DealMarket DIGEST Issue 114 // 25 October 2013
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DealMarket DIGEST Issue 114 // 25 October 2013

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Our weekly pick of Private Equity News and Trends

Our weekly pick of Private Equity News and Trends

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DealMarket DIGEST Issue 114 // 25 October 2013 DealMarket DIGEST Issue 114 // 25 October 2013 Document Transcript

  • DIGEST 114 1 2 IPO Markets Pop to Decade Highs Dealmaking Up, But Value Down in Info Industry M&A Buyout Fund British Security Service Company 3 PE versus VC: Who Pays C-Level Execs Best? Base Case Scenarios : More Insight Into PE Returns 4 Quote of the Week: B-to-B Investment Returns Large for VC October 25, 2013
  • IPO MARKETS POP TO DECADE HIGHS INVESTORS Global IPO activity is projected to reach nearly 200 deals in the third quarter with IPO proceeds of around USD 24.4 billion, according to EY’s latest quarterly Global IPO Trends Report. For the first nine months of 2013, around 566 IPOs are expected to raise USD 94.8b. But that statistic does not tell the whole story, valuations for many of the IPOs have been robust, as has demand. In an article entitled, Tech IPO Market Partying Like It’s (Almost) 1999, Yahoo Finance reports that the average one-month share-price gain for 2013 technology company IPOs is up to 39%, based on data from Dealogic. It is the highest since the year 2000 but still a way off from the bubble era average return rate of 71% in 2000 and 142% gains in 1999 gains. This year 26 out of 145 IPOs have been technology companies, which is on par with the pace of the past few years, says Yahoo Finance. (Image source: E&Y IPO Global Watch) DEALMAKING UP, BUT VALUE DOWN IN INFO INDUSTRY M&A According to the latest research from Berkery Noyes, an independent mid-market investment bank, the number of private equity acquisitions in the Information Industry increased 18 percent in the third quarter of this year. This reversed a downward trend in volume over the past four quarters. However, there was a 52 percent decline in overall value between second and third quarter 2013, from USD 20.0 billion to USD 9.7 billion. The peak for financially sponsored deal value during the last 21 months occurred in second quarter 2013, which was attributable in part to the acquisition of BMC Software by a private investor group – led by Bain Capital and Golden Gate Capital – for USD 6.8 billion. The peak for financially 2 www.DealMarket.com/digest
  • The largest transaction in Q3 2013 was Thoma Bravo’s acquisition of Intuit Financial Services for USD 1.0 billion. Thoma Bravo had nine Information Industry transactions year-to-date, four of which occurred in Q3 2013. The number of deals between private equity firms rebounded sharply in third quarter 2013. After falling 50 percent between first and second quarter 2013, secondary buyout volume improved almost fourfold over the past three months. Secondary buyouts as a percentage of the industry’s aggregate volume also saw an uptick of six percent thus far in 2013 relative to the corresponding timeframe in 2012. Meanwhile, private equity firms as sellers represented 45 percent of transaction volume during the quarter, an increase of 10 percent when compared to the industry’s historical average since 2012. (Image source: BN) BUYOUT FUND BRITISH SECURITY SERVICE COMPANY This week’s deal of the week is a rumored buyout by Charterhouse Capital Partners of London of a unit of G4S for GBP 1 billion-pound (USD 1.6 billion), according to Bloomberg as reported by BW. G4S is a large security services and outsourcing company. The unit in question is a cash-solutions business that includes ATM banking machines. According to the report, G4S, based in Crawley, England, has not entered formal discussions with Charterhouse or mandated an external adviser for the unit. Other PE firms are also said to be circling the deal. This week’s deal of the week is a rumored buyout by Charterhouse Capital Partners of London of a unit of G4S for GBP 1 billion-pound (USD 1.6 billion), according to Bloomberg as reported by BW. G4S is a large security services and outsourcing company. The unit in question is a cash-solutions business that includes ATM banking machines. According to the report, G4S, based in Crawley, England, has not entered formal discussions with Charterhouse or mandated an external adviser for the unit. Other PE firms are also said to be circling the deal. (Image source: wikipedia) 3 www.DealMarket.com/digest View slide
  • PE VERSUS VC: WHO PAYS C-LEVEL EXECS BEST? When it comes to incentivizing C-Level executives venture-backed firms come out on top, while PEbacked firms are not as competitive, and are more likely to underpay the best performing C-level executives, and overpay average performing managers, even falling behind publicly traded companies, says new research conducted by Chief Executive Group. While base salaries, bonuses and equity incentives are competitive for median CEO and CFO positions, top quartile venture capital portfolio executives are better compensated than PE backed executives. And when it comes to technology positions like the head of R&D and CIOs, the gap between venture capital and private equity backed firms get even larger. According to Wayne Cooper, co-author of the 2013-2014 CEO & Senior Executive Compensation Report for Private Companies, “While the median private equity portfolio CEO is better compensated than CEOs of other private owners, the top performers are underpaid on average, suggesting that many PE firms are overpaying average performers and underpaying outstanding performers.” He added, “Senior executive compensation and incentive plans are key to attracting, retaining and motivating top talent, yet few private equity firms are properly aligning their portfolio company’s CEO and executive compensation programs effectively. There’s a lot of leverage in getting this right and applying competitive best practices.” BASE CASE SCENARIOS: MORE INSIGHT INTO PE RETURNS Preqin says it has come up with a new product to benchmark private equity performance, which gives better insights than typical metrics such as the IRR and multiples. The PrEQIn Private Equity Quarterly Index captures the returns earned by investors on average in their private equity portfolios based on the actual amount of money invested in private equity partnerships. An example of the number crunching potential is shown here in the two well-labelled graphics in from Preqin. The PrEQIn Index data shows that with 2000 as the base year, mega cap buyout funds had outperformed the smaller buy- 4 www.DealMarket.com/digest View slide
  • out fund size strategies, before experiencing a large drop in returns in late 2008. But the picture looks slightly different if the index is rebased to 2008. In that case, mid-market and small buyout sized funds have generated superior returns, possibly because the mega funds were impacted the hardest due to their leveraging and the liquidity crunch, says Preqin. During this period the best returns were generated by the Mid-market buyout funds whereas the Mega buyouts were at the bottom of the heap. Mega buyout funds have since returned to being the top performer between Q2 2010 and Q1 2013. QUOTE OF THE WEEK – B-TO-B INVESTMENT RETURNS FOR LARGE VC “When we invest in health technology, we are really looking for business-centric digital health technology companies. We see opportunities in Healthcare, connecting things that are happening in the consumer world back to the business constituents on the health plan, medical providers’ side…” Who said it: Kevin Spain, General Partner, Emergence Capital Partners Context: We’re quoting Kevin Spain this week on where the next big thing will be in healthcare technology. Why? As mentioned above IPO markets have been good for exiting PE industry investors this year. One of the most outstanding we came across this week was achieved by his early stage venture capital fund at Emergence Capital. BW reports that the IPO of its portfolio company Veeva, will potentially return the firm 300 times its investment and that the cash returned could end up being more than six times its USD 200 million fund it raised in 2007, if the post-IPO stock price holds or gains until lockups end in six months. The fund’s LPs include California Public Employees’ Retirement System and the University of Michigan, according to Tech Deals blog, published by Bloomberg. Emergence was an early investor in cloud computing and enterprise software as a service segments. While other VCs were investing consumer Internet in the latter part of the last decade, Emergence stuck to BtoB. Its approach is now paying off. Now it is looking at verticals, such as healthcare. Where we found it: TechCrunch 5 www.DealMarket.com/digest
  • The Dealmarket Digest empowers members of Dealmarket by providing up-to-date and high-quality content. Each week our in-house editor sifts through scores of industry and academic sources to find the most noteworthy news items, scoping trends and currents events in the global private equity sector. The links to the sources are provided, as well as an editorialized abstract that discusses the significance of the articles selected. It is a free service that embodies the values of the Dealmarket platform delivers: Professional, Accessible, Transparent, Simple, Efficient, Effective, and Global. To receive the weekly digest by email register on www.dealmarket.com. Editor: Valerie Thompson, Zurich DealMarket DealMarket launched in 2011 and is growing fast. Just one year after launch, DealMarket counts more than 61,000 recurring users from 154 countries, and over 3,000 deals and service providers promoted or listed on the platform. DealMarket is an online platform enabling private equity buyers, sellers and advisors to maximize opportunities around the world – a one-stop shop for Private Equity professionals. Designed by Private Equity professionals for Private Equity professionals, the platform is easy to use, cost effective and secure, providing access, choice and control across the investment cycle. DealMarket’s offering includes • DealMarketPLACE, brings together buyers, sellers, and PE advisors from around the world. PLACE gives access to deals (direct invest ments, funds, and secondaries), investors, and PE service providers. Searching and postingis free. (no commissions). PLACE PRO is the exclusive deal exchange platform made for engaged professionals and companies with a truly unique value added proposition. • DealMarketSTORE offers affordable access to industry-leading thirdparty information and services on demand; and • DealMarketOFFICE is a state-of-the-art deal flow management tool, helping Private Equity investors to capture, store, manage and share their deal flow more efficiently. DealMarket was voted the “Best Global Private Equity Platform for 2012 and 2013” by Corporate LiveWire. www.DealMarket.com/digest