Things are not as bad as they seem, say M&A experts

In the dynamic realm of venture capital and private equity, strategic moves mirror a chess game played across various boards, according Renaat Berckmoes.

Entering the investment industry in 2013 with the establishment of Fortino Capital alongside Duco Sickinghe, Renaat has carved a niche in the venture capital domain. “I like being part of the transactions, the negotiation process, and getting in and out of a company, but what I love the most is seeing founders build companies almost from scratch. It’s also gratifying to help companies reach operational excellence and become bigger and better,” he shares.

Reflecting on his experience in venture capital, Renaat highlights the continuous evolution of the industry. He points out the exceptional rise in valuations for software companies during 2020 and 2021. “Covid-19 has given a boost to the online world due to restrictions of physical interactions, hence software companies have benefited.”

“Consequently,” Renaat notes, “we also saw a strong increase in public market valuations during this period. But times have changed, as interest rates have risen, large capital rounds in venture capital have become more scarce, as there is a flight to quality. We see a shift towards profitable growth and healthy unit economics for high growth companies.”

Addressing the private equity market, Fortino Capital partner Steven De Troyer underscores a significant influx of liquidity in recent years, fueled by investors looking for an asset class in a zero-interest rate environment. Hence, many private equity funds have significant funding and are competing for high quality assets, which results in increasing prices. “This means we have to be very selective and careful with regards to what we invest in,” adds Steven.

He says that, despite the clear fact that there’s a higher focus on profitability at the moment, growth still outweighs profitability as a core metric for software valuations. “So if you want to make more money for your company, make sure it grows fast enough. And if you have to make the trade-off between growth and profitability, it’s still growth that wins today.”

That being said, the days of blind-deficit spending are over, Renaat adds. “It needs to be cost-effective growth.” He explains that the companies that perform well and get efficient growth rates without burning too much cash, easily find funding and buyers at still very high prices.

“In the private equity space, there is much less of a boom or bust scenario. The valuation curve is a lot smoother,” Renaat says.

Renaat points out that “it’s not as bad as people sometimes think it is, and there is a big gap between the valuations of public listed companies and private deals. The small- and mid-cap markets have a lot less competition, so it’s relatively easier to get in than the mid-to large-cap markets.”

Steven echoes this, explaining that the market Fortino operates in is still very healthy. “It’s growing year-on-year and still playing an important role in the post-Covid era where remote working and digital tools are becoming core to business processes.”

Embracing growth opportunities

Renaat explains that there’s no reason to be hesitant of pursuing deals at the moment. “There’s a lot of talk about high interest rates at the moment, especially amidst the younger people in our profession, but the current interest rates are still benign.”

He adds that, of the thirty years he’s been in the finance industry, today’s interest levels are really nice to work with. “Yes they are higher than they used to be, but the economy hasn’t come to a standstill.”

Renaat acknowledges the impact of the uncertainty and volatility in the market because of the geoeconomic, macroeconomic and geopolitical landscape. “We have two ongoing wars and increasing tensions in the Middle and Far East that are having an effect on global trade operations, which we already know from the supply-chain constraints during Covid-19 will disrupt the global economy even more,” he says. However, he advises that people still pursue growth opportunities, despite these sentiments.

The landscape of venture capital and private equity continues to evolve rapidly. Renaat Berckmoes and Steven De Troyer underscore the growing importance of sector specialization in understanding and supporting companies with the execution of their growth strategies. This strategic emphasis explains Fortino Capital’s dedicated commitment to B2B software and technology. We have chosen to concentrate our investment teams on these sectors, complemented by an operating team equipped with deep software expertise, enabling hands-on support across various domains. Our aim is to serve as a value-added partner throughout the growth journey of the companies we support.

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