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As noted in our reports, CM day: further proof of value added by Apax and 1H’24: deal activity coming back strongly, the stock of exit-able businesses is rebuilding at a time when market demand is returning. Apax Funds appear to have turned the corner, and both exit and investment activity is steadily rebuilding to more normal levels. The growth in exits in 2025 should assist i) NAV growth, with a greater correlation between EBITDA growth and NAV growth, ii) cashflows, iii) sentiment, and iv) as a result, the discount to NAV. In our view, the growing investments, with the operational improvements that Apax then delivers, are key drivers to long-term outperformance.

  • Paycor to be acquired by Paychex: On 8 January, Apax announced the sale of Paycor. The key takeaways were i) uplift of ca.69% to the listed price at 30 September, showing conservatism of NAV, and ii) incl. prior distributions: total gross multiple on invested capital 3.3x and gross internal rate of return of 26%.
  • Active buyback programme: AGA was actively buying back shares through January, reporting buybacks on 19 days. There are now 3.4m shares held in treasury of the total share count of 491.1m, meaning AGA has bought back 0.7% of outstanding shares since the programme began on 28 June.
  • Valuation: AGA’s discount to NAV (35%) is at the upper end of the peers’ range (1% to 29% discount) and rises further by excluding the MTM of the Debt portfolio. Apax Funds overall continue to see exit uplifts, and the NAV is resilient to economic downturns, making the discount absolutely and relatively anomalous.
  • Risks: Sentiment to costs, the cycle, valuation and overcommitment are sector issues. A single writedown, in 1H’24, reminds investors of the potential volatility in PE returns. The Debt portfolio generates income towards dividends, and has liquidity/capital benefits, but complicates the story.
  • Investment summary: Apax has delivered market-beating returns by selecting businesses that it can transform post-acquisition. Buying these companies at a discount to peers (24%), accelerating their revenue growth and improving their margins, and then selling the reinvigorated business at a premium to those same peers (11% 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 Debt portfolio. The discount is the “icing on the cake”.
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