The competitive marketplace drives companies to differentiate and stay ahead of the game – but what are some of the key factors to keep in mind? Alex Darden from EQT Partners shares his insights on how to run a successful portfolio of real assets with a global profile.
What are your deal sourcing tips when it comes to real assets?
Over that last two decades, EQT has built an extremely broad network from which it draws many of its sourcing ideas and opportunities. When sourcing deals, we utilise our “local with locals” approach, integrating both global reach and local knowledge. This enables us to proactively stay close to market developments, source investment opportunities, facilitate access to stakeholders and successfully implement our established governance model and industrial approach. As a result, we are able to process a large quantity of opportunities in an efficient manner, and to focus spending resources on target assets.
As a thematic investor, we operate within sectors in which we have deep expertise and experience. We analyse sectors top down to identify key trends and develop our sector investment thesis, then work bottom up to identify specific opportunities we want to target. EQT’s 200+ investment advisory professionals’ experience, coupled with that of the network of 250+ Industrial Advisors, helps us spot industry trends early. Our ability to stay ahead of the curve has significantly fueled our success in certain infrastructure sectors including energy, transportation/logistics and telecom.
What are the characteristics of an “EQT deal”?
Our infrastructure funds invest in stable assets that provide an essential service to society and have cash flows that are broadly inflation resistant. Companies demonstrating these characteristics generally have sustainable business models with core characteristics that provide wide moat competitive dynamics. However, our business model is focused on growth and strategic development, so in addition to stability, before investing in a company, we feel it’s critical to be able to identify the ways in which EQT can accelerate growth or strategically reposition the business.
In this competitive marketplace, how can companies differentiate themselves as the preferred buyer of an asset? How can you showcase “uniqueness”?
Our heritage differentiates us as we promote a transparent culture and non-political attitude toward ownership, working alongside management teams with all interests fully aligned. We also bring Industrial Advisors to the table who understand a company’s business and market inside and out, and who can truly dig in and speak their industry language (literally and figuratively).
By being proactive with our sector work, we are well-equipped to identify a company’s full potential.
This differentiated investment approach, coupled with a unique governance model, creates a competitive advantage that often positions EQT as a preferred partner with a variety of key stakeholders. By being proactive with our sector work, we are well-equipped to identify a company’s full potential, win its management's and owner's confidence and bid competitively when appropriate. With this approach, we’ve been able to source and negotiate a number of opportunities on an exclusive basis.
EQT develops an investment’s full potential plan post acquisition, rather than earlier on in the process. What are the benefits of doing this?
We do significant work pre-acquisition on the quality and opportunities within a sector and at any specific target company. However, the full potential process should be a collaborative process between us, the board, and management, so that the strategic plan is clear and agreed amongst all stakeholders. Once we have the keys to the business and everyone is sitting on the same side of the table with their interests aligned, we are all able to strategise together as partners. At the end of the day, you can do as much due diligence as humanly possible and think you know everything there is to know about a company; but the truth is, you can’t ever truly know the business until after you own it.
With a large portfolio of global assets, what is your framework for monitoring underlying companies? How can you stay close enough to the details but not be distracted by the noise?
Transparency is one of our core values, and we bring it to all portfolio companies. It starts with our governance model and specifically with the Troika, a committee made up of the CEO, Chairman and the responsible investment advisor, which meets frequently between board meetings. While not a decision-making body, the Troika allows EQT, and the board, to stay intimately involved with the development of a company, and the key issues the management team is dealing with.
Additionally, we carefully track and monitor our investments’ performance during the ownership period, especially so in the first year. There is a periodic performance review process designed so that we can track a company’s progress and address any challenges. Early identification of issues and solutions is the best way to mitigate risk and protect against any underperforming assets.
How are your Industrial Advisors different from Operating Partners?
The Industrial Advisor Network is part of what makes us such a different player. Each Industrial Advisor is a giant from his or her own industry, bringing granular knowledge and specific skill sets to any given situation. These advisors are not generalists, rather a web of niche experts in the sectors in which EQT invests.
Another part of why they’re different is their early engagement; we engage the Industrial Advisors from the beginning of a sector analysis, not only for the closing of an acquisition. We may work with many of the Industrial Advisors for years before we engage them on a board. They remain critical participants in our due diligence process, and are integral to developing the investment thesis for sectors and specific companies.
Does having an operationally focused strategy mean you have to "fix" the assets?
EQT is a growth investor focused on buying high quality companies. As such, we do not focus on companies that need “fixing”. Our operationally focused business model means taking good companies, those with stable businesses and long-term projectable revenue streams, and helping them drive value creation within their business.
Under the spotlight: Alex Darden
Alex joined EQT Partners in April 2008. Prior to joining EQT, Alex worked at GE Energy Financial Services where he made structured debt and equity investments in energy industry assets and companies. From 1998 to 2002, Alex held various positions within ABB, Inc. including in ABB Structured Finance's Advisory and Debt Underwriting businesses. Alex is a Director on the boards of Westway Terminals and Peregrine Midstream Partners, and previously served as a Director for Restaurant Technologies, Inc.