FT : Chinese factory activity contracts as economic recovery stumbles

Chinese factory activity contracts as economic recovery stumbles
Service sector expands less than expected in May as expectations grow for stimulus support

China’s factory activity has contracted for a second consecutive month, while growth in the service sector slowed, adding to signs of a slackening post-pandemic recovery in the world’s second-largest economy.

The official manufacturing purchasing managers’ index came in at 48.8 for May, compared with 49.2 in April, according to the National Bureau of Statistics.

The non-manufacturing PMI, which covers activity in the service sector and industries such as construction, was 54.5 in May, below the previous month’s figure of 56.4.

Economists said several months of manufacturing readings below 50, which indicates a contraction, would lead the government to consider stimulus policies to support the economy, which has struggled to maintain strong growth after Beijing relaxed draconian zero-Covid controls this year. Exports have also lagged, as global demand for Chinese goods has failed to pick up.

“We expected that the initial rebound would be led by consumption and services post-reopening and that optimism would eventually translate into a broadening of the base of this economic recovery to include stronger manufacturing and investment,” said Carlos Casanova, senior economist for Asia at UBP. “That broadening has not taken place yet.”

The weaker data sent regional currencies lower against the dollar on Wednesday and hit equity markets that were already weighed down by concerns about China’s uneven economic rebound. One index of Chinese stocks listed in Hong Kong slipped to bear market territory.


China’s economy grew rapidly in the first quarter, but the rebound has begun to falter in the past two months. Property investment, credit and industrial profits have declined, while indicators such as retail sales have fallen short of analysts’ expectations, casting doubt on the government’s modest full-year growth target of 5 per cent.

“The foundation for recovery and development still needs to be consolidated,” said Zhao Qinghe, a senior statistician at the NBS, in a statement on Wednesday. In the manufacturing sector, he said, “production and demand slowed distinctly”.

Hong Kong’s Hang Seng China Enterprises index, which tracks large mainland Chinese companies, fell more than 2 per cent on Wednesday, bringing the benchmark more than 20 per cent below its recent peak in January and plunging it into a bear market. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 1.2 per cent.

The renminbi slipped 0.4 per cent to Rmb7.1051 against the dollar, bringing it down almost 3 per cent for the year to date. Currencies of large exporters to China also sold off, with the Australian and New Zealand dollars down 0.5 per cent and 0.4 per cent, respectively, against the greenback.

A sub-index of new export orders declined to 47.2 in May from 47.6 in April, “pointing to weaker external demand”, Goldman Sachs said in a research note. The bank said deflationary pressures on the manufacturing sector were “partly due to falling commodities prices and muted market demand”.

The data indicated a strong expansion in service industries such as airlines, ship and road transport services and telecommunications but sustained weakness in property.

“There’s this widening discrepancy between the service part and the manufacturing side,” said UBP’s Casanova, adding that “the economic recovery has been exceptionally uneven”.

However, pent-up demand for services following the end of the Covid-19 controls would fade in the coming months, he said, making the outlook for economic growth this quarter and next “a bit more complicated than we thought at the beginning of the year”.

FT : Mercedes chief hits out at EU tariffs set to penalise carmakers

Mercedes chief hits out at EU tariffs set to penalise carmakers
Ola Källenius calls for delay in post-Brexit sourcing rules and warns new tariffs will dent industry competitiveness

The head of Mercedes-Benz has called for a delay in post-Brexit rules that would add stiffer tariffs on shipments to and from the UK and Europe from next year, saying the car supply chain in Europe was not yet self-sufficient enough to meet tougher sourcing requirements.

The German carmaker’s chief executive Ola Källenius said January 2024 was “too soon” to bring in tariff rules set out in a post-Brexit trade agreement, rules intended to encourage more local sourcing of vehicle components.

Under these so-called rules of origin, electric cars exported between the UK and the EU will need to have 45 per cent of their parts sourced within the two regions to avoid 10 per cent tariffs. 

Källenius joined other European carmakers lobbying for a delay, including Stellantis boss Carlos Tavares who on Tuesday called for the phase-in date to be pushed back to 2027, warning the current timeframe was a “lose lose” situation for both the EU and the UK.

“As the production capacity of Europe’s battery industry is not yet sufficient, to demand stringent rules of origin poses a major challenge for the competitiveness of our industry,” Källenius said at the inauguration of a cell manufacturing plant in northern France, the first of four planned car battery plants planned in the region. 

The factory — which will supply Mercedes’ electric cars and is part of its battery partnership with TotalEnergies and Stellantis — was a step in the right direction towards building a standalone European car manufacturing industry, at a time when the region was trying to wean itself off dominant Chinese and Asian batteries, Källenius added. 

“But all in all, the first of January 2024 is too soon. We need more time for this transition and we would therefore appreciate political support, together with our British partners, in this matter,” Källenius said. 

The looming deadline and backlash from carmakers has highlighted the scale of Europe’s challenge to catch up with Chinese and South Korean battery producers, the main suppliers globally to electric vehicle manufacturers. 

Mercedes’ joint venture with Stellantis and Total, called Automotive Cells Co or ACC, is set to get under way this year with an initial 13 gigawatt/hour capacity at a plant in Douvrin, in northern France. Two more factories are expected to launch in Germany and Italy by 2030, with the aim eventually of supplying 2mn batteries a year. 

These are among a handful of similar projects carmakers are trying to progress across Europe, many of which are supported by state subsidies. French ministers on Tuesday said government support would help make local production competitive compared to Asian or US-made alternatives.

They also vaunted the lower carbon footprint of the European plants, which would add to the products’ appeal for car manufacturers trying to comply with increasingly strict emissions rules.

But battery supplies and production for now are constrained and dependent on Asia, just as carmakers are already racing to try and outdo each other with new electric models.

Tavares said a consensus was emerging that 2027 would be a reasonable phase-in date for the new tariff rules.

These could deal a further blow to Britain’s struggling car industry, not least because of Stellantis, the group behind Vauxhall, also threatening to close its UK factory of Ellesmere Port unless the tariff issue is renegotiated.

“It’s a technical adjustment that should not create too much trouble,” Tavares said on Tuesday, asked about delaying the phase-in to 2027. “Without [a deal] this looming deadline will create a lose-lose situation [for Britain and Europe]. As both will lose from it, it would be in both their interests to change the date.”

FT : Rise of the tech giants exposes the problem of index distortions

Rise of the tech giants exposes the problem of index distortions
Investors need to check whether passive investment vehicles deliver the diversification they want

Mega market cap stocks are eating their indices, distorting their usefulness in some cases as market gauges for investors.

The most widely used index in the world is the S&P 500, which is supposed to be a broad barometer of the US stock market but has increasingly been driven by a small number of tech giants. This year, the S&P 500 is up by about 10 per cent but with much of its returns driven by Apple, Microsoft, Amazon, Alphabet, Nvidia, Meta and Tesla.

A similar trend can be seen in the Nasdaq 100. These seven stocks now account for about 29 per cent of the market capitalisation of the S&P 500 and 60 per cent of the Nasdaq 100. JPMorgan analysts last month said the US equity rally was driven by the narrowest leadership in a rising stock market since the 1990s.

As market tides come and go, there will always be periods when stocks or sectors dominate market indices. But the degree of imbalances now adds to the onus on investors, when choosing a passive investment vehicle, to check whether it actually provides diversification or exposure to the sector they are hoping for.

For example, the five largest exchange traded funds by assets under management include three S&P 500 trackers from BlackRock, Vanguard, and State Street, while the dominant ETF for the Nasdaq 100 is Invesco’s QQQ. Such increasingly concentrated indices are definitely not reflective of the health of the overall US stock market.

In more focused or sector-specific indices, the issues are starker. The ETF sector is highly liquid and transparent. Most major indices still work well mechanically. But for all the calls for index providers to ensure objectivity and rigour, industry classifications are always going to be somewhat subjective. Including or excluding a small group of the largest stocks can skew these indices significantly.

Take the recent shift of payments processors including Visa and Mastercard out of the S&P’s technology sector and into the financials sector. In many banking crises of the past, the Financial Select Sector SPDR Fund, or XLF ETF, has been a proxy way to gain or hedge exposure to the US banking sector as it tracked the S&P financials index.

During the recent banking crisis, the KBW US banks index was often referenced more publicly as a benchmark, but the XLF remains the largest and most liquid route to play the financial sector.

Yet today, a little under 30 per cent of this index is composed of Apple shareholder Berkshire Hathaway, Visa and Mastercard. The inclusion of a slew of data vendors, exchanges and fintechs means that banks are now a smaller proportion of this sector index and even Citigroup is no longer a top 10 constituent.

And the reclassification of Visa and Mastercard as financials leaves behind an unbalanced S&P technology index. Following recent share prices moves, Apple and Microsoft now account for about 47 per cent of the market capitalisation of the Technology Select Sector SPDR Fund, or XLK, which tracks the S&P index. This means the benchmark is hitting concentration limits allowed by US regulation, illustrating the challenges of index composition.

Even apart from concentration issues, there are questions about how representative the S&P technology sector index is of Big Tech stocks. Several years ago, the likes of Meta — then Facebook — and Alphabet were reclassified as communications companies.

Despite the huge value in its web services and cloud computing arm, Amazon is considered a consumer discretionary stock by S&P. The increasing tendency of companies to be technology-enabled is blurring the lines between the sectors they could belong to.

One of the fastest-growing areas for indices has been thematic investing and, in particular, strategies focused on environmental, social and governance factors. Under the threat of regulatory scrutiny, index providers are tightening disclosures, inclusion criteria and ratings. Nevertheless, in an area where we are dealing with less than perfect information, there will always be a huge number of value judgments and differences between index providers.

More generally, such differences and index imbalances of course provide opportunities for active fund managers to prove the case for their role — to bet against a market benchmark, say, to wager that the dominance of the likes of Microsoft or Apple might not last. For passive investors, they should serve as a reminder that indices are still flawed, human-made constructs with sometimes arbitrary classifications. We still need to do our homework when choosing them.

FT : Alternatives M&A: keeping up with the Blackstones will invite scrutiny

Alternatives M&A: keeping up with the Blackstones will invite scrutiny
TPG deal for Angelo Gordon highlights the drivers of concentration of power in the industry

US competition regulators are tightening their scrutiny of mergers of private equity portfolio companies. Could antitrust regulators soon be coming for alternative asset managers themselves?

That question is prompted by the plan of buyout titan TPG to spend $2.7bn in cash and stock on the specialist credit and real estate manager Angelo Gordon. 

Assets managed by the listed private capital stalwart will go from $135bn to just over $200bn. It said pensions and sovereign wealth funds increasingly want one-stop shopping when allocating capital between buyouts, fixed income, real estate and the like. In particular, investors have developed a taste for insurance affiliates.

TPG is implicitly admitting the deal is a way of keeping up with the likes of Blackstone and Apollo, whose asset bases are approaching $1tn each.

It is understandable why external investors with limited monitoring capabilities prefer to engage with a small number of diversified alternative asset managers.

Consolidators, particularly ones that are publicly traded, have incentives, for their part, in simply growing their asset bases and gross management fee revenues. They may also be able to sell bundles of their funds to pensions and wealth funds. 

The challenge is to ensure that they do not overpay for growth and similarly, that incoming executives remain motivated.

Firms seeking to grow do not have to rely on full acquisitions. They can hire small teams or redeploy employees to build strategies organically. But such efforts are time-consuming and difficult. Some asset classes require specialist backgrounds or track records.

Huge growth in the alternative asset industry has created demand among traditional asset managers looking to get their slice of the action. Even TPG or Carlyle Group with $400bn in assets under management could be a target for the likes of BlackRock, Fidelity or a sovereign wealth fund.

As alternative asset managers grow in size, so will concerns about concentrations of power in the industry.

FT : Loan market braces for rush to Libor finish line

Loan market braces for rush to Libor finish line
At least $700bn of junk loans are still priced using lending benchmark, just 30 days before the rate is set to expire

About half of the $1.4tn US junk loan market is still shackled to Libor just 30 days before the rate is set to expire, with meagre dealmaking activity curbing companies’ ability to split from the lending benchmark and embrace its replacement.

The slower-than-expected progress means that corporate borrowers and the institutions facilitating their switch to the new benchmark face a crunch point, as they strive to push loans over the line before the cut-off, to avoid automatically falling back on to potentially less favourable borrowing terms.

At least $700bn worth of lowly rated corporate loans are still priced using Libor, according to estimates from industry participants, despite years of warnings that the rate will cease this summer. Moody’s puts the percentage outstanding even higher, at approximately 60 per cent, or $900bn, as of May 19 — based on holdings within loan portfolios rated by the agency.

The rest of the market has migrated to the newly accepted benchmark in the US known as “Sofr”, the secured overnight financing rate, and the pace of transition has accelerated in recent months. But the clock is ticking for residual debt to catch up by June 30, with the flow hindered by economic and market strains.

“I expect everyone across the spectrum — banks, law firms, private equity companies and their portfolio companies — everyone will be impacted and busy doing what they can to transition their portfolio of deals by the end of the month,” said David Ridley, partner at law firm White & Case, pointing to “a lot of paperwork”.

Meanwhile, fresh borrowing in the low-grade loan market has been “quite anaemic” this year, according to Lotfi Karoui, chief credit strategist at Goldman Sachs.

“In an ideal world, you want a big chunk of the transition to happen via refinancing where you’re just replacing some of these old loans that reference Libor with new ones,” said Karoui. “In a more robust primary market environment, things would have happened organically.”

White & Case’s Ridley concurred that “the natural opportunity to transition via some larger transaction . . . effectively dried up during the course of last year”.

Ending the daily publication of the US dollar version of Libor is seen as the last hurdle in the shift away from the lending rate, which was used for decades to price various assets but was central to manipulation scandals following the 2008-09 financial crisis.

The transition to Sofr this year has been slowed by tensions between corporate borrowers and holders of their loans, most of whom are “collateralised loan obligations” — vehicles that scoop up loans, sort them into risk categories and sell the tranches on to investors.

Arguments have centred on the differences between the old and new lending benchmarks. Libor is deemed to include a built-in credit risk premium that Sofr lacks, prompting lenders to argue that loan amendment documents should offer Sofr plus some extra compensation.

However, companies are already facing much higher funding costs, because “leveraged loans” typically have floating rates — meaning their coupons have soared higher as the Federal Reserve has lifted interest rates. In turn, a number have pushed back against suggested “credit spread adjustments” that could increase payments following the Sofr switch.

But attention has shifted to getting things done rapidly. Many companies have fallback plans, but these are not necessarily attractive options.

According to analysis from research group Covenant Review based on the Credit Suisse leveraged loan index, more than two-thirds of loans linked to Libor have “hard-wired” language in their documents, meaning that come July 1 they will automatically revert to guidelines outlined by the Alternative Reference Rates Committee — a team of market participants convened by the New York Fed.

The ARRC suggests a range of “Sofr plus” adjustments to loan documentation for various lending timeframes. Hard-wired borrowers can fall back on to those terms, unless they try to rush through deals with smaller adjustments.

Other loans have different types of language to aid the switchover process. But a smaller cohort — 8 per cent of the Libor-linked market — has no succession language in their documents. That means they could revert to an even more costly “base rate” if they do not transition to Sofr in time.

For Tal Reback, a principal at private equity firm KKR who is on the ARRC board, “it’s not a panic moment because the market has proven to be very orderly — seeing the pace of amendments in April and May, there’s a lot”.

But the deeply-ingrained nature of Libor after such a long period of use still makes the transition challenging.

“Libor is like salt. It’s in everything — it’s very hard to take out once it’s in the cooking. But what you’re seeing is a whole new buffet,” she said.

>>> US After Hours Summary: AMBA -12.9%, HPE -6.9%, HPQ -4% lower on earnings; L

After Hours Summary: AMBA -12.9%, HPE -6.9%, HPQ -4% lower on earnings; LL +18.5% higher on possible deal interest

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: BOX +2.6%

Companies trading higher in after hours in reaction to news: LL +18.5% (F9 Investments prepared to consider an offer of $5.76/sh for LL), TWLO +3.6% (will lose supervoting protection next month; also co has been meeting with activist, according to TheInformation), CAE +2% (awarded $455 mln subcontract for US Army Flight School), CCO +1.6% (to sell its businesses in Italy and Spain), SMTC +1.2% (names new CEO), BRMK +1.2% (RC shareholders approve issuance of common stock in merger with BRMK), RC +0.8% (RC shareholders approve issuance of common stock in merger with BRMK), UCBI +0.6% (receives FDIC approval to acquire First Miami Bancorp), MCRB +0.4% (receives $125 mln milestone payment for FDA approval of VOWST), PINS +0.3% (names new CFO), BMBL +0.3% (president to resign), MRTX +0.3% (to encore data demonstrating Adagrasib's potential), GLDD +0.2% (awarded a $157 mln US Army contract)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: AMBA -12.9%, SPWH -7.3%, HPE -6.9%, HPQ -4%, UHAL -1.8%

Companies trading lower in after hours in reaction to news: BLTE -38% (commences public offering of ADSs), PEPG -18.4% (clinical hold on IND application of PGN-EDODM1), ASLE -8.5% (4 mln share offering by selling shareholders), LTRX -7.6% (CEO to step down), HRZN -6.4% (3.25 mln share offering), EGO -5.6% (announces C$81.5 mln strategic investment by EBRD and concurrent C$135 mln bought deal financing), KODK -2% (acquires Graphic Systems Services), IMMR -1.3% (CFO to step down, names new CFO), COIN -0.6% (SEC settles with former product manager and his brother on insider trading charges), IRTC -0.5% (received warning letter from FDA resulting from inspection), ABM -0.3% (partners with Orlando airport), BA -0.2% (increases 787 Dreamliner production, according to Reuters)

>>> US Closing Stock Market Summary


Closing Stock Market Summary

The stock market started this holiday-shortened week on a mostly softer note. Initially, the market seemed poised for a stronger showing after participants learned over the weekend that President Biden and House Speaker McCarthy reached a debt ceiling agreement. Enthusiasm quickly dissipated, though, with uncertainty about the deal passing in both chambers of Congress still weighing on sentiment. 

The House is expected to vote on the debt ceiling deal Wednesday night and the Senate is expected to hold a vote this weekend.

The lingering uncertainty about the passage of the debt ceiling deal, along with ongoing concerns about the economic outlook, kept the broader market in check. Market participants received the Consumer Confidence Index for May today, which fell from last month's reading and showed that expectations remain "gloomy."

Also, worries about Fed policy came into focus after Richmond Fed President Thomas Barkin (not an FOMC voter) said he has one of the higher rate forecasts on the committee and he hasn't backed off of that, according to CNBC.

Mega cap stocks, along with other growth stocks, were a big source of support and helped to drive the relative outperformance of the S&P 500 and Nasdaq. The S&P 500 was able to maintain a position above 4,200 on a closing basis after slipping below that level a few times today. 

Market breadth reflected underlying weakness in the market. Decliners led advancers by an 11-to-10 margin at the NYSE and a 4-to-3 margin at the Nasdaq.

Most of the S&P 500 sectors closed with losses while the consumer discretionary (+0.8%) and information technology (+0.6%) sectors led the outperformers. The former was supported by gains in Amazon.com (AMZN 121.66, +1.55, +1.3%) and Tesla (TSLA 201.16, +7.99, +4.1%), the latter of which was reiterated Overweight at Barclays. 

The info tech sector got a big boost from NVIDIA (NVDA 401.11, +11.65, +3.0%), which reached a $1 trillion market cap at its high today after announcing a new DGX GH200 AI Supercomputer.

The consumer staples (-1.1%) and energy (-0.9%) sectors were the top laggards today. 

Treasuries settled with gains across the curve, adding some support for the mega caps and other growth stocks. The 2-yr note yield fell seven basis points to 4.49% and the 10-yr note yield fell 11 basis points to 3.70%.

  • Nasdaq Composite: +24.4% YTD
  • S&P 500: +9.5% YTD
  • Russell 2000: +0.3% YTD
  • S&P Midcap 400: +0.4% YTD
  • Dow Jones Industrial Average: -0.3% YTD

Reviewing today's economic data:

  • The FHFA Housing Price Index rose by 0.6% in March from a revised 0.7% increase in February (from 0.5%) 
  • The S&P Case-Shiller Home Price Index declined 1.1% in March (consensus -2.3%) following a 0.4% increase in February
  • The Conference Board's Consumer Confidence Index dipped to 102.3 in May (consensus 99.5) from an upwardly revised 103.7 (from 101.3) in April. In the same period a year ago, the index stood at 103.2.
    • The key takeaway from the report is that expectations remain "gloomy," which incorporates a notable worsening in the outlook in May among consumers over 55 years of age.

Advance Auto (AAP) headlines the companies reporting earnings ahead of tomorrow's open. 

Looking ahead to Wednesday, market participants will receive the following economic data:

  • 7:00 ET: Weekly MBA Mortgage Index (prior -4.6%)
  • 9:45 ET: May Chicago PMI (consensus 46.1; prior 48.6)
  • 10:00 ET: April job openings (prior 9.590 mln)
  • 14:00 ET: May Fed Beige Book

WWD : Maison Michel Expands Into Handbags

Maison Michel Expands Into Handbags
The inaugural designs by the milliner’s creative director Priscilla Royer will launch globally on June 6.

HATS OFF: Going forward, Maison Michel is going to turn its designs on their heads — by turning them into handbags.

For creative director Priscilla Royer, adding bags to a hat specialist was a natural extension of the brand’s territory. “The bag is obvious, from the moment you put a hat down,” she said.

“When we looked at ways to make new products with our DNA, the bag felt right because it’s a much more accessible product. It’s less daunting to buy a bag than a hat,” she said. “I’ve been trying to shoehorn the idea that hats aren’t out of fashion and this continues my goal from the start of putting it on equal footing with bags, jewelry or shoes.”

Each bag design was developed and crafted using the wood shapes that are used to make hats, which number in the hundreds. In addition to its own stock, the Chanel-owned specialist has been buying vintage ones from workshops closing down and training craftspeople to perpetuate the know-how with new designs.

“We looked at which ones could do the job and how we could make new products with things like our little ears,” she said. But don’t expect to just flip your head gear around to get the same result.

Although the bags call on the milliner’s specialty techniques like sewn straw, Royer didn’t want the designs to “just be a hat turned upside down, you had to have a real bag in the end.” Finishing them off are leather details or studded straps.

Named after Hollywood stars, the bags range from the “Barbara” bucket bag and “Brittany” basket to “Audrey,” a take on the brand’s best-selling ear-adorned cap.

Available from June 6 at the brand’s boutiques in Paris, London and online as well as selected retailers worldwide, including La Samaritaine, Lane Crawford and Korea’s Boon the Shop, the bags will be priced between 295 and 875 euros.

Going forward, the Maison Michel bag line will follow a similar evolution to the bridal collection, with new styles inserted as part of the label’s spring offering.

The Information : What Deals Drought? Founders Without Backing Are Still Selling

What Deals Drought? Founders Without Backing Are Still Selling Their Businesses

THE TAKEAWAY
The drought in dealmaking isn’t hurting the sales of founder-backed companies nearly as much as it has hit firms with PE or VC investors. Founders who own their companies are often less price sensitive or have other reasons for selling, according to people working on those types of deals.

Merger and acquisition activity has been anemic for more than a year, with buyers and sellers often far apart on price after valuations have taken a beating. But one corner of the M&A market has held up much better than others during the doldrums: the sale of companies owned by a founder with neither venture capital nor private equity backers.

The number of deals of that type declined just 5.7% in 2022 from a blockbuster 2021, compared with drops of 19% and 21% for sales of firms that had PE or VC backing, respectively, according to PitchBook data. In the first quarter of this year, 85% of all takeovers PitchBook tracked were of founder-owned companies with no outside backing, higher than for any full year on record.

Bankers and lawyers handling these types of deals who spoke with The Information said they are continuing to happen because many founders that haven’t raised money are less price sensitive at this moment, especially without pressure from outside investors to get every dollar possible for their company. Firms without PE or VC investors also likely don’t have a previous valuation level they feel like they need to measure up to in order to sell.

To a founder with an opportunity to sell for, say, a guaranteed $100 million today or a theoretical $130 million several years from now, $100 million is often still enough money to entice them to sell, said Matt Simpson, a co-chair of law firm Mintz’s private equity practice.

Because other factors, such as the urge to retire or spend more time with family, might be motivating these founders, many are heading for the exits—or even the beach. Simpson said he worked on a deal with a founder who wanted “palm-tree peace of mind.” That founder ultimately accepted less money in exchange for a guaranteed clean break from the company.

“Founders might want to sell because they’re tired or burnt out,” said Thomas Smale, CEO of technology-focused M&A advisory firm FE International, which recently advised a founder-owned company, Retriever, on its sale to private equity firm Lever Technology. “A PE firm is never going to sell because the general partner is tired.”

‘We Were Pretty Damn Tired’

After running every aspect of Retriever for two years, its co-founders, Annie Kramer and Alex Sydell, were indeed tired. But they were also in the unusual position of running a company that benefited from recent economic turmoil.

Retriever helps remote employees return laptops and other devices. As companies across the U.S. accepted the reality that remote work in some form was here to stay after Covid-19 lockdowns, Retriever’s business boomed, Sydell said. A wave of layoffs across corporate America last year added to that growth. And because it ran such a lean business, Retriever was profitable almost immediately, Kramer said.

As demand for their service surged last year, Kramer and Sydell felt they should take advantage of the opportunity to cash out while business was doing well and sell to a private equity firm with logistical and managerial expertise. Kramer and Sydell sold 100% of the company to Lever Technology and agreed to exit completely after a six-month transition period.

Kramer and Sydell were both happy to get money off the table while times were good, but they agreed there was also a “pretty major fatigue component.”

“Selfishly, we were also pretty damn tired from two years of hustling,” Sydell said.