# NB Private Equity Partners: Strong outperformance & good market positioning (LON:NBPE)

- Link: https://www.directorstalkinterviews.com/nb-private-equity-partners-strong-outperformance-good-market-positioning-lonnbpe/4121133477
- Published: 2023-11-20T15:17:56+00:00
- Author: Amilia Stone

**NB Private Equity Partners ****(LON:NBPE) **is the topic of conversation when **
Hardman and Co**’s Analyst Mark Thomas caught up with DirectorsTalk for an exclusive
interview.

**Q1: Your recent report sits behind a disclaimer. What can you tell us about that?**

**A1: **It is just the standard disclaimer that many investment companies have. 
In essence, for regulatory reasons, there are some countries (like the US) where
the report should not be read. In the UK, because private equity (PE) is not a simple
asset class, the report should be looked at only by professional/qualified investors.

**Q2: You called your recent piece ‘2023 CMD: value creation from growing companies’,
what can you tell us about it?**

**A2: **We reviewed NB Private Equity Partners’ differentiated strategy, strong 
outperformance and good market positioning in our initiation, ‘Co-investments generating
superior performance’, and ‘1H’23 results summary: continued growth’.

The key theme running through their 5th October capital markets day was the superior
EBITDA growth of its investee companies. Across the NB co-investment platform, in
2006, EBITDA growth was expected to produce 63% of total value creation, but it 
has risen to 93% in recent deals. Critically, target IRRs (20%+ net) are unchanged
as higher-interest-rate impacts are offset by PE manager actions to grow EBITDA.

As PE managers, or GPs, look for greater equity support, the NB platform’s co-investment
pipeline has seen more opportunities, despite the slower PE market activity.

**Q3: What was your single key takeaway from NBPE’s recent capital markets day?**

**A3: **For us, it was all about EBITDA and earnings growth. The factors behind 
the historical outperformance in growth were outlined and, critically, going forward
the levers available to the company’s partner managers to grow EBITDA in order to
offset higher interest costs. The latter is especially important as we see that 
as a key investor concern with the whole PE market at the moment.

So, looking at what their co-investing GPs can do, they have more opportunities 
to do bolt-on deals at attractive prices, and 70% of the top 30 holdings have done
M&A during NBPE’s period of ownership.

Secondly, many of their investee companies have pricing power and so can pass on
inflationary cost increases, and inflation is a key driver to a higher rates environment.
This is because many provide mission-critical services, often enhance their customer
efficiency and have market disruptive models in sectors with secular growth.

The bottom line, and this is key, is that target returns on recent deals have been
the same as, or even marginally higher than, ones considered five years ago, but
the way they will be achieved has changed.

**Q4: In previous interviews, you have discussed the attractions of the PE market
as a whole. What is it about the co-investment sub-sector that makes it an especially
attractive area?**

**A4: **With co-investments, an investor like NB Private Equity Partners does not
pay the General Partners’ (GPs’) fees, but it still generates the gross PE return.
This lower-cost model delivers superior long-term returns.

Being focused on co-investments means they have complete control over the pacing
of new investments, which is also good for cashflow and liquidity management. There
are no long-tail commitments and, in some cases, the potential for earlier realisations.

There is no blind-pool risk as investments are made directly into known companies.
The company has control over diversification and the investment process, and finally,
investments are subject to the double due diligence of the company and the manager.

**Q5: What about the risk?**

**A5: **Sentiment to costs, the cycle, residual positions in highly rated listed
companies following IPOs in 2020-21, the duration of the discount and valuation 
are the key issues for NB Private Equity Partners, as they are across the whole 
listed sector. As we detail in our report, in our view, they are sentiment issues,
and do not reflect reality, as we see it. The benefits from the current strategy
may not yet be fully appreciated.

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