Good morning, Hubsters. Michael Schoeck with you for the Thursday edition of the Wire.
The big PE news out this morning is a public-private partnership formed between KKR and Capital Group “to bring new ways for investors to incorporate alternative investments into their portfolios.”
And there’s a new development in the ongoing story PE Hub has been covering about private equity ownership in the National Football League.
We’ve also got an interview with Hg partner Chris Fielding and principal Thomas Martin about Hg portfolio company Cube’s latest acquisition of Thomson Reuters’ regulatory technology business.
And last on deck today is a story that goes straight to the heart, so to speak. Lee Equity Partners principal John Eppler talks about growing PE interest in the cardiology market.
Let’s get started.
Democratizing fixed income
Earlier this morning, KKR and Capital Group announced the formation of a strategic partnership to make hybrid public-private markets investments available to more financial market clients. The strategy involves public-private fixed income securities for financial professionals and their clients, which is expected to launch the US in 2025.
Historically, the public-private fixed income investing market has been available to primarily high net-worth individuals and accredited investors. Mass affluent investors, which represent more than 40 percent of the global wealth market, have not had access to the asset class. The partnership aims to open the door to more financial professionals and their clients to access alternative investments.
“We believe individuals should have access to alternative investments and are thrilled to be partnering with Capital Group, which has world-class investment capabilities, strong client relationships and a leading sales and distribution network,” said Joe Bae and Scott Nuttall, Co-CEOs of KKR in a statement.
Are you ready for some football?
In December, a Gallup survey found that 41 percent of Americans polled still see football as their favorite sport. So it should come as no surprise that private equity firms want skin in the game of ownership interests in National Football League teams.
PE ownership of NFL teams was a “key topic discussed” during the two-day Spring League Meeting in Nashville, Tennessee, which ended May 22, but ownership did not vote on the matter, reports PE Hub’s Rafael Canton.
“We’re being very thoughtful and deliberate,” Commissioner Roger Goodell told reporters. “The (finance) committee is working it pretty hard. We’ve got a lot of interest in the private equity space. … We are making real progress on potential private equity. We’re going to continue to be very deliberate, but I expect there to be something by the end of the year.”
The issue of permitting private equity in ownership has become more prominent as the value of NFL franchises continues to rise, the NFL’s news service pointed out. “The Washington Commanders sold last year for a league-record price of $6.05 billion, which was an increase from the Denver Broncos’ $4.65 billion sale price in 2022.”
In good news for potential PE owners, Goodell noted that ownership agreed to raise the debt limit for franchise acquisition to $1.4 billion (an increase of $200 million from the previous limit).
The NFL is the final frontier of sorts for private equity to plant its goalpost in professional sports. From 2019 to 2021, Major League Baseball, Major League Soccer, the National Basketball Association and the National Hockey League all have welcomed select funds from institutional investors.
As valuations continue to climb across all professional sports franchises, the need for institutional investors has only grown.
“This is a solution to a high-class problem that the NFL has, which is that team values have risen drastically,” Josh Harlan, founder and managing partner of Harlan Capital Partners told PE Hub. “15 years ago, a team might be worth $600 million. Today, the average team is probably worth $5 billion. And the the NFL, understandably, is very selective about who they want to be minority partners in the ownership group.”
PE firms like Carlyle, Arctos Partners, and RedBird Capital Partners are natural firms to think of as potential investors in an NFL franchise in the future. In April, Arctos announced that it has raised over $4.1 billion for its second sports fund, beating a $2.5 billion target.
Reg-tech roll-up
Regulatory technology continues to be a hot market for PE-backed buyers. Just last week Cube, which is backed by Hg Capital, announced the acquisition of news enterprise Thomson Reuters’ regulatory intelligence business for undisclosed terms.
This week my colleague Rafael Canton interviewed Hg partner Chris Fielding and principal Thomas Martin about Cube’s acquisition strategy and what’s underpinning interest in regulatory technology.
In laymen’s terms, reg-tech comprises the software tools used by financial institutions to comply with regulatory demands. And as Rafael writes, reg-tech is a natural fit for the London-based PE firm.
Hg acquired its inaugural reg-tech portfolio company Cube in March from Bregal Milestone. The company analyzes data from over 8,000 regulatory sources to identify the most relevant ones for each customer. The company’s customer base includes large banks and financial institutions such as Citi, Wells Fargo and American Express.
“The primary reason we invested in Cube is because it is a leader in automating regulatory compliance in a sector that is fast moving away from manual processes – Excel and lawyers looking up information on websites,” Fielding said. “Instead, there’s demand for automated machine learning and AI-driven solutions. These are rapidly being adopted by the sector as a whole.”
Cube has already made two add-on deals since Hg invested.
In early May, Hg acquired Reg-Room, a New York-based regulatory intelligence provider.
And in mid-May, Cube announced that it acquired Thomson Reuters’ regulatory intelligence and Oden products and businesses. Headquartered in Toronto, the former Reuters business allows customers in the banking, financial services and insurance sectors to understand operational, regulatory and compliance risks. Oden is a reference library that provides summaries and explanations of insurance mandates, both state and federal.
The deal brings together Thomson Reuters’ curated content with Cube’s software.
Straight to the heart
Shifting gears to close out today, PE Hub caught up with Lee Equity Partners principal John Eppler after he spoke at the McGuireWoods 20th Annual Healthcare Private Equity and Finance Conference in early May.
PE investing in cardiology is still “in its infancy,” and the sector is ripe with opportunities for PE firms to invest in practices to expand access to high-quality care, Eppler told PE Hub’s John R. Fischer.
Most cardiologists have historically been employed by hospitals. Prior to 2020, many cardiovascular procedures could only be performed in hospitals. Following Centers for Medicare & Medicaid Services approval, many outpatient clinics are now performing these services for 50-70 percent of the cost with strong patient outcomes, Eppler said.
“Cardiology is in the early innings of private equity investment with a limited number of platforms created to date,” Eppler said. “Cardiology is a large market driven by a massive cardiovascular disease burden in the US. Approximately one in four deaths are related to cardiovascular disease, and there is opportunity to invest to improve that going forward.”
Lee Equity is a mid-market, growth-focused PE firm based in New York that targets service companies in healthcare, finance and business. It manages $4.9 billion in assets as of March 2024.
“Investing in expanding a practice’s continuum of care can optimize the patient experience while driving organic growth for the physician practice,” said Eppler. “Executing on these sorts of opportunities requires capital and expertise. Private equity partners are well situated to provide that support for entrepreneurial physicians seeking to scale their businesses.”
That’s a wrap for me this week. Keep your eyes peeled for the Friday edition of the Wire from Obey Martin Manayiti.
Cheers,
Michael
