Apax Global Alpha: Making pearls out of oysters

Hardman & Co

Apax Global Alpha Limited (LON:APAX) (AGA) core is the investment in the Apax Private Equity Funds, which, in turn, target the acquisition of private companies, whose performance is then transformed by Apax’s global insights and operational expertise. On average, investee company EBITDA growth accelerates by 15%, and margins improve by 8%. They become more valuable, and their sale relative multiple is typically ca.30% higher than on purchase. Repeating this playbook in four sectors with resilient, secular growth, has given investors 2.5x the total returns of the FTSE All-Share index since IPO. Exit uplifts prove a conservative NAV, and AGA’s strong outperformance through the COVID-19 turbulence proves its resilience. The current discount is 30%.

  • Apax’s added value: Apax Global Alpha improves the Apax Fund investments by i) improving revenue growth (up 8%) with customer segmentation, new market expansion and digital marketing, and ii) improving efficiency using cloud technology, acquisitions and digitalisation. Apax brings options not available to standalone entities.
  • Other AGA positives include i) a high-performing debt investment portfolio, giving capital and liquidity flexibility, ii) a 2022E dividend yield of 7.6%, making AGA one of only a handful of PE investments attractive to both capital and income funds, and iii) Apax’s scale, experience, brand, deal access, global footprint and market focus.
  • Valuation: Adjusting for the debt portfolio, AGA’s discount to (September £) NAV (30%) becomes significantly wider than that of its peers (42%) on its PE portfolio alone. This (like peers) rose sharply in 2022, to well above historical levels. The NAV appears resilient and conservatively valued, making the discount absolutely and relatively anomalous.
  • Risks: Sentiment to costs, the cycle, valuation and over-commitment are issues for AGA, as they are across the PE-listed market. Residual positions in highly rated stocks, following IPOs in 2020-21, saw an exposure to underperforming 2022 names. The unique Derived Investments portfolio model of predominantly debt instruments brings liquidity and capital flexibility, but complicates the story.
  • Investment summary: Apax Global Alpha has delivered market-beating returns by selecting businesses that it can transform post-acquisition. Buying these companies at over 20% below peer ratings, accelerating their revenue growth and improving their margins, and then selling the reinvigorated business at a ca.10% premium, is the playbook that has been repeated again and again. Investments are focused in sectors with structural growth and resilience. Capital flexibility is enhanced by the Derived Investments portfolio. The discount is the “icing on the cake”.

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