Transcript of "DealMarket DIGEST Issue 129 // 21Feburary 2014"
Sequoia Knows What’sApp When It Comes to
Finding the Exit
Private Equity Fees Drop to Record Low
Billions Paid for Growing Healthcare Service
M&A EMEA Trends 2013
This Year’s Biggest Challenges for PE Players
Quote of the Week: Big Data Meets Business
February 21, 2014
SEQUOIA KNOWS WHAT’SAPP WHEN IT
COMES TO FINDING THE EXIT
This week Sequoia has outpunched its rivals in the venture capital industry with the potential return
on it WhatsApp investment, which Facebook acquired for an eye-popping USD 19 billion in a cash and
stock deal. It is eye popping because WhatsApp is a free mobile app and it only employs 32 engineers,
according to WSJ Moneybeat.
Media sources (such as TechCrunch) are suggesting that Sequoia, which it says was the only VC to
back the startup, put in about USD 60 million over three years for a stake of about 20%. Its stake is
now worth about USD 3 billion in cash and stock. If the deal goes through it will provide a 2x return
on the entire USD 1.3 billion fund the initial WhatsApp investment came from, and it represents a 50x
return on its investment in the company. (Clearly, mobile technologies are highly valued, a sentiment
reflected in new figures from CB Insights, which shows that VC investments have climbed to over USD
1 billion per quarter over the last two quarters, up from USD 968 in the and USD 555 million in comparable quarters of the previous year, as shown in the chart here.)
This is not the only exit for Sequoia Capital, which is one of the US’ oldest and best known VC brands.
According to CB Insights, it leads the list of investors who have seen the most Silicon Valley-based tech
exits over the time period covered in the report, followed by micro VC fund Felicis Ventures. Sequoia’s
Silicon Valley tech exits include Jive Software, FireEye and Meraki while Felicis counts Climate Corp,
Wildfire and Meraki as well. (Image Source: cbinsights)
The top five Silicon Valley VCs to Exit in 2013
1. Sequoia Capital
2. Felicis Ventures
3. Accel Partners
4. New Enterprise Associates
5. DAG Ventures
PRIVATE EQUITY FEES DROP TO RECORD
Private equity management fees are dropping to record lows, according to Financial News citing figures from Preqin. Based on an analysis of firms raising funds in 2013 and those still seeking capital,
management fees are averaging out at 1.9% of the fund’s total value. It is the lowest figure since records began in 2005, says the report.
Management fees have historically been about 2%. Another change is that transaction fees, which
buyout firms charge portfolio companies, are increasingly paid back into the fund rather than to the
fund manager. An industry insider was quoted saying that the trend of fees coming down is here to
stay. Managed accounts are also becoming more common. Managed accounts totals climbed to a
record high of USD 20 billion for 73 accounts in 2013, compared with USD 17 billion for 61 accounts in
2012 and just USD 1 billion for eight accounts in 2003.
BILLIONS PAID FOR GROWING HEALTHCARE SERVICE PROVIDER
This week’s buyout of the week features Switzerland’s Partners Group which issued a statement describing its co-leading a deal to acquire US-based healthcare service provider MultiPlan. Financial
terms were not disclosed but several media outlets pegged the value of the deal at USD 4.4 billion.
Starr Investment Holdings, a long term capital investors, co-led the deal with Partners Group. They
bought the company from a consortium that included BC Partners and Silver Lake Partners. MultiPlan
was grown during its holding by the earlier PE investors, with several large acquisitions, as the chart
above show. Its transaction-based solutions to healthcare payers process about 40 million medical
insurance claims annually. (Image source: Multiplan.com)
M&A EMEA TRENDS 2013
M&A totals for Europe were down in 2013 but Merrill Corp says in its latest report that dealmaking
market may improve this year due to the large number of companies for sale that it is tracking. The
report explained the downturn in last year’s figures like this: “a sizeable spike in dealmaking in the
final quarter of 2012 led to a lull in activity during the first quarter of 2013, as M&A pipelines were
restocked. This weak first quarter had a detrimental impact on figures for 2013 as a whole, with the
value of dealmaking down by 14% YoY.” Regional figures show that Central and Eastern Europe was
the most active region in Europe for M&A in 2013.
The drop in deal value total also reflects fewer mega-deals, those with a target valued at more than
EUR 5bn generating M&A worth EUR 94.6bn, compared to EUR 161.8bn in 2012. The data drawn from
MergerMarket suggests that from the second quarter onward, dealmaking was robust in terms of volumes, with quarterly figures near to their post-crisis highs. Merrill says this “bodes well for dealmaking in 2014” and that the smaller, bolt-on deals that characterized the past 12 months will be joined by
an increased number of large, transformative transactions. (Image source: Merrill Corp)
THIS YEAR’S BIGGEST CHALLENGES FOR
A new Altius Associates’ survey, entitled ‘The Key Challenges facing the private equity sector in 2014’
finds that co-investment programs will continue to grow in popularity but warns that investors face
significant downside risk if they are poorly executed. Specifically, LPs must make structural adaptations to evaluate investments relative to their portfolios, practice effective due diligence, and be able to
make recommendations and get approvals from investment committees quickly. The survey described
this and nine other challenges facing PE this year in Finalternatives.
Another highlight of the survey was the finding for fund managers active in Europe. The key challenge
in Europe is not to overpay and yet still manage to deploy a significant amount of dry powder. The main
issue in the US buyout market is high valuations based on multiple of projected earning that are quite
a bit greater than historic multiple. For coinvesting in Asia, Altius said that investors
will do well to continue to grow their programs “disciplined and highly selective” way
as conditions for investing seem generally
better compared to anytime over the past few
A word of caution was to underweight on real
assets in emerging markets due to some
overvaluing in areas like renewable energy.
The report was bullish on secondaries due
to fund reductions and regulatory pressures.
(Image source: Preqin)
QUOTE OF THE WEEK - BIG DATA MEETS
“Using a big data approach, we are able to evaluate business lending using
a multitude of data sources that most credit bureaus and other lending
sources do not consider. As a result, we can provide financing solutions to
businesses far faster than our peers at half the cost of merchant cash advances….We consider ourselves to be a disruptive financial and technology
firm, compared to many of the emerging firms today in the peer-to-peer
Who said it: Zhengyuan Lu, Vice President of Capital Markets at OnDeck
In Context: Lu Zhengyuan was speaking at the Family Office Trends Forum in New York, NY in February 13th and explaining how his company, a startup that says it has provided some USD 900 million
in loans to “tens of thousands” of small and medium sized business in the US, is filling the gap left
in the credit market by regional banks and larger national banks. OnDeck uses data aggregation and
electronic payment technology to evaluate the financial health of small and medium sized businesses,
which it says enables it to make decisions at a fraction of the cost and time of more traditional sources
of business credit. It is backed by SAP Venture and Google Ventures, among others.
Who we found it: Rockefeller Global Foresight
The Dealmarket Digest empowers members of Dealmarket by providing
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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
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Editor: Valerie Thompson, Zurich
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