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    2011 global private equity report 2011 global private equity report Document Transcript

    • GLOBAL PRIVATE EQUITY REPORT 2011A force for growth
    • Contents01 Key findings04 Global picture15 Western Europe24 North America33 Asia Pac41 MENA50 BRICS62 Sample and methodology64 Grant Thornton capabilitiesIBC Grant Thornton contacts Glossary AFIC Association Française des Investisseurs en Capital (the French Private Equity Association) AIFMD Alternative Investment Fund Managers Directive Asia Pac Asia Pacific region BRICS Brazil, Russia, India, China and South Africa CEO Chief Executive Officer DD Due diligence ESG Environmental, social and governance FMCG Fast moving consumer goods GCC Gulf Cooperation Council GDP Gross domestic product GP General partner HR Human resources ILPA The Institutional Limited Partners Association IPO Initial public offering IR Investor relations IT Information technology LATAM Latin America LP Limited partner M&A Mergers and acquisitions MENA Middle East and North Africa (including Turkey) N/A Not applicable PE Private equity PIPE Private investment in public equity PLC Public limited company SME Small and medium sized enterprises SWF Sovereign wealth fund TMT Telecommunications, media and technology UN PRI The United Nations-backed Principles for Responsible Investment InitiativeThe views and opinions in this report expressed by those private equity survey respondents providing comments or quotesare theirs alone, and do not necessarily reflect the views and opinions of Grant Thornton International Ltd or any of itsmember firms.
    • Key findings MARTIN GODDARD GLOBAL SERVICE LINE LEADER – TRANSACTIONS GRANT THORNTON INTERNATIONALOver recent years, practitioners Three years in, the answer to the Three years ago, as the cloudswithin the private equity industry question of whether we are emerging gathered with the tightening of themight have been forgiven for thinking from the global economic downturn debt markets, dealflow within thethey were facing something of a or about to slip into a double-dip is more developed private equityperfect storm, with the industry being still to be answered. markets rapidly started to fall away.challenged on all sides. Globally, the Through this, private equity has With the skies not having lightenedcompetitive environment within the been asked to reflect on both its own that much in the intervening period,industry has become more intense place in the financial landscape and to the consequent increased competitionwith quality dealflow at a premium, face up to its often compromised for quality deals has only beenwhile simultaneously Limited public perception. There are real compounded by the return of strategicPartners (LPs) have become challenges here for the industry world- buyers, many of them keen to putincreasingly demanding and vocal, and wide. In this report, we consider what healthy balance sheets to work.the industry has also received greater it means to undertake private equity in In the emerging markets, the sense ofscrutiny from the broader public and the principal private equity markets opportunity has seen something of aregulators alike. Compounding the around the globe – in terms of both gold rush mentality with an influx ofindustry’s own internal growing pains the challenges and opportunities – and Western private equity firms seeking– which in some of the oldest private find an industry that, on many levels, new areas of opportunity and theequity markets has seen the validity of is converging in terms of the way it rapid development of domestic privatethe whole model questioned – has goes about business. However, while equity industries also drivingbeen one of the toughest macro operating a private equity firm in competition. Across the world, then,economic environments in recent London, Sao Paulo, New York, there has been a shortage of qualityhistory, with portfolio companies Shanghai or Sydney may require assets at reasonable prices for a privatesucking in time and resource as they increasingly similar skills, functions equity industry which had beenface up to the economic headwinds. and approaches, the dynamics in those accelerating its accumulation of funds individual markets driving this over the course of the previous decade convergence often remain quite and, as a consequence, has a pent up different. need to deploy capital. Global private equity report 2011 1
    • Just finding shelter and sitting out inevitable concern. However, in these Historically, IPOs have often been the storm hasn’t been an option for markets too, private equity firms a preferred exit route for private private equity investors either. With report the growing relevance of equity firms, and they do remain a the boom in investment activity in the added-value approaches to portfolio viable option in parts of Asia, for run up to the downturn, private management. These markets are often example. However, this channel has equity portfolios had grown still characterised by growth capital been all but closed for some time in considerably and have often been investments, with low levels of Europe and the USA; overall public demanding of attention as the leverage, meaning the focus too is on investor sentiment and desire to invest environment has become more performance improvement. As these might be the issue in some regions, challenging and unpredictable. markets become more globalised, but the perception of private equity Creating ‘saleable’ businesses with there is a recognition of the need to has also acted as a particular brake on enhanced valuations is the endgame ‘professionalise’ businesses, with the IPO option in some countries for private equity firms and, while the private equity firms seeing a key largely due to perceived pricing issues. exit markets are showing some signs aspect of their involvement as the The return of strategic buyers might of life again, the torrid market for new introduction of international have added to the competitive investments of recent years has often standards of governance and ways of pressure on the buy-side, but they been reflected in the exit markets too. doing business in order to prepare have been a welcome sight on the In the West, the challenging companies for eventual sale. horizon from an exit perspective. If trading environment has seen a Generating quality exits and corporates present the industry with renewed focus for private equity in returns has always been critical for something of a double-edged sword, getting more closely involved in private equity, but their significance so too does private equity’s own portfolio businesses – while leverage has, if anything, increased as holding ‘internal’ response to the need to both and multiple arbitrage might have periods have been stretched. In put money to work and generate worked in a rising market, come the developed markets, private equity returns – secondary buyouts. While downturn performance improvement firms are starting to bump up against many practitioners themselves remain is the order of the day. Many private the investment hurdles of their fund very aware of the need to provide a equity firms have therefore been cycles which need to be negotiated clear rationale for such deals in order responding by ‘tooling up’ and even before new funds can be raised. to convince investors that they are not establishing more formalised portfolio In some of the more emerging just fuelling an internal market in operations teams to add more strategic markets, the development of the private equity assets, they have insight and even operational resource industry is still at an early stage, but become an established feature of the alongside the financial planning there is again a sense that the developed markets. However, even in insight provided. enthusiasm and promise on the back the more growth-oriented emerging In many of the emerging markets, of which these markets have grown markets they are also gaining economic growth has been less of a now needs to come good in the form significance. concern – GDP growth of seven or of demonstrable returns. eight percent plus might be difficult to imagine in Europe or North America, but markets such as Brazil, India and China have seen sustained growth and continue to drive forward even though the fear of over-heating is an2 Global private equity report 2011
    • Maintaining a true course through The more forensic approach being Troubled waters perhaps, and onessuch choppy waters was always going taken by institutional investors may which no doubt will see moreto present challenges for investing and bring with it a greater administrative casualties to come, but goodexiting. But churn has also been a burden for private equity firms, but it helmsmanship and a solid crew (and afeature of the fundraising environment can be seen as an integral part of the bit of luck here or there) still leave theas well. Institutional investors have longer-term trajectory of an industry chance to navigate throughthemselves faced considerable that also includes being under the successfully. There is a strong sensechallenges in recent times, not least increasingly watchful eye of the within the industry, whether inwithin their private equity regulators – given added momentum developed or emerging markets, that itprogrammes, which has led to a by the pressures exerted by the macro is a time to focus on the fundamentalssignificant period of reassessing environment, for sure, but something of private equity investing – buildingallocation strategies and the balance that was already well underway. While relationships, getting your hands dirtybetween investing via re-ups (repeat some may worry that the inherent alongside management at the coalface,investments with an existing investee entrepreneurial spirit of the industry is focusing on performancemanager) and identifying new under threat, others will see scrutiny improvement and proving the modelmanagers, potentially in new markets. and regulation as proof of an industry through good exits and good Private equity firms rarely fail and institutionalising as it plays a higher company stewardship. This approachdisappear overnight, but the ability to profile and more significant role in then needs to be effectively andgenerate returns and raise new funds is economies around the world. continuously communicated,the life-support machine that, if Undoubtedly in the West, as more providing a stream of concreteswitched off, will see firms die slowly. high-profile businesses have come examples to educate, and in the moreThere is still a clear sense that there under private equity ownership, developed markets perhaps re-will be winners and losers within the interest from the regulatory educate, an ever-expanding range ofindustry. The Darwinian process at authorities, politicians and the public stakeholders that the private equitywork will undoubtedly ensure the in general has increased markedly, and model does work as a positive catalystlong-term vitality of the industry, but such attention is certainly not always for change and value growth. Withmany also believe that the increased favourable; indeed it sometimes feels overall global economic sentimentintensity this has brought to the as if it has become fashionable to making a shift in the wrong directionselection and monitoring of criticise and blame private equity at during the latter stages of this researchinvestments by LPs will continue to the slightest opportunity, not least project, perhaps even dampeningbe felt by private equity firms around because of the industry’s perceived some of the signs of cautiousthe world for a long time to come. opacity. Elsewhere in the world, the optimism evident throughout this industry has more quickly gone down report, the need to support and a similar path as the desire to promote encourage such catalysts of wealth private equity and growth has creation and economic development – sometimes battled with a lingering a force for growth – is stronger now scepticism about private equity than ever before. practices and a desire to protect a culture of family-owned business. Global private equity report 2011 3
    • Global picture:Investment activityFIGURE 1: SOURCES OF DEALFLOWPERCENTAGE Western Europe North America Asia Pacific MENA BRICS Global result Corporate divestments 20 15 23 20 8 17 Family/private 31 52 38 60 68 46 Secondary buyouts 47 30 23 20 10 30 Public markets 1 3 13 0 6 4 Other 1 0 3 0 8 3 • Firms in family and private ownership continue to be seen as the principal source of private equity dealflow. • Secondary buyouts are a feature of all markets, but are expected to be particularly prevalent in the developed European arena. • Respondents in the emerging markets of Asia Pac and BRICS have the most varied expectations in terms of deal sources.“With origination you need to be able “Healthcare continues to be a key “Assuming that the economy willto get through every level of the sector and we participate in its modestly improve, and notprocess successfully. You need basic consolidation. Consumer and retail deteriorate, there should be anhygiene factors, some differentiating are very active, driven by large increase in both dealflow andfactors and some compelling factors. domestic demand. Energy and completed deals. There’s a lot of pentOn the hygiene factors, you need infrastructure are other sectors to up seller demand, and a lot of pentmoney, a fair price, good processes watch, and ones where there has up buyer demand, and when thoseand well-oiled due diligence. The been a lot of competition from local two things coincide, deal flowdifferentiators are often linked to the and foreign strategic partners.” increases.”people you have, your international TURKEY survey respondent UNITED STATES survey respondentnetworks, your understanding of thebusiness, your relationship withmanagement and your brand. Thewow factors tend to come down to theindividual leading the deal and themore personal factors.”UNITED KINGDOM survey respondent4 Global private equity report 2011 – Global picture
    • FIGURE 2: MOST ACTIVE SECTORS “It is significant that the Consumer consumer sector is cited Business services as the most active. This Industrials and manufacturing Healthcare could change if a double TMT dip recession does occur.” Financial services Education STEVE BRADY Natural resources PARTNER, HEAD OF TRANSACTION ADVISORY Energy SERVICES GRANT THORNTON, US Infrastructure Food and agribusiness Real estate and constructionWhile the macro headwinds are still Software and IT servicesblowing around the world, there is asense within the global private equitycommunity of optimism. With caution FIGURE 3: INVESTMENT ACTIVITY BY REGION PERCENTAGEstill the watchword, approaching two-thirds of GPs included within this Western Europe 50 43 7survey nevertheless believe thatinvestment activity will increase over the North America 63 30 7coming year. It has been fashionable to Asia Pacific 66 27 7talk of the rise of the East both insideand outside private equity, and although MENA 62 38 0there’s no doubt that the developedmarkets have suffered most, recent times BRICS 72 22 6have served as a reminder of the Global result 61 33 6interconnectedness and mutual relianceof global markets in the modern era. Increase Stay the same Decrease Globally, the principal impacts of thedownturn have been to raise the spectre • Over 60% expect an increase.of an industry shake-out and to see • Caution is most clearly expressed in Europe, where over 40% expect it to remain at current levels. • BRICS respondents are most positive, driven particularly by respondents in Brazil and India.levels of quality dealflow reduced. Thereaction of the private equity industryhas been to align itself with the bestopportunities, wherever they may be. FIGURE 4: SOURCES OF COMPETITION PERCENTAGEThis flight to quality has resulted,inevitably, in increased levels of Western Europe 47 11 38 0 3 1competition which has also kept prices North America 65 5 30 0 0 0for the best assets high. The strength ofcorporate balance sheets has served to Asia Pacific 46 29 21 0 4 0intensify this competitive environment. MENA 36 30 15 0 15 4 BRICS 40 32 18 5 3 2 Global result 48 20 26 1 4 1 Domestic Foreign/ Trade Public Family Other private international buyers markets offices equity private equity Global private equity report 2011 – Global picture 5
    • “We’re seeing good private equity dealflow and a strong pipeline. Entrepreneurs and families are coming out of hiding and are looking for finance to support growth.” ARNAUD LIMAL PARTNER, CORPORATE FINANCE GRANT THORNTON, FRANCEFIGURE 5: KEY FACTORS IN IDENTIFYING AND WINNING DEALS The reawakening of the corporateCorporate/entrepreneur networks community, including the restructuringAdvisory relationships of larger businesses, means that theSector expertise traditional channels of private equityLocal presence dealflow, namely family- and privately-Track record/reputation owned businesses and corporatePrice divestments, are expected to remain theValue add proposition dominant sources. However,Access to capital competition within the private equityDeal process management industry itself has helped promote anManagement chemistry environment where secondarySpeed transactions can take hold, with thisStrategic differentiation being an increasingly relevant feature of both the developed and more nascent markets. In this new landscape, everything points to the enhanced importance of networks. In emerging markets, this manifests itself in the need for local presence and an understanding of local business cultures. Whereas in more established markets, rising competition has emphasised the need to self- originate, act fast and develop an angle.“It’s still a very competitive market “The two main sources of deals here “I’d have to say that at this point inand unfortunately that means that are entrepreneur-owned businesses time we are more cautious thanprice matters most when competing who are unable to access debt optimistic about the economy.”for deals. In a hot market, it’s always funding any more, and the public CHINA survey respondentprice and terms, and then the markets which are becomingprobability of close. How strongly you interesting because of the stockcan demonstrate that you can market pricing.”deliver.” HONG KONG survey respondentUNITED STATES survey respondent6 Global private equity report 2011 – Global picture
    • PortfolioFIGURE 6: AREAS OF HANDS-ON INVOLVEMENT Throughout the downturn, privateStrategic input equity firms around the world haveFinancial planning found themselves having to focus moreHuman resources on working with portfolio businesses inM&A order to help strengthen their positionsOperational input in an adverse climate. While the skillsProfessionalisation might have been honed in firefighting,Governance they are now proving useful whereAccess to networks private equity firms are operating inCost control low-growth environments.Internationalisation Given the low growth in someMentoring markets coupled with the lack of valueExit planning uplift available from leverage or multipleMonitoring arbitrage, many private equity housesSector knowledge stress the importance of performanceManaging banking relationships enhancement as a value driver andAccess to capital highlight their input in a number of keyKudos areas in aiding this. In particular,Innovation strategic input is universally seen as central to the private equity offering. Around the world, the professionalisation of businesses as they develop under institutional ownership is something which private equity players can and do contribute to. Assistance with operational systems, financial planning and human resources are oft-cited benefits that private equity ownership “With the market as challenging as it is at the moment, can bring to companies. adding value is the only way of really unlocking returns. Groups are finding they have to do more and work more closely with their portfolio management teams. Some got caught out before, and now there’s no going back – if you want to generate a return, you have to work for it.” STEVE LUKENS HEAD OF ADVISORY GRANT THORNTON, US Global private equity report 2011 – Global picture 7
    • “The value we bring is really about FIGURE 7: HANDS-ON PORTFOLIO INVOLVEMENT PERCENTAGEboosting growth initiatives, reinforcingcorporate governance and Western Europe 15 74 11strengthening management teams.” North America 17 73 10SINGAPORE survey respondent Asia Pacific 31 69 0 MENA 36 64 0 BRICS 25 75 0 Global result 22 72 6 The likelihood that portfolio Increase Stay the same Decreasecompanies will be involved in M&Aactivity varies considerably by company FIGURE 8: PORTFOLIO VALUE DRIVERSand GP. However, there is a general PERCENTAGEsense that M&A levels will increase, with Western Europe 17 39 32 3 9this likely to include cross-borderacquisitions. While GPs are mindful of North America 29 49 14 0 8the challenges involved in making M&Awork, and indeed the additional cultural Asia Pacific 36 45 14 0 5and complexity challenges posed by MENA 26 49 17 4 4cross-border deals, factors such asrelatively cheap assets and opportunities BRICS 35 46 13 2 4to rapidly access growing markets areserving to encourage activity. Global result 27 44 20 2 7 A further aspect of portfolio firm Market Performance M&A Financial Multipleprofessionalisation in which private growth improvement growth engineering Arbitrageequity is playing a role is in relation toEnvironmental, Social and Governance(“ESG”). Governance, in particular, is an FIGURE 9: ESG PERCENTAGEarea of GP focus globally, both reflectingthe ‘best practice’ aspect of this approach Western Europe 41 41 13 5as well as a recognition of increasing North America 30 17 17 36pressure from other stakeholders,including LPs and regulators. Asia Pacific 33 42 17 8 MENA 0 33 50 17 BRICS 34 38 22 6 Global result 32 35 20 13 Highly Growing Of some Not relevant relevance relevance relevant8 Global private equity report 2011 – Global picture
    • ExitFIGURE 10: EXIT ACTIVITYPERCENTAGE Western Europe North America Asia Pacific MENA BRICS Global result Increase 69 53 74 79 50 63 Stay the same 18 40 13 14 36 26 Decrease 13 7 13 7 14 11 • Over 60% of respondents expect to see exit activity increase over the next 12 months.With what was an accelerating The pressure to exit for some is, Inevitably, secondary buyoutspopulation of private equity backed however, matched by the pressure to provoke debate about their pros andbusinesses leading up to the downturn, invest for others, namely those who have cons. However, in those markets wherecoupled with the closing of most viable dry powder to deploy before the end of they are an established feature, they haveexit routes at the peak of the crisis, the agreed investment periods. These push provided the lifeblood of the exit marketprivate equity industry has found itself and pull drivers are the key factors in the in an environment where IPOs havewith rapidly aging portfolios and, with increasing trend towards secondary been very difficult to achieve. Infundraising looming in many cases, a buyout activity in recent times. emerging markets, secondary buyoutsneed to achieve realisations. This is are yet to achieve the same position, butreflected in the fact that approaching are increasingly seen.two-thirds of GPs globally expect to seean increase in exit activity over thecoming year. “Secondary buyouts work well here, “The global financial crisis resulted in but for different reasons. India is a a lengthening of the holding period growth market dominated by minority for portfolio companies and typically expansion investments. As a natural has led to a delay of 1-2 years in the part of this, the businesses backed investment cycle, which has been need larger capital injections as used to fix and repair portfolio they grow and this presents good companies. Now that these two opportunities for financial investors years have passed, portfolio up the scale.” companies are ripe for exit.” INDIA survey respondent SOUTH AFRICA survey respondent Global private equity report 2011 – Global picture 9
    • FIGURE 11: EXIT ROUTESPERCENTAGE Western Europe North America Asia Pacific MENA BRICS Global result IPOs 1 9 5 16 37 14 Trade sale 54 56 62 68 43 54 Secondary buyout 45 35 33 16 20 32 The other saving grace for private FIGURE 12: AVERAGE RETURNS PERCENTAGEequity firms in realisation mode has beenthe appetite of trade buyers. This Western Europe 35 35 30highlights the positive side of the North America 34 45 21double-edged sword for private equitythat is an acquisitive corporate Asia Pacific 38 23 39community. Given the range of competing factors MENA 29 42 29at play, practitioners find it difficult to BRICS 50 42 8form a certain view as to the direction ofreturns for the industry. On the one Global result 35 38 27hand, high entry prices, continuingglobal macro uncertainty and a shortage Increase Stay the same Decreaseof debt have applied downwardpressure. On the other, improvingconfidence, a buoyant secondary marketand trade appetite keep optimism alive.Despite this, the prevailing view is thatthe coming period will see both winnersand losers and it will be this thatdetermines the shape of the industrygoing forward. “There is optimism that exit activity will increase this year. The nature of private equity is such that investors measure performance against a benchmark and this is how LPs look at the world. GPs are engaged in an ongoing process of understanding what’s important to LPs; ultimately this comes down to getting capital back and churning portfolios.” HARISH HV PARTNER, HEAD OF TRANSACTION ADVISORY SERVICES GRANT THORNTON, INDIA10 Global private equity report 2011 – Global picture
    • FundraisingFIGURE 13: AREAS OF INCREASING LP DEMANDS For private equity firms heading out toTransparency market, the fundraising environmentPerformance remains testing. Practitioners point toESG the increasingly polarised nature of theFees market in which high performers areCommitment to strategy able to raise, and even quite quickly,Governance while others find it tough. This is linkedKey man to a flight to quality by LPs which hasFund secondary DD seen even some of the most longstandingDifferentiation relationships reassessed.Value drivers Simultaneously, the industry has seenAlignment a clear shift in the balance of the GP–LPDirect competition relationship, with investors increasinglyCo-investment willing to demand more transparencyDealflow and seek demonstrable performance, not least in newer private equity markets that have been sold hard in recent times and now need to prove they can deliver the promised returns. In developed “The fundraising environment is both positive and markets, LPs have sought to find a negative. There are plenty of firms hitting the fundraising collective voice with which to put their jackpot and deservedly so, but equally there are many case. In particular, initiatives such as players who are really struggling. Ultimately, painful as ILPA and the drive for a particular fund’s LPs to hold closed meetings it is for some, it’s probably a good thing for the industry.” without the GP present illustrate the FRANCOISE NOEL-MARQUIS more ‘forensic’ approach now being PARTNER employed. GRANT THORNTON, FRANCE“I think it’s a competitive fundraising “The big problem for the local market “Fundraising is pretty tough. A lot ofenvironment. It’s better than it has is the total lack of returns made. people flooded into the market andbeen but people still have exposure to There just haven’t been enough of there is possibly now a bit of a knee-bad funds. The denominator issue is them and as a result there are some jerk as people fear conditions are toodiminishing, as is the liquidity issue, very poorly-performing funds.” overheated.”but the overhang is still there and VIETNAM survey respondent BRAZIL survey respondentexisting managers are scrapping forre-ups.”UNITED STATES survey respondent Global private equity report 2011 – Global picture 11
    • “It is harder to raise funds now and “LPs are reducing both their allocations and the number of GPs theywe will continue to see a flight to want to work with. They have learnt a lot in recent times and are morequality. We’re in a situation where the discerning about performance and the way they are treated by GPs. Thesebetter end of town will do well, but the days more than ever, strong performance and transparency are key.”rest will find it very tough. It is the UNITED KINGDOM survey respondentsame highly-selective environment onthe deal side as well, with the lendingbanks definitely having an A list of GPs.”AUSTRALIA survey respondent There are signs of longer-term FIGURE 14: FUTURE FUND SIZE VERSUS PREDECESSOR PERCENTAGEconfidence with many GPs expecting tobe able to raise larger funds in the future. Western Europe 46 51 3This is most notably a feature of North America 50 42 8emerging markets, with evidence of theprocess of fund size inflation having Asia Pacific 83 0 17paused in developed markets. A clear outcome of the changing MENA 61 31 8sentiment in the investor community is BRICS 75 0 25the expectation amongst GPs globallythat there will be a degree of churn Global result 56 36 8within their LP bases. Pressures in thisrespect vary from country to country Larger Same size Smallerand fund to fund, but it is clear thatwhile in some regions the opening up of • Taking fund size as a measure of the likely future size of the industry suggests that emerging market PE firms are confident of future growth.domestic sources of capital is seen as an • Within the developed markets, the picture points more towards a stabilising of the industry size.opportunity, in others the retrenchmentof domestic LPs is forcing GPs to buildincreasingly international investor FIGURE 15: FUNDRAISING ENVIRONMENTrelationships. This is, in effect, leaving PERCENTAGEsome GPs to compete for attention Western Europe 9 11 33 27 20amongst a broader range of peers byconvincing LPs of the attractiveness of North America 4 22 26 41 7their firm and market in an internationalarena. Asia Pacific 0 13 7 47 33 MENA 0 46 31 23 0 BRICS 3 36 22 33 6 Global result 4 24 26 33 13 Very Positive Neutral Negative Very positive Negative12 Global private equity report 2011 – Global picture
    • Overall market outlookFIGURE 16: KEY CHALLENGES FACING THE PRIVATE EQUITY INDUSTRY With the global economic situation stillMacro economy very much in the balance, macroRegulation economic considerations are regarded asCompetition the greatest challenge currently facingPerformance the private equity industry worldwide.LP sentiment The fallout from the downturn has alsoDeal origination triggered increased attention fromPE perception national regulators seeking to drive morePE HR transparency from financial institutions.Access to debt The inherent opacity of the privatePortfolio issues equity industry has made it a lightningIndustry maturity rod in some instances, givingExiting momentum to a process that had alreadyTax begun on the back of concerns about jobGeo-political factors security and asset stripping as businessesFiscal environment with larger (often politically sensitive)Human resources stakeholder groups came under privateSecondary buyouts equity ownership in some markets. This has added to the challenges faced by the industry, with firms noting the need to educate and sell the benefits of private equity on an ongoing basis.“I think in general the industry has a “The reliance on leverage, and alsoproblem in generating the types of the ability of private equity companiesreturns to justify the asset class. to differentiate themselves bothThere just hasn’t been the present challenges.”performance in recent times. AUSTRALIA survey respondentInstitutional investors are gettingdisillusioned. That’s a problem theindustry needs to work on.”CANADA survey respondent Global private equity report 2011 – Global picture 13
    • FIGURE 17: AREAS OF RECRUITMENT “One of the biggest PERCENTAGE issues for the industry is Deal doing 37 Portfolio operations 14 one of perception. Every Research 11 time the industry puts its Admin 4 head above the parapet, it IR 4 Legal 1 risks getting it shot off by Other 1 either the press or the N/A 28 Government. I think it’s symptomatic of the fact FIGURE 18: AREAS OF NEW BUSINESS DEVELOPMENT PERCENTAGE that when times are hard, Core business 48 people look to blame Geographic opportunities 17 someone.” Sector opportunities 9 Asset class opportunities 7 MARTIN GODDARD Deal size shift 3 GLOBAL SERVICE LINE LEADER – TRANSACTIONS Independence 1 GRANT THORNTON INTERNATIONAL Privatisations 1 N/A 14 The bulk of the other key challenges GPs that are looking to diversify faced by the industry relate to the need their areas of interest as the global macro to demonstrate performance in today’s trends play out are most likely to look highly competitive environment. Given for similar opportunities within new this backdrop, it is no surprise that the geographies. Wherever the focus, the key focus of, and opportunities pursued common factor is the need for by, private equity firms relate to their communication, whether that be core business. While the drivers are introducing the asset class, re-educating somewhat different in the emerging and stakeholders, or demonstrating the more developed markets, the shared ability to generate returns. outcome is a perceived need to sharpen deal origination and portfolio“The big challenges to the industry all management processes, with many firmsstem from regulatory issues and the being in the process of augmenting theirfact that PE has been lumped teams in these areas. In the maturetogether with the banks and hedge markets, the long-term process offunds. All of the resulting scrutiny is institutionalisation has seen teamsleading to more and more admin – expand in many areas to support largerand that is not value-adding. There is portfolios and fundraising ambitions.massive pressure on resources and Paradoxically, there is a opposingthis will translate into problems for pressure to minimise back office costs.returns. There is also a problem In the emerging markets, the rapidassociated with all the attention on development of private equity hasfees and remuneration. If there is too required GPs to work to ensure thatmuch pressure here we will not be their own development in human capitalable to hire the top people and they terms keeps pace.will simply go to hedge funds.”GERMANY survey respondent14 Global private equity report 2011 – Global picture
    • Western Europe:Investment activityFIGURE 1: KEY FACTORS IN IDENTIFYING AND WINNING DEALS Confidence in the prospects for dealflowCorporate/entrepreneur networks over the coming year is returning slowlyAdvisory relationships amongst European private equity firmsSector expertise with around half expecting an increase inTrack record/reputation activity. Although this is the lowest levelAccess to capital recorded in any of the key globalDeal process management markets, very few people actually expectPrice to see investment levels decline.Local presence Anticipated sources of dealflow areValue add proposition particularly varied in Europe. However,Management chemistry most strikingly the importance ofSpeed secondary buyouts is higher than in anyStrategic differentiation other market. With dealflow in the region being generally hard won, private equity firms have sought various ways to get ahead of the competition. In the first instance this involves building and consolidating networks both within the corporate and advisory communities. However, whilst track record is still very important, there is also an increased emphasis on building knowledge of markets and the dynamics of individual businesses and their management at an early stage in the process. Ultimately, most deals will go“I believe secondary and tertiary deals “There’s more competition from trade through some form of intermediationwill continue to be very important, buyers, and I expect this to continue and market testing of the price. This isparticularly for larger mid-market to increase. Trade players are getting the case not least because trade buyersdeals. In 2010 the largest proportion more confident, and unless the have returned as a key competitor toof deals above Euro 75m was economy ends up in a double dip, I private equity, and one with deepaccounted for by secondary buyout can’t see this changing – they’ll be pockets for the right asset strategically.activity. Under Euro 75m a lot more out in force. There are lots of privatedeals were primary transactions. The equity houses with money, but thisfact is that we’re seeing corporates can only dwindle over the medium– tobeing less focused on divestiture, but long-term, not increase.”much more acquisitive.” UNITED KINGDOM survey respondentUNITED KINGDOM survey respondent Global private equity report 2011 – Western Europe 15
    • “It’s a combination of factors, but FIGURE 2: SOURCES OF DEALFLOW PERCENTAGEreally it comes down to yournetworks, increasingly your sector Public markets: 1%knowledge and focus, rigour, Other: 1%discipline and tenacity. Clearly youcan’t discount the value of Secondary buyouts: 47% Corporate divestments: 20%intermediary networks, but GPs arespending a lot more time on non-intermediated deals these days.There will always be auctions, but youwant to try to avoid them if you can, Family/private: 31%or at least make sure you have ahead start.”UNITED KINGDOM survey respondent“Deal sourcing is the same now as it’salways been for us. It’s about being asearly as you can on an asset, and notwaiting for the pitch from banks. It’sabout spending more time withmanagement teams and vendors to FIGURE 3: SOURCES OF COMPETITION PERCENTAGEunderstand the asset before it comesto market, which means you’re more Others: 1%prepared and can move faster.” Family offices: 3%FRANCE survey respondent Trade buyers: 38% Domestic private equity: 47%“The market in Italy is split betweenthose deals that are marketed aboveand below the radar. For the formeryou obviously need to have a strongrelationship with the intermediaries,but these are more commodities. Thereal key in Italy is to have a bignetwork of contacts among theentrepreneurs.”ITALY survey respondent“It will mainly be secondaries. Most Foreign/International private equity: 11%German corporates have completedtheir disposal programmes andentrepreneurs are reluctant to sellassets only to see their money get “Speed is key in deal origination. It is a very competitivesucked into sovereign debt crises!” market and so getting to deals early is crucial. StrongGERMANY survey respondent relationships with intermediaries is a key part of this.” PAR EKENGREN HEAD OF CORPORATE FINANCE GRANT THORNTON, SWEDEN16 Global private equity report 2011 – Western Europe
    • PortfolioFIGURE 4: AREAS OF HANDS-ON INVOLVEMENT Hands-on involvement with portfolioStrategic input investments has risen to relatively highM&A levels in Europe versus other parts of theHuman resources world and is expected to remain so, withOperational input the key focus of GP efforts typically onFinancial planning strategic input and M&A. AssistanceInternationalisation with financial planning has also beenProfessionalisation significant, with the majority of GPsCost control reporting that debt renewal will not beAccess to networks an issue over the next 12 months.Mentoring European private equity firms areExit planning more cautious regarding portfolioMonitoring prospects than their counterparts inManaging banking relationships other parts of the world, with the macroGovernance economic environment being cited as theInnovation chief driver of sentiment.Sector knowledge “The nature of the value drivers depends on the “Growing market share through innovation is fundamental. The business and what you’re trying to do to it. In some businesses I like are in big markets cases it could be a mixture of multiple arbitrage and with lots of players, some big groups M&A; in others it might be more organic. You need to with lots of legacy systems, and you find someone smaller with an build a growth strategy to suit the individual innovative approach. The majority of company.” deals we do like this would succeed even if the market stayed flat in my MO MERALI PARTNER, HEAD OF PRIVATE EQUITY personal view.” GRANT THORNTON, UK UNITED KINGDOM survey respondent Global private equity report 2011 – Western Europe 17
    • Portfolio M&A support is seen to be FIGURE 5: PORTFOLIO VALUE DRIVERS PERCENTAGEmore important amongst Europeanprivate equity firms than elsewhere. Inparticular, crossborder M&A is seen as Multiple arbitrage: 9%an increasingly relevant feature. Financial engineering: 3% Market growth: 17%However, with this comes the additionalchallenges of cultural issues and relative M&A growth: 32%complexity. These are perhaps throwninto even sharper relief when Performancetransactions are being considered improvement: 39%beyond European borders in marketssuch as China, which is now on theradar for an increasing number of GPs. FIGURE 6: CHALLENGES TO CROSS BORDER M&A PERCENTAGE Funding constraints 2 Foreign market credibility 2 Different fiscal environment 2 Currency risk 2 Lack of opportunities 7 Parochialism 9 Management team 13“There are massive cultural Lack of PE resource 13differences between China and the Relative complexity 18West. You can’t afford to ignore China Culture 32and you need to understand it as bestyou can. Doing business in China isnot to be taken lightly.”UNITED KINGDOM survey respondent“The benefits of cross-border M&Areally depend on the company – if thecompany is already international,then it is almost business as usual…they will understand what they are “The main thing is to get the right strategic equity story to be developeddoing and there is a good basis of and executed. We are keen to pursue a long-term plan that is signed off bydue diligence to draw upon. If the both the management and ourselves.”company is venturing abroad for the GERMANY survey respondentfirst time or it is the first acquisition,it is more tricky. There is more workto be done with the management “As a whole, and not just in terms of the weak GDP announcementsteam to convince them and us that it recently, the economy is shaky and confidence is low – I just don’t think itis a good thing to do.” feels good.”FRANCE survey respondent UNITED KINGDOM survey respondent18 Global private equity report 2011 – Western Europe
    • ExitFIGURE 7: EXIT ROUTES Sentiment regarding prospects for thePERCENTAGE exit market are generally positive, with a window of opportunity seen to haveIPOs: 1% opened up over the last year. AroundSecondary buyout: 45% Trade sale: 54% three-quarters of European respondents also expect exit levels to continue to increase over the coming year, which compares favourably with their counterparts elsewhere.“Secondaries are driving the market “The main cons of secondary buyoutsbecause on one side you have people are that they almost always come viawho need to return capital in order to highly contested auctions and arefundraise and on the other you have therefore expensive. On top of that,people who need to deploy capital.” the former owner has normally done a good job with the business makingSWEDEN survey respondent it difficult to see further growth. Sometimes though, it is just a question of fit and it can really work better for the second buyer than the first.” GERMANY survey respondent Global private equity report 2011 – Western Europe 19
    • The two key drivers of these exittrends are: first, the return of trade “Returns have, fundamentally, been pretty strong. Ifbuyers, which, while increasing the exit markets aren’t great then, by and large, privatecompetition on the buyside, is also equity firms just sit on investments for longer and waitproving a willing source of liquidity forprivate equity assets, and; second, the until they can get value.”pressures being felt by many private KAI BARTELSequity firms in relation to their own SENIOR PARTNER, HEAD OF M&Afundraising cycles and the need to both GRANT THORNTON, GERMANYdeploy capital and demonstrate returns.The IPO window is seen to be veryfirmly shut in Europe, with theconsequence that, in comparison,secondary buyouts have taken on anadded significance. The cocktail of competition andpressure to exit is resulting inconsiderable variation in expectationsfor returns going forward. Thereremains a sense that there will bewinners and losers and that a final shakeout within the industry is still to happen. “I think returns will stay the same in “I think exit levels will increase the short term, but longer term they because of the maturity profile of will decrease. The best performers portfolios at the moment. There have will maintain their high returns, but certainly been some great exits the discrepancy between the best and recently. The challenge is always the worst will increase.” having the patience to allow companies to mature.” FRANCE survey respondent UNITED KINGDOM survey respondent20 Global private equity report 2011 – Western Europe
    • FundraisingFIGURE 8: AREAS OF INCREASING LP DEMANDS Unsurprisingly, European private equity “We’ve just come off a fundraisingTransparency practitioners continue to regard the and it’s incredibly competitive outESG fundraising environment as tough by there. Pretty much every LP in thePerformance historical standards. With many world is reducing the number of GPPE firm management investing institutions still working relationships they have and will onlyFund secondary DD through their own problems, while they consider re-ups and new relationshipsCommitment to strategy remain positively disposed towards with top-tier managers, so it’s veryDifferentiation private equity, they are having to look very tough.”Co-investment closely at the number and size of theirKey man UNITED KINGDOM survey respondent commitments to the asset class. For GPs, this sentiment means higher levels of LP churn within their “ESG matters are becoming much investor bases as institutions more important. We signed the UN PRI contemplate future funds. GPs are last year and contributed to AFIC’s readying themselves for the prospect of White Paper on ESG. We have a needing to identify a higher proportion dedicated in-house team and are doing of new investors than in the past and the a big appraisal on the subject now. It is likelihood of a stagnation in fund sizes. extremely important for the image of In addition, GPs are reporting a the industry and to satisfy the LPs.” higher degree of LP engagement. A FRANCE survey respondent greater desire amongst investors for transparency and depth of information is the key trend here. While areas such as “LPs are drilling into companies more performance clearly continue to be of than they have in the past – what key importance to LPs, there is also an makes them tick, why we did the increasing focus on ‘new areas’ such as deal, where the key threats are. ESG and the management of the private However, most LPs have 70-80 fund equity firm itself. interests, and they just don’t have time to sit down with every one of their GPs and go through things in such detail.” “It’s very difficult at the moment. But if you look at the past, LP appetite has UNITED KINGDOM survey respondent normally returned 9-12 months after M&A activity has kicked back into gear and liquidity rises. With any luck that will be felt in the next year.” GERMANY survey respondent Global private equity report 2011 – Western Europe 21
    • Overall market outlookFIGURE 9: KEY CHALLENGES FACING THE PRIVATE EQUITY INDUSTRY Reflecting the underlying positiveMacro economy sentiment with regard to expected dealPerformance and exit activity, private equity firms areLP sentiment building capacity in order to capitaliseRegulation on the opportunities ahead. In particular,PE perception around two-thirds of EuropeanDeal origination respondents are planning to increaseCompetition their head count over the coming year,PE HR with this predominantly being in theAccess to debt core area of front-line deal-doing.Portfolio issues With increased emphasis beingIndustry maturity placed on self-origination strategies andExiting recruitment, it is no surprise that theSecondary buyouts majority of private equity firms stressGeo-political factors the importance of focusing on their core business of identifying quality businesses within their target market. Private equity players are currently faced with a plethora of challenges, some private equity specific, some regulatory, and others reputational. However, the most significant factor relates to the challenges presented by the state of the macro economy. Regulatory matters are high on the agenda of GP concerns, not least the introduction of the AIFMD. This particular initiative is expected not only to lead to higher levels of bureaucracy and increased costs, but also to frustrate the dynamism of the industry by raising“Regulation is terrifying. The mindset “We are working on increasing our barriers to entry for first time managersout there is that what private equity build-up programme for the portfolio and spin-outs.does is terrible. How we combat this I and trying to profit from the fact thatdon’t know. What is certain is that very good companies are strugglingregulation of the industry is going to to raise bank funding and thereforebecome a lot more rigorous.” are turning to growth capital providers for the first time.”UNITED KINGDOM survey respondent SPAIN survey respondent22 Global private equity report 2011 – Western Europe
    • “We have been through the worst FIGURE 10: IMPACTS OF EU REGULATION PERCENTAGEdownturn since WWII and companieshave demonstrated they have the Bureaucracy 38DNA to survive in a market that gets Costs 20 Barriers to entry 7little support from government. The Capital adequacy rules 7main opportunity is to harness the Fundraising 4strength of those businesses and help Less competition 2them into new markets.” Risk perception 2ITALY survey respondent Transparency 2 N/A 18“You can see that the AIFMDrepresents a challenge, but it will FIGURE 11: AREAS OF NEW BUSINESS DEVELOPMENT PERCENTAGEhelp generate a better understandingof the industry.” Core business 60 Geographical opportunities 16SWEDEN survey respondent Asset class opportunities 7 Sector opportunities 7 Deal size shift 2 N/A 8 “Competition is the biggest issue facing the industry. You can really see the need for consolidation in the market – there are too many players with too “In these difficult economic times, private equity is much committed capital. faced with not only an origination issue, but also Those funds with capital pressure from investors, regulators and the broader still to invest will be public. The industry is therefore being challenged to under pressure, and this visibly prove the model and demonstrate it can add will drive up prices.” value regardless of broader economic conditions.” RAINER WILTS THIERRY DARTUS PARTNER HEAD OF TRANSACTION ADVISORY SERVICES GRANT THORNON, GERMANY GRANT THORNON, FRANCE Global private equity report 2011 – Western Europe 23
    • North America:Investment activityFIGURE 1: KEY FACTORS IN IDENTIFYING AND WINNING DEALS Price remains king in North America’sCorporate/entrepreneur networks highly intermediated and efficientPrice market and is seen by many as the keySector expertise factor in winning deals. However,Advisory relationships evidence suggests a GP’s sector expertise,Access to capital as well as the quality of its corporateDeal process management networks, are central elements of theirLocal presence approach to deal origination.Value add propositionTrack record reputationManagement chemistrySpeed “I think there are two key areas in terms of deal sources: sponsor-to- sponsor deals will be the biggest area, followed by independent family- owned businesses. For sponsor-to- sponsor, the market’s been so negative that they haven’t been able to sell and so now’s the time. Independent family-owned businesses“I think PE investment activity over the “Origination is sector led. We’re calling may be a driver of deals as there’snext 12 months will be increasing. I on companies in specialist areas where uncertainty around so this may drivestill think there’s lots of dry powder out we’ve invested before and built domain things through.”there and banks are still lending as the knowledge, that’s how we differentiate. UNITED STATES survey respondentdebt markets have softened a bit. The We’re proactive in terms of identifyingeconomy is in good shape in Canada companies we’re interested in andbut it’s all subject to company building up relationships over time, “As it always has been, winning dealsavailability – whether there are several years prior to any investment comes down to who pays the highestcompanies available to buy. Valuations opportunity. By the time an opportunity price. Of course, you need to be inare strong so vendors are getting what does arise, we already know each front of the right intermediaries, butthey’re looking for and generally other, and that provides an advantage.” price is by far the biggestthere’s a willingness to transact.” determinant of success.” UNITED STATES survey respondentCANADA survey respondent CANADA survey respondent24 Global private equity report 2011 – North America
    • Within the North American market, FIGURE 2: SOURCES OF COMPETITION PERCENTAGEthe private equity industry is wellengrained as a key funding source –some estimates suggest that around halfof US mid-market companies are owned Trade buyers: 30% Domestic private equity: 65%by private equity. North America is oneof the most bullish markets at presentwith regard to anticipated investmentactivity levels, and certainly seems to bea step ahead of Europe in terms ofconfidence. Reflecting this, and its position as themost established private equity market,the region is seeing high levels of Foreign/internationalcompetition between domestic private private equity: 5%equity groups, either on a national basisor within particular regional markets. Asa result, there is evidence of some groupsincreasingly casting their net wider forindefinite opportunities including insome US cases looking north of the FIGURE 3: SOURCES OF DEALFLOW PERCENTAGEborder into Canada. Family- and privately-owned Public markets: 3%companies are expected to be theprincipal source of deals this year. Secondary buyouts: 30% Corporate divestments: 15%Secondary buyouts are also a significantfeature reflecting sophistication andcompetition within the market.“I think most competition will Family/private: 52%definitely come from competing PEfirms due to the capital overhang –this needs to be put to work in thenext 18-24 months. There’s lots ofcompetition on the sponsor front.Strategics are also a competitiveforce – they have lots of cash on thebalance sheet and can come in andpay a premium; they can swoop in atthe last minute.” “Competition for deals over the next 12 months willUNITED STATES survey respondent come from other PE houses due to the large number of funds with money that are approaching the tail-“For us it comes down to finding the end of their investment periods. There’s an urgencyright qualified CEOs to do deals with.That’s the key to our business, and to get deals done and this has led to larger fundshence more networking and research moving down-market.”continues to be what we focus on to EMILIO IMBRIGLIOtry and seek out opportunities.” PARTNER, HEAD OF ADVISORY SERVICES GRANT THORNTON, CANADAUNITED STATES survey respondent Global private equity report 2011 – North America 25
    • PortfolioFIGURE 4: AREAS OF HANDS-ON INVOLVEMENT North American groups typically regardStrategic input themselves as hands-on investors, andFinancial planning don’t expect this to change. Key areas ofHuman resources portfolio value add are the strategicOperational input input that GPs can bring, plus financialProfessionalisation planning skills. Given the focus ofInternationalisation private equity groups on actively drivingM&A organic growth within portfolioMentoring companies, M&A input appears to beAccess to networks relatively less significant in NorthMonitoring America than in Europe.Cost control Despite this, cross-border M&AExit planning within private equity portfolios isSector knowledge expected to increase by 40% of North American responding GPs, with this typically being focused on the US and Canadian markets. There are lower expectations of international acquisitions beyond North America, often as a result of the perceived relative complexity and cultural issues associated with such deals, and a lack of dedicated resource on the ground to overcome these challenges.“Firstly, we have a disciplined 100- “Building value comes down to market “The key drivers of value growthday plan that we like to put in place growth and performance improvement, come from operational improvementswith all our companies. Secondly, we not multiple arbitrage. Value-add is such as sales and marketingensure there’s an appropriate capital definitely rooted in the portfolio processes and resource, productionstructure in place and strong financial management expertise that you can and sourcing. You can get a bigengineering. Thirdly, we share a bring to bear, but also from the buy- acceleration in profit growth this way,strong sense of discipline with our and-build philosophy – tuck-in particular when the market is lessportfolio companies.” acquisitions that solidify your standing robust.” as an industry leader.”CANADA survey respondent UNITED STATES survey respondent UNITED STATES survey respondent26 Global private equity report 2011 – North America
    • FIGURE 5: PORTFOLIO VALUE DRIVERS PERCENTAGE Multiple arbitrage: 8% Market growth: 29% M&A growth: 14% On balance, North American private Performanceequity firms are amongst the most improvement: 49%bullish about the prospects for theirportfolios given the current macroeconomic scenario. Value is seen to bedriven largely by company performanceimprovement with sponsors actively “We help to round out a management team. Smaller, private businessesengaged in this process, often via the tend to have core strengths as well as areas of weakness. For instance, adeployment of dedicated portfolio company might be strong on sales and marketing, but weak on operations,management executives. or have failed to take care of the financial side of things. We help to recruit and evaluate new talent to strengthen the executive team. Secondly, we also help to prioritise initiatives, initially through 100-day planning. We then evaluate what we can do to support these initiatives.” UNITED STATES survey respondent “How do you add value? It’s about building professionalism within the team, putting the right systems in place to monitor and manage performance and being able to drive growth.” MENDY KWESTEL PARTNER, TRANSACTION ADVISORY SERVICES GRANT THORNTON, US“The biggest complexity with cross- FIGURE 6: CHALLENGES TO CROSS BORDER M&Aborder M&A is that you have no team Political riskon the ground. Integration is an issue. Management teamIt’s a huge investment by the Lack of opportunitiesmanagement team, the time it takes Different fiscal environmentto get on a plane and go where you Parochialismneed to be. There are cultural Funding constraintsdifferences and nuances too.” Lack of PE resource Relative complexityUNITED STATES survey respondent Culture Global private equity report 2011 – North America 27
    • ExitFIGURE 7: EXIT ACTIVITY While over half of North AmericanPERCENTAGE private equity firms surveyed anticipate an increase in exit levels, this proportionDecrease: 7% is lower than the global average. However, this year has seen a relatively benign exit environment, withStay the same: 40% Increase: 53% respondents believing that conditions will remain positive. Interestingly, North American GPs have the lowest expectations globally of exit volumes from their own portfolios over the coming year, possibly as a result of their anticipated focus on completing new deals. Sponsor-to-sponsor deals and sales to strategics are expected to dominate the exit market, with IPOs less likely, despite showing promise at the start of 2011.28 Global private equity report 2011 – North America
    • Expectations for returns amongstprivate equity firms remain reasonably “Private equity firms need to demonstrate realisationspositive, with almost 40% of to get LPs to commit to the new funds, and therespondents predicting rising returns opportunities to exit are as good as they’ve been ingoing forward. However, some highlightpotential downward pressure on returns, the last five years. It’s the flip side of the high levels ofreflecting high entry valuations, while competition amongst PE houses. Added to the strongothers note that any increase will be demand amongst financial buyers is the growing demandfrom a low level, with portfoliovaluations having been marked down in amongst trade.”many cases in recent times. TROY MACDONALD NATIONAL CORPORATE FINANCE PRACTICE LEADER GRANT THORNTON, CANADA“Returns are on the way up. Most folk “I think average returns will get a little “Sponsor to sponsor deals will be keyhave marked their valuations down better. The economy has been tough as we’re coming up to the end of thehard and they don’t want to have to and the long term trend has been investment periods for lots of funds.write anything down twice. So many compression. Last year there was a I don’t think it’ll be IPOs, not afterassets are probably being held on smart snap-back in value.” what’s happened in recent times.books for less than market value. It’s Strategics will also be an important UNITED STATES survey respondentgoing to be good for investors when exit route.”assets are sold and that will boost UNITED STATES survey respondentreturns figures.”CANADA survey respondent Global private equity report 2011 – North America 29
    • FundraisingFIGURE 8: PROPORTION OF LIKELY FIRST TIME INVESTORS IN NEXT FUND Fundraising is characterised as havingPERCENTAGE been tough and likely to remain so, with about half of respondents seeing theMajority: 15% environment as negative and none as very positive. Given this, it is unsurprising that Minority: 70% there is some evidence of stagnation in fund sizes, with under half of private equity firms expecting their next fund to be larger than its predecessor. North America’s institutionalSignificant minority: 15% investor community is undoubtedly the world’s largest and most sophisticated. Proximity to this pool of capital is reflected in North American GPs having a high proportion of domestic investors and also a relatively high level of confidence in their ability to generate strong re-up levels. However, the more sophisticated investors have been at the forefront of efforts, such as ILPA, to bring greater transparency to the LP–GP relationship. Half of respondents report that LP demands continue to increase, with the depth and breadth of GP reporting being the principal focus of attention.“In the area of reporting, LPs want “Fundraising seems to have improved “I think LPs are looking for moregreater clarity and commitment to recently but it’s still very challenging. specific differentiation of strategystrategy. They want manager The Canadians need to raise from and more realised returns. It used toalignment with their interests and sources outside of Canada because be the case that you could fundraisethey’re being more demanding about so many of the big investors have with a strong mark-to-marketwritten documents. As for negotiating their own direct operations. This portfolio. Now LPs want to see dealson management fees, if it’s not the makes it an extra struggle.” that have been sold.”‘standard deal’ then LPs won’t look at CANADA survey respondent UNITED STATES survey respondentyou. You’ve got to be doing it thestandard way; you’ve got to tick the box.”CANADA survey respondent30 Global private equity report 2011 – North America
    • Overall market outlookNot surprisingly, competition is ranked FIGURE 9: KEY CHALLENGES FACING THE PRIVATE EQUITY INDUSTRYas the most significant challenge facing CompetitionNorth American private equity players, Macro economywhereas across all global respondents Regulationconcerns about the macro economic LP sentimentsituation remain paramount. Performance Access to debt Deal origination Exiting Industry maturity Tax PE HR “Certainly the competitive outlook is much greater than ever. There’s an enormous capital overhang, coupled with low lending rates, coupled with strategics. When you add all those things together it leads to valuations that are beyond what we think is rational. On the regulatory side, I think that is threatened rather than actual. We’re hearing about Dodd-Frank, but it’s similar to the talk on carried interest and tax, we haven’t seen it yet.” UNITED STATES survey respondent“I don’t think the US PE market is “Our firm is really focusing in on the regulatory environment. ILPA pales into thediminishing, but there is a definite background when you consider registration issues. We’ll be investing in the backelimination of lesser performing funds. office in terms of how documents are stored, how data is stored, how we report toThere’s an excess of funds right now in LPs. We’ve been transparent in this regard but now that it’s coming directly fromthe US and so there’s a purging going the Government it’s going to be a headache for our team. It will drastically affecton.” our business – just the cost of being in business.”CANADA survey respondent UNITED STATES survey respondent Global private equity report 2011 – North America 31
    • FIGURE 10: HEADCOUNT INCREASE PERCENTAGE North America Global average Yes 48 64 No 52 36 In a market which is as highlycompetitive as that of North America, “To remain ahead in today’s uneasy and highlyGPs’ plans largely reflect the perceived regulatory environment, the core focus of privateneed to stick to what they know and equity firms should be looking to the fundamentalensure that they are able to compete onevery front. US GPs are typically more strategies to facilitate a constant and incremental plansophisticated organisationally than firms for growth and improvement – whether that bein other parts of the world, but half of through operational improvements, origination, dealthe North American respondents do stillexpect to increase head count over the making, or overall portfolio management. There isnext 12 months. While this proportion is always going to be a big market in the US. It remainsslightly lower than elsewhere, it involves inherently attractive, with stability and liquidity. Ita broader range of appointments,including in areas of portfolio will always be attractive.”management and back office research, WINSTON WILSONas well as front line deal doing. PARTNER, ASSET MANAGEMENT SECTOR LEADER GRANT THORNTON, US“I think we’ll grow our headcount alittle bit but not by too much. We’llprobably take on one new junior, onemid-level career, and one person inoperations. We’re going out to marketagain next year so we want to beready.”UNITED STATES survey respondent32 Global private equity report 2011 – North America
    • Asia Pacific:Investment activityApproaching two-thirds of Asia Pac FIGURE 1: SOURCES OF DEALFLOW PERCENTAGErespondents expect deal activity levels toincrease over the coming year, with the Other: 3%region receiving increased attention asconcerns of over-heating have crept intothe larger neighbouring Chinese market.This is supported by the belief that Public markets: 13%foreign investors will be increasingly Corporate divestments: 23%active in South East Asia inparticular. The emerging nature of many of the Secondary buyouts: 23%Asia Pac markets is perhaps reflected inthe fact that GPs in the region expect tooriginate from a broader range ofsources than is evident in other markets. Family/private: 38%Linked to this is the clear need for strongnetworks and a presence on the ground.Also the ability to demonstrate a trackrecord is seen as a differentiator in amarket where such experience is stillbeing built. The Asia Pac region incorporates adiverse set of markets, both in terms oftheir economies and the nature of theirprivate equity industries. This ishighlighted in a couple of areas,including sector trends, with areas suchas mining and healthcare presentingopportunities in Australia, while the “I think corporate and private “In Australia, the two-speed economyburgeoning middle classes of South East vendors, public markets and is alive and well. On the slow-speedAsia are driving interest in consumer secondary buyouts will all be side, there will be very little activity inbusinesses. While Australian private important sources of deals over the a sector like retail, with the exceptionequity firms predict a decline or next year. In particular, I suspect if being defensive areas such as budgetplateauing of entry multiples, there is you look out over the coming 12 retailers and healthcare. Most activitymore evidence of upward pricing month period you’ll see corporate is going to be in the fast-speed areaspressures elsewhere in the region. divestments and public-to-private such as mining – certainly you can’t deals as particularly significant.” get away from mining.” AUSTRALIA survey respondent AUSTRALIA survey respondent Global private equity report 2011 – Asia Pacific 33
    • FIGURE 2: ENTRY MULTIPLES “You need to get out and PERCENTAGE get your hands dirty to Australia Increase 0 find the quality deals in Stay the same 40 this market. The key Decrease 60 thing is to have access to Other Asia Pacific a good network of Increase 50 contacts. There are Stay the same 20 hundreds of potential Decrease 30 deals there, but the trick is identifying the few FIGURE 3: KEY FACTORS IN IDENTIFYING AND WINNING DEALS PERCENTAGE (MULTI RESPONSE QUESTION) good ones.” Corporate/entrepreneur networks KON YIN TONG Local presence CORPORATE FINANCE DIRECTOR Track record/reputation GRANT THORNTON, SINGAPORE Value add proposition Advisory relationships Deal process management Sector expertise Access to capital“Without giving away any trade secrets, Strategic differentiationI’d say that overseas funds that wantexposure to the resources sector inAustralia presents a big opportunity.There are a lot of people that want toget a piece of this right now.”AUSTRALIA survey respondent“The attraction of the FMCG sector isdriven by the rising spend capacity ofthe middle class in this part of theworld.”SINGAPORE survey respondent“It’s a difficult market and informationis very closed so you need a strongresearch capability, good localnetwork and understanding of thelocal business culture in order to find “Dealflow will come mainly from entrepreneurial businesses needingdeals.” capital. Interest rates are very high so private equity is an attractive source of funding.”VIETNAM survey respondent VIETNAM survey respondent“I see the main sources of deals asbeing the de-listing of PLCs, “The key factors you need for accessing deals here are dealflow networks,corporate M&A and also PIPE deals.” an ability to add value, track record and a strong brand name.”SINGAPORE survey respondent SINGAPORE survey respondent34 Global private equity report 2011 – Asia Pacific
    • PortfolioFIGURE 4: AREAS OF HANDS-ON INVOLVEMENT Despite the non-control nature of manyStrategic input South East Asian transactions, around aOperational input third of respondents from the region areFinancial planning seeking to increase their level of hands-Human resources on involvement, with a number alsoGovernance having established dedicated portfolioM&A management teams to work alongsideMonitoring deal executives.Professionalisation While ‘governance’ remains the mostAccess to networks important element of ESG for privateCost control equity houses in the region, mountingKudos pressure from the LP community, togetherManaging banking relationships with perceptions of ‘best practice’, are putting the spotlight on social and environmental issues as well. In Australia, in particular, the political climate has served to reinforce this with the Green Party holding the balance of power. With much of the Asia Pac region, at least outside Australia, characterised by growth capital transactions, it is unsurprising that market growth is a common driver of value. While company performance improvement is still relevant across the region, it is much more likely to be the dominant value driver in Australia.“Given the size of business we back, it tends to be the first time they’ve been “There are counter-balancing factorsowned by anyone other than the family or founders. So a lot of our resource at work. We continue to see stronggoes into putting in place the right systems and infrastructure. Many of them growth in China, fuelled by domestichaven’t had regular boards and reporting regimes, so we work with the consumption. However, with themanaging director and financial director to introduce a lot more rigour to the continual turmoil in the US and thereporting. It’s not that we spend three months looking backwards, but having a Euro-zone, South East Asia may nothistorically accurate picture of trading performance helps you to make more be fully insulated given the exportinformed decisions about the future.” nature of the region.”AUSTRALIA survey respondent SINGAPORE survey respondent Global private equity report 2011 – Asia Pacific 35
    • “We take controlling interests and FIGURE 5: IMPORTANCE OF ESG PERCENTAGEhave two or three people onoperations. We will be increasing thisoperational resource because we see Not relevant: 8% Highly relevant: 33%it as an advantage for us. That said, itis not without its challenges and someothers will say that they see their job Of some relevance: 17%as backing good management teams,rather than getting operationallyinvolved themselves.”AUSTRALIA survey respondent“The most important thing we bring isthe capital the company needs (and Growing relevance: 42%anyone who says otherwise is fallingprey to their own marketing hype).Then it is about helping thebusinesses improve their corporate FIGURE 6: HANDS-ON PORTFOLIO INVOLVEMENTgovernance and making them more PERCENTAGEsophisticated, so that they are readyto go public. Thirdly, it would be thebrand association.”VIETNAM survey respondent Stay the same: 69% Increase: 31%“Governance is very important andLPs are increasingly interested in thegreen/sustainable credentials of yourfirm and your portfolio companies.”AUSTRALIA survey respondent “The key factor in driving growth is buying scalable businesses and “ESG is growing in importance. We have created a position internally to successfully growing look after our vision of sustainability and we are putting more measures in them. Receiving a boost place. But for the investees it is too early for anything to have changed from valuation arbitrage significantly.” should be considered a VIETNAM survey respondent bonus.” “We bring our network, cross-border acquisition experience, ability to TARO ISODA PARTNER, HEAD OF ADVISORY SERVICES make HR improvements and operational knowledge.” GRANT THORNTON, JAPAN SINGAPORE survey respondent36 Global private equity report 2011 – Asia Pacific
    • ExitFIGURE 7: PROPORTION OF PORTFOLIO DUE TO EXIT IN NEXT 12 MONTHS Private equity practitioners in the AsiaPERCENTAGE Pac region are expecting to see increasing levels of exit activity over theMajority: 25% next year. Pressure to achieve realisations in Australia, in particular, and the general maturation of portfolios throughout the region has resulted in None: 33% 80% of respondents stating that an increase in exits is likely. However, at a micro level, while a larger proportion of private equity firms than in other markets expect to see exits from theirHalf: 8% own portfolios (over 30% expect to exit half or more in the coming year), it is also the case that more private equity firms in Asia Pac expect to achieve noSignificant minority: 17% Minority: 17% exits than is the case elsewhere. With IPO markets remaining difficult, and in Australia at least confidence dented by high profile “Exit volumes will certainly increase. There’s real disappointments, trade sales are expected to provide the dominant channel for momentum in the market towards exits at the moment realisations. driven by the need for GPs to generate returns and the The range of expectations for the general maturity of a number of private equity portfolios.” direction which private equity returns will take is broader in Asia Pac than in BILL HUTCHISON other regions. An equal proportion PARTNER (circa 40% each) expect an increase or a GRANT THORNTON, VIETNAM decrease, with the latter largely driven by expectations in the Australian market.“In this market I suspect it will be an even split between secondaries andtrade sales in terms of the key channels to exit.” “I suspect exit activity will go up. There are a number of funds thatSINGAPORE survey respondent need to demonstrate exits in order to raise capital. There are some with“The IPO markets are shut at present, while at the same time some foreign portfolios that are highly geared andtrade buyers can pay top prices as their cost of capital is much lower.” coming to the end of their terms.”VIETNAM survey respondent AUSTRALIA survey respondent Global private equity report 2011 – Asia Pacific 37
    • FundraisingFIGURE 8: AREAS OF INCREASING LP DEMANDS GPs report increasing levels of LPTransparency engagement, with demands for greaterESG transparency topping the list butPerformance growing pressure also in areas such asFees ESG and fees.Governance Private equity players in the Asia PacKey man region tend to be more negative aboutCommitment to strategy the current fundraising environment than their counterparts in other regions. While across the board this reflects the broader economic environment, in Australia GPs also point to certain specific factors such as the reduced exposure to the asset class of local superannuation schemes, tax issues and concerns over track record. Elsewhere in the region, while interest continues to grow, the markets remain ‘frontier’ in nature and outside the comfort zone of many currently cautious LPs. Despite this, there is evidence of growing confidence, not least that a“The fundraising environment is very difficult. The economic situation is not significant proportion of private equityencouraging and international investors have other regional alternatives to firms expect their next funds to be largerlook at.” in size. However, achieving thisVIETNAM survey respondent is likely to involve the capture of a significant number of new investors, given that an element of LP churn“LP demands are definitely increasing, no doubt about it, particularly in areas within investor bases is expected insuch as transparency, reporting standards and, most importantly, fees!” many cases. In Australia, for example,SINGAPORE survey respondent GPs are having to compete more for international capital as domestic LPs, traditionally significant supporters of the“I view the current fundraising market as negative. There are a number of different local industry, retrench.factors at work. (1) Local Australian investors are reducing their exposure toalternatives in some cases; (2) there is still a perception that there is uncertaintyover the tax regime; (3) Then there is the individual track record of groups. Thetotal amount raised within the industry is likely to be lower going forward.”AUSTRALIA survey respondent38 Global private equity report 2011 – Asia Pacific
    • Overall market outlookOn one level, the prospects for private FIGURE 9: KEY CHALLENGES FACING THE PRIVATE EQUITY INDUSTRYequity development in the Asia Pac Macro economyregion are undoubtedly positive. PE perceptionConsumer-driven opportunities, a Competitionwealth of natural resources, and Performancegeographic proximity to the huge Access to debtmarkets of China and India are all Portfolio issuesfactors lining up in the region’s favour. Deal origination However, other underlying factors Exitingare tempering the speed at which these PE HRopportunities can be realised and this is LP sentiment Tax environmentreflected to a degree in the current Regulationfortunes of the private equity industry. Human resourcesRespondents to this study point to the Industry maturityoften poor public perception of privateequity in the region, as well as the lack ofdebt funding and a shortage ofdemonstrable track record in some ofthe newer markets. In addition, there areregulatory pressures, driven by anindividual country’s political backdropand/or the financial authorities. These factors, the current difficulteconomic environment, and therelatively young nature of the privateequity industry in the region mean thatthe majority of investors plan to focus “We’re interested in the idea of investing “I think globally, the challenge is thetheir attention particularly on the in other/new alternative asset classes perception of the asset class. Theopportunities presented within their and innovating in terms of new types of reason why we can’t IPO at thecore business area over the coming year. investment.” moment is that the media picks up onThis will include making sure they fully every bad thing, but they don’tunderstand where their key strengths lie SINGAPORE survey respondent overplay any success. They like toand where improvements can be made. knock the private equity industry even though there are plenty of success stories. It impacts on IPOs and on the trustees of boards that are setting asset allocations.” AUSTRALIA survey respondent Global private equity report 2011 – Asia Pacific 39
    • FIGURE 10: AREAS OF NEW BUSINESS DEVELOPMENT “The big challenges are the macro-Core business 44 economic environment and its effect onSector opportunities 13 deal flow. Lots of entrepreneurs areAsset class opportunities 6 looking at the conditions and the lowGeographical opportunities 6 multiples and are persuaded to bideN/A 31 their time until they can get a better deal.” VIETNAM survey respondent “Perhaps more than in many other markets there are signs of clear industry-led opportunities, be it service “Key issues for this market are the related opportunities to the natural resources sector in ludicrous price expectations out there and the fact that it is not a liquid Australia or the consumer-led growth in parts of South market. The lack of debt financing for East Asia. deals is also a problem.” Challenges remain for private equity investors in the SINGAPORE survey respondent Asia Pacific region, namely the volatility of international debt and equity markets and its flow on effects in funding “I see the biggest challenges as being deals, raising new funds and achieving suitable exits. competition for deals, regulatory However, as we have seen in previous cycles, the funds pressure and the difficulties that PE firms experience in finding new talent.” that can raise capital and deploy it successfully should emerge as the winners.” SINGAPORE survey respondent PAUL GOOLEY CORPORATE FINANCE PARTNER, HEAD OF PRIVATE EQUITY “In the more frontier markets, I think GRANT THORNTON, AUSTRALIA that the regulatory environments are not as clear as they need to be. We do explore these markets and look at the deal environment, but with a sceptical eye. We won’t invest unless the environment is right, but when it is, we will want to be there!” AUSTRALIA survey respondent40 Global private equity report 2011 – Asia Pacific
    • MENA:Investment activityPrivate equity in the region is still FIGURE 1: SOURCES OF DEALFLOW PERCENTAGEcharacterised by growth capitaltransactions, usually sourced from Secondary buyouts: 20%family owners and private vendors.As a result, GPs’ networks amongstthe corporate and entrepreneurialcommunities are seen a critical factor Corporate divestments: 20%in sourcing deals, with local presencealso key. Despite the rapidly shiftinglandscape in the region, not least as aresult of the Arab Spring, private equity Family/private: 60%practitioners in MENA are broadlypositive regarding the outlook for newdeal activity over the coming year.Around two-thirds expect to seeincreasing activity, although the driversvary from country to country within theregion. “In terms of origination, the key “The most significant source of sources are local, family-owned dealflow will be private companies, businesses seeking a non-family either family- or entrepreneur- partner and intending to expand on a owned. Other sources will be less regional basis using non-organic important. Private equity is relatively growth routes. Privatisations are also new in Turkey so, while there might important in a few sectors.” be some scope for secondaries, it is not as important as the other BAHRAIN survey respondent sources.” TURKEY survey respondent Global private equity report 2011 – MENA 41
    • “A lot of factors are important in winning deals, not least of course having capital. Sector knowledge helps a great deal as it provides better judgement and know-how. Also any tangible and intangible knowledge gained via other portfolio companies also helps. Relationships and reputation are critical – being close to local business partners can be an advantage over other PE houses not based locally.” TURKEY survey respondent Within MENA in general, there is a FIGURE 2: KEY FACTORS IN IDENTIFYING AND WINNING DEALSsense that after taking a hit during the Corporate/entrepreneur networksdownturn and the recent political Local presenceupheaval, activity levels will start to Sector expertisebuild gradually. Within Turkey, Advisory relationshipsrespondents point to a positive Track record/reputationeconomic outlook coupled with a Value add propositiongrowing recognition of private equity. Management chemistry The notable diversity of the Access to capitalcompetitive landscape is highlighted by Speedthe significance of non-institutional Pricemoney in the form of family offices,Sovereign Wealth Funds (SWFs) andcorporate groups across the wholeregion. However, opinions remaindivided regarding the likely directionthat entry multiples will take; theunanimous view in Turkey that priceswill stay at current levels is not reflectedelsewhere, reflecting the changing GPlandscape and few recent comparables. “Primarily, proprietary networks drive dealflow, although you cannot just rely on your networks. Sector expertise is important too, although it is not sufficient to have that alone. You need the investment banking guys who have the networks in place as well.” UNITED ARAB EMIRATES survey respondent42 Global private equity report 2011 – MENA
    • FIGURE 3: SOURCES OF COMPETITION PERCENTAGE Other: 4% Family offices: 15% Foreign/international Domestic private equity: 36% Trade buyers: 15% Foreign/international“In Kuwait, bothproprietary networksand well-established Foreign/international private equity: 30%intermediaryrelationships areimportant in finding andwinning deals in thismarket. A strong localpresence, coupled withsector expertise, are alsokey ingredients.”ABDULLATIF AL-AIBANPARTNERGRANT THORNTON, KUWAIT “In Egypt, the recent political upheavals have led to an extremely volatile situation which has led to a reduction in deal flow. However, we are confident that when stability returns to the market place a number of opportunities will present themselves.” HOSSAM EL BESHER PRINCIPAL PARTNER GRANT THORNTON, EGYPT “Prices are decreasing, multiples are going down. There is less capital available in the market and that pushes prices down.” UNITED ARAB EMIRATES survey respondent “SWFs get the first look-in on potential deals, followed by semi-Sovereigns, the big PE houses, the local PE players, then the locally-based foreign PE houses. If you are not here, you miss out; not having a presence on the ground causes people to question your experience.” UNITED ARAB EMIRATES survey respondent Global private equity report 2011 – MENA 43
    • PortfolioFIGURE 4: ECONOMIC OUTLOOK FOR PORTFOLIO BUSINESS From a portfolio company perspective,PERCENTAGE there is also growing optimism. There is a sense that macro economic prospectsNeither positive nor negative: 29% are improving throughout the region (although this is often from a low base), Very positive: 14% while at the same time, private equity practitioners increasingly are confident about the state of their own portfolios, helped by typically low levels of debt. Likewise, many players highlight the level of maturity of their current portfolios, not least as a result of higher Positive: 57% levels of hands-on involvement with these businesses over recent times – something that they expect to continue. Input from investors in the MENA region tends to focus on strategic discussions as well as on more specific areas that help to professionalise portfolio businesses, including HR and governance. Some also point to the expertise that they can bring in the area of M&A, and indeed just over a third of respondents expect cross-border M&A levels to increase at their portfolio firms.“Value uplift is about top-line growth “We focus on family businesses and “We are hands on, on all levels, as it’sof the business. In this region, a buy and build acquisitions. For us, not just about financing deals. We aretypical private equity investment is a therefore, it is very much about about growth capital, not financialgrowth capital investment so there is organic growth – purchasing the engineering, and it is a collaborativeless value growth from financial business and then creating a higher effort that involves both operationalengineering and multiple arbitrage. value over time.” and strategic input.”We do use financial leverage, but UNITED ARAB EMIRATES survey respondent UNITED ARAB EMIRATES survey respondentmuch less than is typical in someother regions.”TURKEY survey respondent44 Global private equity report 2011 – MENA
    • “My belief is that the fundamentals of the region are very strong. These include high oil prices; the low number ofdistressed banks; stabilising real estate market including in hard-hit Dubai; a young population of sophisticatedconsumers seeking quality services from foreign and indigenous brands; the need for governments to encouragebusiness in infrastructure, education and healthcare, and to get SMEs more involved in the economic cycle to spurgrowth and create employment.”BAHRAIN survey respondent FIGURE 5: PORTFOLIO VALUE DRIVERS “In Saudi, the national PERCENTAGE economy is growing and Multiple arbitrage: 4% there is a relatively stable situation in terms of the Financial engineering: 4% Market growth: 26% macro-economic and political outlook. A combination of growth M&A growth: 17% and stability creates a positive outlook.” NASSER BARAKAT CONSULTANCY DIRECTOR Performance GRANT THORNTON, SAUDI ARABIA improvement: 49%“The issue for a lot of companies is “Our main areas of portfolio input “The MENA economy is growing at ahow to execute and position yourself include corporate governance, decent rate (5% GDP) compared toin a rapidly growing market. Market expansion into new markets, and Western markets. The market couldgrowth may be a key driver, but the add-on acquisitions.” be doing much better, but then I amchallenge is the strategy and tactics not complaining, as it is still better BAHRAIN survey respondentyou are going to adopt as the market than it could be considering theevolves.” general macro-economic state.”UNITED ARAB EMIRATES survey respondent UNITED ARAB EMIRATES survey respondent Global private equity report 2011 – MENA 45
    • ExitFIGURE 6: EXIT ROUTES With private equity players in the regionPERCENTAGE having invested time and effort professionalising and growing portfolioSecondary buyout: 16% companies, there is an expectation that the next 12 months will see a renewed IPOs: 16% focus on divestments. Many point to more positive conditions for exiting, with improved liquidity and buyer interest, which is welcome news for groups that Trade sale: 68% need to show realisations prior to any forthcoming fundraising programme. As is the case elsewhere, the appetite of corporate buyers is fundamental to the success of divestment programmes at this point in time. However, unlike in many other markets, there is more interest in IPOs and belief that this channel is a viable exit route. Conversely, key sponsor-to-sponsor deals are not yet a big feature of the market, although some practitioners do expect to see them become more relevant in the future. With market fundamentals beginning to look more positive – rising valuations and portfolio companies in better shape – practitioners believe that the longer- term prospects for returns are positive. However, with the stuttering macro economy keeping a brake on things, current views on the outlook remain somewhat mixed.“Prospects for returns are good. Private equity valuations are up, return onequity is moving higher.”UNITED ARAB EMIRATES survey respondent “Strategic sales and IPOs will be the most prevalent exit route.“IPOs are available but are not the most preferred route because of the Secondaries will happen but won’t belengthy lock-in periods.” the most important source yet.”BAHRAIN survey respondent TURKEY survey respondent46 Global private equity report 2011 – MENA
    • FundraisingFIGURE 7: FUNDRAISING ENVIRONMENT Private equity practitioners across thePERCENTAGE MENA region are broadly positive about the outlook for fundraising overNegative: 23% the coming year, despite the fact that they also tend to be predicting Positive: 46% considerable churn within their own LP bases going forward. The MENA region, in general, is one in which, to date, international money has accounted for a significant proportion of private equity capital. However, changes in the availability of domestic capital forNeutral: 31% private equity funds are driving concerns over fundraising in some quarters and optimism in others. On the one hand, domestic money in Turkey has the potential to be an increasingly significant part of the landscape; while in other parts of the MENA region, retrenchment of domestic groups that have previously been investors in private equity is“I’m negative on fundraising due to the retrenchment of regional investors highlighted as a negative feature offrom capital markets in the wake of the global crisis (including from the market.alternative assets such as PE).” Against this backdrop, as withBAHRAIN survey respondent private equity markets across the world, GPs report that LPs are becoming more demanding.“LPs being increasingly demanding is not so much of an issue. However, as themarket matures over the next 3-4 years, there will be increasing interest inthe secondary buyout market, and you will see greater demands made by LPsas a result.”UNITED ARAB EMIRATES survey respondent“The fundraising environment will improve from what we have seen so far this year.It is difficult to say how things will play out; it is tough convincing investors topart with their money as PE is very much about long term investments – investorshave to wait for their money to work.”UNITED ARAB EMIRATES survey respondent Global private equity report 2011 – MENA 47
    • Overall market outlookAs sentiment begins to improve across FIGURE 8: KEY CHALLENGES FACING THE PRIVATE EQUITY INDUSTRYthe MENA region, private equity LP sentimentplayers are showing signs of augmenting Competitiontheir teams in preparation for the Regulationopportunities that lie ahead. Three Deal originationquarters of players expect to increase Portfolio issueshead count over the coming year, Geo-political factorsparticularly in the area of front-line deal Industry maturitydoing. This focus on transactional team PE perceptionenhancement reflects the expectation Performancethat GPs’ principal focus over the PE HR Exitingcoming year will be on their corebusiness, as well as seeking dealopportunities in neighbouringgeographical markets. Somewhat surprisingly, given theoverall positive expectations regardingfundraising, LP sentiment is seen byMENA GPs as the biggest challengefaced by the industry at this time.However, it appears that this concern islinked to perceived LP views on the lackof GPs with a demonstrable track recordin the MENA region, rather than areflection on the respondents’ ownfundraising prospects. The recent political unrest witnessedacross parts of the MENA region is felt,broadly, to be having at least someimpact on the prospects for privateequity in the region. While the dust hasyet to settle, the mood is one of believingthat the undeniable short-term “Yes, the political unrest has impacted the region in a big way. Political issues are adisruption will ultimately give way to big factor in the decision-making process for potential investors, and the recentenhanced opportunities. turmoil has slammed the brakes on investment returns – people don’t want to take that big a risk, particularly SWFs. However, in the long term it will be business as usual as this region has the potential to be hugely successful for PE.” UNITED ARAB EMIRATES survey respondent48 Global private equity report 2011 – MENA
    • FIGURE 9: AREAS OF NEW BUSINESS DEVELOPMENT “In the long term the PERCENTAGE unrest that this region has Core business 36 Geographical opportunities 29 seen will have a positive Asset class opportunities 14 impact as it will bring Sector opportunities 7 stability and growth, N/A 14 although it will mean FIGURE 10: LASTING IMPACT OF POLITICAL UNREST short term volatility. PERCENTAGE Although the next 12 months will be disruptive, No impact: 18% the short term volatility will lead to mid-term Major impact: 27% opportunities.” DAVID FISHER CEO GRANT THORNTON, MIDDLE EAST ADVISORY SERVICES Some impact: 55%“The challenges are fundraising, finding “The Middle East country that has really been affected by the recent politicaland winning deals (family businesses to unrest is Egypt, where there were meaningful levels of private equity activity.invest in), and the fact that, in general, The other countries affected, namely Libya and Syria, did not have much PEthe PE market is still young in this activity. In countries like Turkey and Saudi there has been no real change – theyregion. The industry needs to be able to are very stable and private equity activity continues. We are looking to dodemonstrate good results to illustrate a investments in the GCC economies.”track record of delivering.” UNITED ARAB EMIRATES survey respondentUNITED ARAB EMIRATES survey respondent “We see the SME space as a growth opportunity in the region, focusing on growth capital deals rather than buyouts for small– and medium-sized“Turkey is still on a learning curve and enterprises.”entrepreneurs are still trying tounderstand what PE does and brings TURKEY survey respondentbeyond money. In a short time we willsee an exponential growth in PE- “The key challenge for private equity in this region is to develop the valuebacked deals. Competition will remain proposition beyond the money. A lot of funds are very domestic and a lot oftough especially for good deals as this what is being done does not have a value-add component. Business ownersis not yet a mature market so the and institutions have access to different sources of capital so private equitynumber of transactions are limited.” needs to demonstrate what its value-add is in real and measurable terms.”TURKEY survey respondent UNITED ARAB EMIRATES survey respondent Global private equity report 2011 – MENA 49
    • BRICS:Investment activityThe BRICS countries are the most FIGURE 1: SOURCES OF DEALFLOW PERCENTAGEbullish with regard to expectations forrising activity levels, with Brazilian GPs Other: 8%the most positive of all. The BRICScountries continue to be predominantlygrowth capital markets in private equity Corporate divestments: 8%terms, the exception perhaps being Public markets: 6%South Africa where a more establishedbuyout market exists. Family and privatebusinesses provide the key source ofdealflow and, as such, GPs put particular Secondary buyouts: 10% Family/private: 68%emphasis on their own corporate andentrepreneur networks in identifyingopportunities. While a host of otherfactors are also listed as significant, manyof the top ranked are in some way linkedto the importance of self-origination andfinding a successful angle in thesecompetitive markets.“Deals are likely to originate mainly “In China the key deal source is “The competition is from domestic PEfrom private businesses looking to private/family-owned companies. houses and international PE players.raise capital from private equity for Growth equity deals will remain the The public markets are depressed sothe first-time. There is an increased main source of dealflow. It will there is limited competition from thatawareness and willingness to do so.” definitely not be the public markets quarter at the moment.” or corporate divestments.”BRAZIL survey respondent CHINA survey respondent CHINA survey respondent50 Global private equity report 2011 – BRICS
    • “There is competition from domestic and international PE houses. Strategic buyers will also start to come back. Typically, they have deeper pockets than PE houses and can add value by creating synergies so will be willing to pay a higher price for assets.” SOUTH AFRICA survey respondent FIGURE 2: KEY FACTORS IN IDENTIFYING AND WINNING DEALS“In India, family- Corporate/entrepreneur networksand privately-owned Track record/reputationbusinesses are the key Value add proposition Local presencesource of private equity Advisory relationshipsdealflow. As a result, a Sector expertisewhole range of factors are Price Deal process managementimportant in sourcing Access to capitaldeals, including Management chemistrynetworks, intermediary Speedrelationships, sectorknowledge, localknowledge, track recordand proven speed ofexecution.”SID NIGAMPARTNER, HEAD OF M&AGRANT THORNTON, INDIA “Where PE firms are under pressure “Colombia is probably the safest of to get realisations on deals you are the newer markets, though Peru also seeing some secondary buyouts. The has promise. Chile has issues but is public-to-private market is tough. still an important area. Further down Overall, it’s generally the smaller deal the line there may be potential to market where activity is happening.” move into Spain and Portugal, reversing the main trend currently.” SOUTH AFRICA survey respondent LATAM survey respondent Global private equity report 2011 – BRICS 51
    • FIGURE 3: SOURCES OF COMPETITION PERCENTAGE Other: 2% Family offices: 3% Domestic private equity: 40% Public markets: 5% Trade buyers: 18% Foreign/international The main sources of competitionremain private equity specificthroughout the BRICS, with many Foreign/international private equity: 32%players attracted to the consumer-relatedopportunities of these growtheconomies, as well as development-linked sectors such as infrastructure,particularly in Brazil and India. With thevolume of opportunities available withinthe BRICS markets themselves, thetendency is for GPs to focus their effortsin their domestic region. Where they docross borders, it tends to be to countries ”Reputation, longevity and a proven ability to execute deals are allstill within the same cultural sphere of important in finding opportunities. If you have that, the intermediaries willrecognition. show you everything, but if you fail a few times that will change. Once in, Competing pressures on pricing you have to show that you can connect with the entrepreneurs and relate toinclude strong economic growth and their realities. They have quite a choice of PE houses to look at and goodrising competition versus a fear of news travels.”overheating. INDIA survey respondent “There is more deal intermediation than there used to be, due to less differentiation in the markets. PE firms need to be more market savvy, with greater experience and business knowledge. We are seeing the early stage evolution of what happened in the UK and US when PE firms became established there.” HONG KONG survey respondent “In terms of competition, for growth capital it is the proliferation of local and international PE funds that have sprung up. In the emerging buyout area it is still the large international houses.” INDIA survey respondent “Prices will start to weigh in favour of PE, as the market softens. However, competition is increasing so that will offset the lower prices to a degree.” HONG KONG survey respondent52 Global private equity report 2011 – BRICS
    • PortfolioFIGURE 4: AREAS OF HANDS-ON INVOLVEMENT Governance is a further area highlightedStrategic input in terms of PE input to portfolio firms,Financial planning and an appreciation of the issues aroundM&A ESG appears to be on the rise across theHuman resources BRICS countries. The key driver of thisGovernance is the perception that it represents ‘bestAccess to networks practice’, but there are also evidentOperational input pressures from a number of sources,Professionalisation eg LPs, portfolio managers, regulators,Exit planning that are at play here.Mentoring Many BRICS-based GPs stress thatCost control hands-on involvement in investees isMonitoring important. Particularly noteworthy isSector knowledge the range of areas in which GPs seeInternationalisation themselves getting involved, with theManaging banking relationships key inputs including strategic direction and financial planning, the latter being relatively more significant within the BRICS countries than elsewhere, and often focused on areas such as budgeting and cost management.“Market growth is the main driver of “PE firms really need to be hands-onvalue, but we also try to make to deliver value, and many are. I don’toperational improvements to our see that changing. The key areas areportfolio companies.” strategic input and financial planning.”CHINA survey respondent BRAZIL survey respondent Global private equity report 2011 – BRICS 53
    • “Top line is the most important driver of growth. Beyond that, working capital improvements and expansion also drive value growth. Financial engineering will contribute, but this is not significant since mid-market deals have lower levels of debt and lower multiples have been paid for them.” SOUTH AFRICA survey respondent Overall, performance improvement FIGURE 5: PORTFOLIO VALUE DRIVERS PERCENTAGEremains the most important value driverat portfolio firms but private equity Multiple arbitrage: 4%practitioners based in the BRICS Financial engineering: 2%countries are broadly positive about theeconomic outlook and its impact on Market growth: 35%their portfolios, with those based in M&A growth: 13%Brazil and India generally the mostpositive of all. The typically low levels ofleverage in BRICS PE deal structures hasalso meant that debt has not been a causeof stress for too many companies.However, this optimism is laced with anelement of caution relating to potentialslow down and perceived marketvolatility. Despite this, market growth isstill seen as a relatively more important Performance improvement: 46%value driver in BRICS countries thanelsewhere. “In China, building value comes down to earnings“Generally speaking, the growth. Private equity firms cannot rely on arbitrage inconsciousness of ESG issues is the current climate. They need to demonstrate that theyincreasing amongst Indian have delivered tangible improvements to the business,entrepreneurs, but it is verymuch a work in progress.” such as improvements to the performance and strengthening of the management team.”INDIA survey respondent LIU DONGDONG PARTNER, NATIONAL LEADER – ADVISORY SERVICES GRANT THORNTON, CHINA54 Global private equity report 2011 – BRICS
    • “Put simply, we identify the drivers of FIGURE 6: IMPORTANCE OF ESG PERCENTAGEgrowth for each individual company andthen help them to execute a business Value driver: 3%plan. The key is getting the managementteam sold into the plan.” LP pressure: 13%RUSSIA survey respondent“Even five years ago, ESG issues were Perceived best Manager awareness:not as closely followed, but now, practice: 39% 10%driven by the LPs and the largerinternational players, it is growingrapidly. It forms part of our duediligence process, our compliance Regulation: 19%process and the post-deal activities.It’s perhaps not as widespread amongsmaller local investors, but it will be.”BRAZIL survey respondent Deal selection: 16%“We focus on strategic rather than “There is an increased need for “ESG issues are not very important inoperational issues. The main areas of improvement in governance China, although increasinglyinvolvement are governance systems, standards. We assist investee compliance needs to be in order.”financial controls and developing companies in becoming more socially CHINA survey respondentmanagement teams. We also help responsible and investor friendly.”portfolio companies with growth and HONG KONG survey respondentacquisition opportunities in newmarkets.”SOUTH AFRICA survey respondent Global private equity report 2011 – BRICS 55
    • ExitFIGURE 7: EXIT ACTIVITYPERCENTAGE China Hong Kong India South Africa Brazil Russia Increase 25 20 25 67 71 100 Stay the same 0 80 50 33 29 0 Decrease 75 0 25 0 0 0Expectations for exit activity vary Distinctions can also be drawn This complex picture is echoed in thebetween the BRICS countries, within some countries, with Hong Kong varying expectations regarding futurehighlighting the differing points in the GPs slightly less pessimistic than their returns. GPs in countries such as Brazilevolution of the private equity industry mainland counterparts. This is primarily and India are particularly negative in thisreached in each. While half of all BRICS- a reflection of the state of the IPO respect, often expecting downwardbased respondents expect to see increasing markets. Across the BRICS countries, pressure as a result of high entry pricesexit levels over the next 12 months, many the importance of IPOs as an exit route in recent times.GPs in mainland China and India expect is notably higher than in other regions.to see falling levels of realisations. But, while public market sentiment isThe mood within these larger, more perceived to be working in privateestablished markets, which already have equity’s favour in places such as Brazil,some track record of exits, is more Hong Kong and India, this is currentlysubdued than in areas such as Brazil, less likely to be the case in mainlandwhere many portfolios are only now China, Russia and South Africa.completing their first cycle. “Exits will increase. There are lot of portfolios reaching maturity in Russia and this will be the main driver.” RUSSIA survey respondent56 Global private equity report 2011 – BRICS
    • “I believe exit activity will decrease, In this market I suspect it will be anmainly because of the weak “With the region predicted to have one of the even split between secondaries andsentiment in the market. It’s a buyer’s fastest growing economies, and private equity being trade sales in terms of the keymarket not a seller’s market at the channels to exit. increasingly viewed as a viable option, we are expectingmoment.” high levels of activity in the South African privateINDIA survey respondent equity market in the next three to five years.” JEANETTE HERN HEAD OF CORPORATE FINANCE GRANT THORNTON, SOUTH AFRICA “IPOs and trade sales are key “I think there will be downward here. Also, the secondary market pressure on returns. Because of the is growing in Asia, but is still small very high multiples paid over the last at the moment.” couple of years the likelihood is that they will fall.” HONG KONG survey respondent BRAZIL survey respondent Global private equity report 2011 – BRICS 57
    • FundraisingFIGURE 8: AREAS OF INCREASING LP DEMANDS Ultimately, performance is king in privatePerformance equity and no more so than in marketsTransparency that have been sold on the promise of highESG rewards and are now faced with realisingFees this potential in tougher economic times.Value drivers Unsurprisingly, therefore, GPKey man performance and its communication areDealflow the key areas in which LPs are seen to beAlignment of interests applying pressure.Differentiation The increasingly critical eye being turned by LPs on private equity means that the initial sense of opportunity in the now ‘more emerged’ markets, such as China and India, is to a degree being replaced by a more pragmatic appreciation of the risks, particularly as competition levels in these markets have risen. At the same time, the importance of“The overall fundraising story is “LPs are increasing the pressure in international money in all these regionsprobably negative. There are lots of terms of reporting, terms and leaves an individual country’s GPspeople raising and while the macro perhaps most importantly in trying to vulnerable to LPs shifting their attentionstory might be good, the actual track generate the metrics that will help to the latest highest growth markets.record for returns is very patchy and them to differentiate the good Despite the challenges, GPs in thesome firms will struggle.” performers from the not so good BRICS countries expect to raise larger performers.”INDIA survey respondent successor funds, highlighting the BRAZIL survey respondent ongoing potential of these markets as they continue to develop.“Fundraising remains tough and aschallenging as it has been in the last “More than ever, you need to have afew years. Until money is returned to track record and LPs want to know theLPs from older investments, management team in depth.”fundraising will remain challenging.” HONG KONG survey respondentSOUTH AFRICA survey respondent“LP demands are increasing. Dealingwith them is never an easy process,even if you have a good track record.”CHINA survey respondent58 Global private equity report 2011 – BRICS
    • Overall market outlookFIGURE 9: KEY CHALLENGES FACING THE PRIVATE EQUITY INDUSTRY Regulatory matters are seen as theRegulation biggest challenge facing the BRICSMacro economy private equity markets. With the rapidDeal origination growth of the private equity sectorCompetition within these markets, they have alsoPerformance received increased attention fromPE HR financial regulators keen to ensurePE perception controlled growth. But even without theLP sentiment watchful eye of the authorities, theseFiscal environment markets would still find themselvesAccess to debt wrestling with the challenges internal toExiting the industry of rapid growth, namelyGeo-political factors high levels of competition and a shortagePortfolio issues of talent.Tax“As the market develops people will have “We are definitely expanding. We have “LATAM as a whole needs to show thatto think harder about their strategy. In already moved from two to four it can deliver good exits as well asthe past they did well in multiple partners in the last year, and over the interesting investment opportunities.arbitrage between public and private next 12 months we will look to add There is some macro economic riskmarkets, but things have changed.” further mid-level investment for Colombia, especially on the professionals.” appreciating currency, but it’s notCHINA survey respondent major.” INDIA survey respondent LATAM survey respondent“We will be recruiting in the areas ofportfolio management and also analysts “Following the presidential electionsat entry level. I would also say it is there will hopefully be less corruptiondifficult recruiting good quality private and local government intervention, andequity staff with suitable experience and this will result in opportunities.”knowledge in deal doing.” RUSSIA survey respondentSOUTH AFRICA survey respondent Global private equity report 2011 – BRICS 59
    • As some of the BRICS countries FIGURE 10: AREAS OF RECRUITMENT PERCENTAGEarguably move from being ‘emerging’ to‘emerged’, there are signs that many of Deal doing 44 Portfolio operations 14the players in the market are Research 14institutionalising by building their core IR 11teams as well as ‘supporting Admin 3infrastructure’. More GPs plan to Legal 3increase headcount in the BRICS Other 3countries than elsewhere, including areas N/A 8such as research, portfolio managementand investor relations. This is nowheremore the case than in China. FIGURE 11: AREAS OF NEW BUSINESS DEVELOPMENT PERCENTAGE The emphasis on building investmentteams reflects the most oft-cited focus of Core business 47private equity firms over the coming Geographical opportunities 29year, namely sticking to core business Sector opportunities 13and proving that they can deliver Asset class opportunities 8 Deal size shift 3returns. Also in markets such as India,China and South Africa, GPs point tothe importance of new geographies asthey seek to identify opportunities.60 Global private equity report 2011 – BRICS
    • “The big opportunity lies in the improvement of prospects for Africa. Finally“China, India, Brazil – it’s getting its act together – politically and economically – i.e. legals,these are all now major regulations and ease of doing business are slowly getting better. This is coupled with the African consumer spending more. If all this continues wemarkets on the private hope to fundraise by June 2012.”equity stage. As theycement their positions SOUTH AFRICA survey respondentthey need to continue to “It is a very large market and there are tremendous opportunities to findbuild track record, companies that were completely below the radar 3 or 4 years ago but whichproving that they can add are growing very strongly. But they are still not necessarily that visible and thatvalue to their investments means you have to look outside of the tier 1 cities to find them and therefore need to expand and develop your network.”and generate strongreturns.” INDIA survey respondentLINK COSTAPARTNER “The main challenge is maintaining a strong investment discipline: India has aGRANT THORNTON, BRAZIL record of seeing spikes in activity and this could affect returns and hinder development. The second area is regulatory risk. But this is not a new thing in the market and the best investors can turn it into an advantage by the way they are able to deal with often unpredictable changes.” INDIA survey respondent “We will be needing to increase our team size, primarily in terms of investment staff and also on the compliance side. On this latter point, the local financial regulator has brought in onerous new compliance standards which we will have to meet.” LATAM survey respondent Global private equity report 2011 – BRICS 61
    • Sample and methodologyFIGURE 1: SAMPLE This report provides a global snapshot ofPERCENTAGE the opportunities and challenges within the private equity industry as seen fromMENA: 10% a practitioner’s perspective. The differences in what it means to be an active player in specific global markets are examined, as are the key themes thatAsia Pacific: 11% Western Europe: 33% resonate around the world. During autumn 2011, 144 interviews were conducted with top executives from private equity firms. Respondents included industry GPs in five principal regions/categories: • Western Europe • North America (USA and Canada) • Asia Pac (Australia and South EastBRICS: 25% North America: 21% Asia) • MENA (including Turkey) • BRICS, Brazil (and broader LATAM), Russia, India, China, South Africa.62 Global private equity report 2011
    • Participants were identified from a FIGURE 2: WESTERN EUROPE PERCENTAGEnumber of sources including industryassociations, market directories and France 20 Germany 15contact networks. Italy 9 The interviews were conducted on Spain 6an unattributed basis and were Sweden 11structured loosely around the various United Kingdom 39stages of the private equity cycle,incorporating new investment activity,portfolio management, exiting and FIGURE 3: NORTH AMERICA PERCENTAGEfundraising. This approach enableddetailed exploration of likely trends Canada 33throughout the cycle and identification United States 67of key pressure points within the chain. Interviews included a mixture of FIGURE 4: ASIA PACquantitative and qualitative questions. PERCENTAGEThis report includes graphs and charts Australia 30derived from both the quantitative data Singapore 30and, where appropriate, the coding of Vietnam 40responses to qualitative questions toprovide statistics highlighting keytrends. Some charts will also reflect FIGURE 5: MENA PERCENTAGEmulti response questions. Bahrain 13 Turkey 40 United Arab Emirates 47 FIGURE 6: BRICS PERCENTAGE Brazil/LATAM 25 China/Hong Kong 25 India 25 Russia 8 South Africa 17 Global private equity report 2011 63
    • Grant Thornton capabilities Grant Thornton member firmsGrant Thornton is one of the world’s More than 2,500 partners provide For a detailed list of Grant Thorntonleading organisations of independently clients with distinctive, high quality member firms and contact details pleaseowned and managed accounting and and personalised services in over 100 visit www.gti.orgconsulting firms. These firms provide countries. This gives Grant Thorntonassurance, tax and advisory services to the ability to operate as both a local andprivately held businesses and public global partner, sharing knowledge, skillsinterest entities. and resources with corporate clients and entrepreneurs across the world. Our specialist teams work with the private equity industry and its leaders globally.64 Global private equity report 2011
    • Grant Thornton contactsGlobal overview and Western Europe Asia Pacific BRICSMartin Goddard Bill Hutchison Harish HVGlobal service line leader – Transactions Advisory services partner Head of Transaction advisory servicesGrant Thornton International Grant Thornton Vietnam Grant Thornton IndiaT +44 (0)20 7728 2770 T +84 8 3910 9100 T +91 80 2430 800E martin.a.goddard@uk.gt.com E bill.hutchison@vn.gt.com E harish.hv@in.gt.comNorth America MENASteve Lukens David FisherHead of Advisory CEOGrant Thornton US Grant Thornton Middle East Advisory servicesT +1 212 542 9640 T +971 (0) 4 447 3874E steve.lukens@us.gt.com E david.fisher@ae.gt.com
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