Kathleen Bacon is a managing director at HarbourVest and specializes in European and emerging markets investments. She shares her thoughts on the firm’s strategy, the state of the market and efforts to attract more women to private equity.
Leaders League: What is the firm’s investment strategy in Europe and in emerging markets?
Kathleen Bacon: Our investment strategy is theme-based in these markets. In Europe, it’s both value and growth-based. We find that companies with an enterprise value of less than $500m are good opportunities for consolidation across products, services, and geographies. This is a particularly important strategy in today’s market where pricing is high for the platform itself, with add-ons typically done at slightly lower prices, so it not only adds top- and bottom-line growth, but is also accretive to the ultimate selling multiple.
The growth-investing themes are around internationalization and digitization via technology. We are looking at businesses that want to expand beyond their home geography, and certain private equity (PE) firms are very good at finding the global customers or consolidation targets to build a more international portfolio.
For technology, we’re looking at investments across many different sectors that use hardware, software, digitization, etc., to drive top-line growth within their portfolios.
In emerging markets, it’s slightly different because the themes are largely driven by increased consumer spending. The opportunities have more to do with consuming natural resources or overall basic needs, such as finance, transportation or education.
How do you mitigate added risk in emerging markets transactions?
The primary mitigation is working with emerging markets professionals who understand the business and commercial framework of the companies they’re investing in, as well as the regulatory, political, and macroeconomic factors that may create potential risk in these markets. It’s important to partner with general partners (GPs) that are local and that understand these markets. Then you have to apply extremely thorough commercial diligence in every investment opportunity using best practices from developed markets.
Will Brexit have an effect on HarbourVest’s strategy and the UK’s investment climate?
It’s made us very selective in terms of the managers we select and the co-investments that we do in the UK. We will be putting more focus on managers and companies that focus on the internationalization of UK businesses. It’s the biggest market in terms of M&A and PE activity in all of Europe, so one you need to be in, but we are slightly underweighting the UK compared to four or five years ago. You also have to pay attention to currency risk, especially if you’re a dollar-based investor.
What is Level 20 and what led you to get involved?
The mission of Level 20 is to attract and retain women in PE, such that by 2020 we have set a target that 20% of senior PE professionals are women. Founded three years ago, we are now up to 1,400 members and have over 40 GP sponsors.
The means by which we hope to make a difference in the industry is predicated on a number of pillars. One is research – for example, we worked with the British Private Equity & Venture Capital Association (BVCA) to quantify where we are in terms of the composition of women within the industry, their seniority and their respective roles.
Another is mentoring – we have put nearly 100 pairs of mentors and mentees through our mentoring program, pairing senior mentors, many of which are men, with mentees, obviously women, so that they can both learn from the issues women are facing within the industry.
A third pillar is networking, offering many events that members can attend to meet others in the industry.
The last pillar I’ll mention is educational outreach where we reach out to schools to talk about the industry and its attractiveness for women. It’s been a fabulous journey so far and while we still have a long way to go, we’ve made a huge amount of progress and I’m looking forward to continuing to drive Level 20’s mission to attract women to the industry and keep them here.