costs you need to put a deal together have risen.
Elliott: Yes, and buyout leverages have naturally been higher too, due to the interest rate rises.
Wani: Yes, exactly. That, and the cost of funding. The cost of funding these deals is higher, which means firms are having to look at their calculations closely. I think the impact could be more on companies that already have assets in their portfolio. These companies are probably wondering if, for example, they bought an asset five years ago, and its multiples are down, how long do they wait it out?
Elliott: That’s an interesting point. We spoke about TRAFiX earlier, which has a holistic OEMS platform that provides great price transparency and best execution order methods using technologies such as AI. Have you seen any particular AI tools or platforms that you think are gaining serious traction heading into next year? Any technologies or systems that you think people should be aware of?
Wani: Yes, I think there’s a lot of preparation for deploying AI tools, as well as analysis of what that might mean for how a business can operate and improve its processes. I think there’s also quite a few enablers embracing this. By enabling, I mean, being able to extract the data of a high performing platform via API, so that you can train your models and perform analytics on that data. We see this in cloud deployment strategies, where banks and brokers bring in technologies that are maybe ‘on the peripheries’ into their internal cloud models to help leverage AI and the opportunities it provides to the greatest possible extent. I think there's a lot of focus on the more forward-thinking elements such as how to provide data in a consistent format. For instance, making sense of that data, and from a vendor’s perspective, making sure they support their clients operations. Not just for now, but for years to come, because when a company brings in a vendor, it wants a long-term relationship and not necessarily a temporary one.
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