Interesting write up, although I believe it all boils down to how realistic it is to exit their investments at an average valuation of 18x EBITDA I have serious doubts that’s achievable unless we go back to a 0% interest rate environment. I know the Tech portfolio less well, but on the Services side there are some assets where the carrying valuation is unrealistic (eg ToiToi, Safetykleen).
Teubsch, I appreciate you say you have “serious doubts that’s achievable unless we go back to a 0% environment” but the evidence in 2025 is that 2 exits HAVE ALREADY occured at valuations well above 18x EV/EBITDA.
You say the carrying valuation of Safetykleen is “unrealistic”. Based on what evidence? I’m looking at their last accounts and operating profit grew 18.6% to £34.5m from £29.1m.
I used to work in private equity for 20 years investing in business service companies. Apax ran a sale process in early 2023 to sell ToiToi, which failed given no one came close to their carrying value. They have written it down since then a little bit but still highly inflated imo.
Re Safetykleen they have not grown the business but written up their investment from their entry multiple of ~11x EBITDA to 15x EBITDA. Given that actual ebitda has been relatively flat during their ownership, I think this is a highly aspirational valuation. The idea always was to sell this to a core+ infra buyer, but don’t think it is realistic in the current environment.
Also, I would not extrapolate from a couple of exits at or above carrying value to the entire portfolio, as all PE funds sell their better asset first in this environment as it helps with raising the next fund while selling assets below NAV would make fund raising that much trickier…
The accounts you posted on your blog to show the growth in ebitda from 2017-2023 only captures the 2017 Ebitda from the acquisition date in July 2017 to Dec 2017. The Ebitda for 2017 shown in the accounts of £37.5m therefore only captures 5 months of that year. Annualizing that you get to £82m for full year 2017 vs £104m in 2023. That results in a 4% ebitda cagr from 2017-23 and even that is not LFL as safetykleen has done some acquisitions over that period.
Ah yes I didn't spot the July date. So £82m EBITDA and acquired for £565m is a 6.9X entry point not 11X as you believed.
On the basis the valuation has increased 178% implies a 19.2X valuation today assuming no follow on funds were provided for those follow on acquisitions. Presumably they were to take it to the 15X you believe it to be today.
Also, the 178% increase in valuation relates to the increase in equity valuation, so you can’t just apply that to the enterprise valuation EBITDA multiple.
You could if debt were constant and comparing the 2017 and 2023 accounts debt grows 10% so affects the number somewhat but doesn't make comparison completely invalid.
Also 40% of the debt is shareholder loans and forebearance.
But I get your point and certainly my deep diving into Safetykleen has made me question the +178% valuation they are using.
I'm happy to simply take your expertise on ToiToi that there's a suspect valuation there also.
But here's the key question. Those 2 assets are valued at 75.6m Euros. Arguably they should be less - let's say 50% less - so 37.8m less.
What about the wider remaining Services portfolio? Do you have a view on those or have you just picked the 2 worst assets here?
Do you have a view on the non-services holdings also?
Interesting write up, although I believe it all boils down to how realistic it is to exit their investments at an average valuation of 18x EBITDA I have serious doubts that’s achievable unless we go back to a 0% interest rate environment. I know the Tech portfolio less well, but on the Services side there are some assets where the carrying valuation is unrealistic (eg ToiToi, Safetykleen).
Teubsch, I appreciate you say you have “serious doubts that’s achievable unless we go back to a 0% environment” but the evidence in 2025 is that 2 exits HAVE ALREADY occured at valuations well above 18x EV/EBITDA.
You say the carrying valuation of Safetykleen is “unrealistic”. Based on what evidence? I’m looking at their last accounts and operating profit grew 18.6% to £34.5m from £29.1m.
OB
I used to work in private equity for 20 years investing in business service companies. Apax ran a sale process in early 2023 to sell ToiToi, which failed given no one came close to their carrying value. They have written it down since then a little bit but still highly inflated imo.
Re Safetykleen they have not grown the business but written up their investment from their entry multiple of ~11x EBITDA to 15x EBITDA. Given that actual ebitda has been relatively flat during their ownership, I think this is a highly aspirational valuation. The idea always was to sell this to a core+ infra buyer, but don’t think it is realistic in the current environment.
Also, I would not extrapolate from a couple of exits at or above carrying value to the entire portfolio, as all PE funds sell their better asset first in this environment as it helps with raising the next fund while selling assets below NAV would make fund raising that much trickier…
Teubsch, how do you know what entry multiple Apax are using for SafetyKleen? They do not disclose this information anywhere.
EBITDA has not been flat during their ownership, you appear to be mistaken. See:
https://theoakbloke.substack.com/i/163165176/safetykleen-fao-reader-teubsch
OB
Oak Bloke,
The accounts you posted on your blog to show the growth in ebitda from 2017-2023 only captures the 2017 Ebitda from the acquisition date in July 2017 to Dec 2017. The Ebitda for 2017 shown in the accounts of £37.5m therefore only captures 5 months of that year. Annualizing that you get to £82m for full year 2017 vs £104m in 2023. That results in a 4% ebitda cagr from 2017-23 and even that is not LFL as safetykleen has done some acquisitions over that period.
This also chimes with the press clipping re Apax acq of safetykleen: https://www.business-standard.com/article/companies/warburg-pincus-taps-goldman-sachs-to-sell-safetykleen-europe-117012300496_1.html?utm_source=chatgpt.com
Ah yes I didn't spot the July date. So £82m EBITDA and acquired for £565m is a 6.9X entry point not 11X as you believed.
On the basis the valuation has increased 178% implies a 19.2X valuation today assuming no follow on funds were provided for those follow on acquisitions. Presumably they were to take it to the 15X you believe it to be today.
No, £565m is what Warburg Pincus paid for safetykleen in 2008. Apax paid £700m ( https://www.law.com/international-edition/2017/05/18/magic-circle-firms-lead-on-700m-apax-acquisition/?utm_source=chatgpt.com&slreturn=20250513170128), which is 10x 2016 ebitda or 9x 2017 ebitda.
Also, the 178% increase in valuation relates to the increase in equity valuation, so you can’t just apply that to the enterprise valuation EBITDA multiple.
You could if debt were constant and comparing the 2017 and 2023 accounts debt grows 10% so affects the number somewhat but doesn't make comparison completely invalid.
Also 40% of the debt is shareholder loans and forebearance.
But I get your point and certainly my deep diving into Safetykleen has made me question the +178% valuation they are using.
I'm happy to simply take your expertise on ToiToi that there's a suspect valuation there also.
But here's the key question. Those 2 assets are valued at 75.6m Euros. Arguably they should be less - let's say 50% less - so 37.8m less.
What about the wider remaining Services portfolio? Do you have a view on those or have you just picked the 2 worst assets here?
Do you have a view on the non-services holdings also?
Thanks
OB
Thanks very much for this. I hold some. Bought 14 March 2025. Down 5% TR. Over 9% yield is very attractive.