In September 2023, Jefferies hosted its seventh annual Tech Trek, Israel’s largest institutional investor conference. The three-day event connects leading global investors with the Israeli tech ecosystem through a series of panels, presentations, and meetings.
At the conference, Jefferies’ Raphael Bejarano, Co-Head of Global Investment Banking, sat down with Ben Langworthy, Co-Head of Europe and Senior Managing Director at Centerbridge Partners. Centerbridge is a global alternative investment manager, focusing on the complementary relationship between private equity, private credit, and real estate.
Their conversation covered the current state of dealmaking, investment strategies for a high interest rate environment, global economic resilience, and more.
The Dealmaking Lull: Is the Worst Behind Us?
The US dealmaking environment was subdued in the first half of 2023, as rising interest rates, strict lending conditions, and economic uncertainty continued to suppress activity. PitchBook data shows a 30% decline in private equity deal value and a 31% decrease in deal count over the period. Private equity exits also decreased by over 40%.
Bejarano and Langworthy’s conversation began with the question on everyone’s minds: Have we hit rock bottom?
“In recent months, we’ve seen a strong comeback in financing markets. Banks in Europe and the US endured this stress test well, and lending is rebounding,” Langworthy said, expressing optimism for future cycles.
“In private equity, after so much deal activity in 2020 and 2021, there’s now a clear demand for exits.”
Centerbridge, which focuses on creative deal-making within themes in its sectors, has capitalized on this revival, moving quickly to close four private equity transactions in recent months spanning the financial services, healthcare, and software industries. Langworthy believes that – for best-in-class businesses that are rates winners, resilient through cycles, and seeking fresh funding – capital from private equity will continue to be available.
Understanding Economic Resilience
After US economic output contracted in consecutive quarters last year, many believed the long-awaited downturn had arrived. A year later, economic momentum persists, but predictions about the future of the global economy vary.
Upon being asked how he views this surprising degree of economic resilience, Langworthy shared a nuanced perspective.
“It’s important to bifurcate,” he said. “We’re seeing a very strong labor market and, correspondingly, a very strong and resilient consumer. That said, there are clear signs of a slowdown in industrial manufacturing.”
Langworthy believes this ‘split economy’ remains stronger than most expected. Economic resilience creates compelling new opportunities for firms like Centerbridge, who invested cautiously during the pandemic.
Investment Strategies for the Current Environment
Centerbridge’s strategy through the pandemic was to avoid companies too dependent on low-cost capital. In 2020 and 2021, VC-backed companies raised record funds at near-zero interest. Two years later, as that powder runs dry, many companies seek new investors.
For Langworthy, the key to enduring high-interest rates and inflation is prioritizing profitability and solid unit economics. Where speculative technology companies may struggle in the current environment, businesses with a sound financial model will emerge as winners.
Discussing the financial sector, a key industry for Centerbridge, Langworthy cited the market’s overreaction to fears of rising delinquency. He recognizes the advantages of high interest rates for financial institutions. Centerbridge is especially focused on lending technology, where they see burgeoning opportunity as major banks pull back.
The global financial landscape remains opaque, as a resilient economy confronts high interest rates and geopolitical turmoil. As investors grapple with these challenges and opportunities, focusing on fundamentals remains a reliable strategy for success. Langworthy’s insights offer a crucial blueprint to private investors aiming to chart a steady path through today’s ever-shifting financial markets.