FTV Capital: Growth equity in a ‘flight to quality’
‘Everything has flipped back to the rule of 40’
Interest rates are up and growth rates are down, which has forced private equity investors to refocus on profitability, revenue quality and cash reserves in a “flight to quality,” FTV Capital principals Alex Malvone and Brent Fierro told FreightWaves.
Loose monetary policy in the preceding decades and generous fiscal stimulus during the pandemic encouraged animal spirits among investors, who bid up multiples on technology firms to never-before-seen heights. In February 2021, for instance, the median company in the Bessemer Cloud Index was valued at a 15.9x forward revenue multiple. Those days are long gone: Now those same companies are valued at approximately 5.5x forward revenue.
“Clearly, it’s been an interesting market,” Malvone said. “One of the benefits of being a firm with a 25 year history — and I’ve been with FTV for 10 years now — is that we’ve seen some of the ups and downs with how things have played out before. That allows us to be pretty disciplined: not overindulging in the high highs or being forced to step back when the market is pulling back. We’ve been relatively active in the context of what you’re seeing in the broader market.”