DealMarket Digest Issue 110 - 27th September 2013

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SEE WHATS NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 110 - September 27, 2013: …

SEE WHATS NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 110 - September 27, 2013:
- M&A Global Overall Stagnating: Bright Spot is EMEA
- Blackberry Taps PE
- South African PE Market is Revitalized: Survey
- Russian PE Weak Compared to Rest of BRIC Markets
- Secondary Market Volume Higher Than Previously Assumed
- Quote of the Week – Going Private

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  • 1. DIGEST110 September 27, 2013 1 2 3 M&A Global Overall Stagnating: Bright Spot is EMEA Blackberry Taps PE South African PE Market Revitalized: Survey Russian PE Weak Compared to Rest of BRIC Markets Secondary Market Volume Higher Than Previously Assumed Quote of the Week: Going Private 5 4
  • 2. 2 www.DealMarket.com/digest M&A GLOBAL OVERALL STAGNATING: BRIGHT SPOT IS EMEA Global M&A is not growing this year compared to last year, despite some noteworthy deals taking place in the first nine months of the year, accord- ing to Merrill Datasite’s latest monthly M&A report for August 2013. (see Global M&A Graphic above) Its analysts say the M&A mar- ket is largely stag- nant and are predicting mainly domestic deals going forward. They did note that dealmakers are looking abroad for growth and expansion which could affect figures in 2014. Most regions globally were down in activity for the summer months, except for the Middle East, which was up by 47% over the previous quarter, also up from the same period last year. The other bright spot was Europe which was also up (19%). North America’s largest deal prior to September was Hellman Friedman acquisition of Hub International for USD 4.4 billion. The TMT sec- tor was particularly strong last month in the US, says the report. The largest strategic deal was a USD 22.7 billion telecoms transaction involving KPN and America Movil. The graphic here shows the sec- tor breakdown with Energy and Mining topping the deals by value and Industrial topping by number of deals done.
  • 3. 3 www.DealMarket.com/digest BLACKBERRY TAPS PE This week’s buyout of the week is the widely reported take private of Canada’s smartphone maker BlackBerry. The USD4.7 billion deal was led by its biggest shareholder, property and casualty insurer Fairfax Financial Holdings Ltd, reports Reuters. It was a club deal but the other buyers were not named. Other bids may come in before the November 4 deadline. Prem Watsa, Chairman and CEO of Fairfax, said in a statement, issued by BlackBerry, “We believe this transaction will open an exciting new private chapter for BlackBerry, its customers, carriers and employees. We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world.” SOUTH AFRICAN PE MARKET IS REVITALIZED: SURVEY The PE market in South Africa grew by 10.4% this year, according to the latest annual study KPMG and the South African VC and PE Association. Analysts quoted in the study believe that this year marks the turnaround for the PE market in South Africa. In the calendar year 2012, the local private equity in- dustry added 10.4% to its total funds under management, closing at R126.4 billion. The 2012 growth surpasses the previous four years’ combined cumulative growth of only 4.6%, says the report. This was the thirteenth annual survey. It represents over 90 percent of total South African private equity funds by value. Current funds under management represent a compound annual growth rate of 11.6 percent (excluding undrawn commitments, which is those funds committed by investors but not yet deployed) since the inception of the survey in 1999. (Image source: KPMG and SAVCA Private Equity Survey)
  • 4. 4 www.DealMarket.com/digest More than USD 36.5 billion in private equity has been invested in emerging and developing markets over the past decade, and within the four major BRIC countries, it is China, India and Brazil that ac- count for two thirds of its cross-border deals (64%) and financial commitments (63%), according to new research by international law firm Freshfields Bruckhaus Deringer. Over the past decade only USD 2.01 billion flowed into Russian PE, whereas USD 4.12 billion flowed to Brazil, and USD 7.63 bil- lion to India. China topped them all, attracting USD11.2 billion worth of deals. Private equity firms have largely shunned Russia in favor of fellow BRIC economies, says the Financial News, citing the Fresh- fields Bruckhaus Deringer report. By comparison, Russia experienced only 12 deals, or 5%, of emerg- ing markets deals between 2003 and 30 June 2013. Looking ahead the report authors said that despite PEs recent propensity for focusing on China, In- dia and Brazil, the industry’s investment reach appears to be broadening, say the report’s authors. With growth slowing in many of the original BRIC markets, PE “continues to chase strong investment returns in emerging markets”. There is a “gradual shift in geographic interest, specifically towards Africa, Indonesia and Vietnam”. Higher growth in those markets is expect. PE investments in emerging and developing markets over the past decade have focused on financial services companies (41% of investments), followed by retail (16%), high technology (11%) and telecoms (10%). Key findings • R14.4 billion was raised in 2012 which is an increase from the R10.7 billion raised during 2011 • 56.2% of all funds raised during 2012 were from South African sources (2011: 62.0%). South Africa has been the largest source of 46.0% of cumulative funds raised to date and not yet returned to in vestors (2011:45.4%) • Investment activity for independents only, as a % of GDP, was 0.10% (2011: 0.14%). This compares with the UK of 1.05% and the US of 0.86%. Israel remains the highest percentage at 1.81% • Investment activity is at R10.6 billion during 2012 where it was at R16.5 billion in 2011. Of the R10.6 billion invested, R5 billion was for follow-on investments, and R5.6 billion was for new investments RUSSIAN PE WEAK COMPARED TO REST OF BRIC MARKETS
  • 5. 5 www.DealMarket.com/digest SECONDARY MARKET VOLUME HIGHER THAN PREVIOUSLY ASSUMED Setter Capital, an advisor to institutional investors, recently released a new study on the secondary market for PE funds. Its Secondary Market Volume Report 2013 says that after a “strong start” to the year with USD 2.1 billion in turnover as an intermediary for secondary transactions, Setter decided to conduct a survey of all the major buyers to try to ascertain, straight from the source, the most accu- rate volume figures and forecasts for the 2013 secondary market. As a result, in August it surveyed 100 of the most active secondary buyers with a seven question survey covering H1 deal volume, invest- ment focus and estimations for H2 activity. Setter says that the survey reveals that there has been a lot more secondary activity than was previously assumed. Key Findings of the Survey • Total secondary market volume for the first half of 2013 was USD 15 billion. Since the figure is pro- rated, it may in fact be low as Setter did not include more than 1000 opportunistic and non- traditional buyers in this study, whose activity as a whole may be significant. • Market volume of direct secondaries for the first half of 2013 was USD 3.5 billion (~23% of total vol ume). Direct secondaries include fund recaps, zombie funds, purchase of single minority stakes, etc. • Market volume of real estate secondaries for the first half of 2013 was USD 3 billion (~20% of total volume), while the secondary markets for hedge funds and infrastructure funds were excluded from the survey. • 59% of participants completed at least as many or more secondary transactions by volume in the first six months of this year as compared to the first six months of 2012. The larger buyers (>USD 200 million in H1 volume) revealed that much more activity has been underway than was thought. • Respondents projected their volume in the second half would be 30% higher than in the first half of 2013. Thus, we project that secondary market volume in the second half will be USD 18.5 billion. In another useful Setter Capital report for investors, and for entrepreneurs, there is a good intro duction to the topic and some insights on the level of liquidity for a range of LBO, Mid Market, and VC funds. The graphic here is an excerpt.
  • 6. 6 www.DealMarket.com/digest 6 www.DealMarket.com/digest QUOTE OF THE WEEK – GOING PRIVATE Context: The quote is Michael Dell’s response to a question about taking Dell public again, which caused the soon- to-be majority owner (as the result of a private-equity backed buyout) to laugh and point out that Dell has not even been de-listed yet. This quote is interesting because it gives some insight into the advantages and costs of delisting. It is just one reason to go private. Blackberry is another tech company standing before a take private deal so it a relevant topic this week. Dell pointed that interest payments will be less than the annual expense for share repurchase and dividends, and he implies that being able to focus on the long term goals is not as easy when a company has publicly held stock. His opinion is that going private will also enable Dell to better focus on customers. Where we found it: AllThingsDigital “We haven’t even gotten this one taken private yet. It’s way too soon to think about that… Right now, it’s great to be able to focus on our custom- ers. We have good cash flows. The interest payments will be less than the annual expense that we had been paying for share repurchase and dividends. We like the opportunity to invest in R&D, in our own growth, hire more salespeople, and think about the business in a three-, five- and seven-year time frame.” Who said it: Michael Dell, Chairman of the Board and CEO of Dell in an interview with Arik Hesseldahl of AllThingsDigital
  • 7. www.DealMarket.com/digest The Dealmarket Digest empowers members of Dealmarket by providing up-to-date and high-quality content. Each week our in-house editor sifts throughscoresofindustryandacademicsourcestofindthemostnotewor- thynewsitems,scopingtrendsandcurrentseventsintheglobalprivateeq- uitysector.Thelinkstothesourcesareprovided,aswellasaneditorialized abstract that discusses the significance of the articles selected. It is a free servicethatembodiesthevaluesoftheDealmarketplatformdelivers: Pro- fessional, Accessible, Transparent, Simple, Efficient, Effective, and Global. To receive the weekly digest by email register on www.dealmarket.com. Editor: Valerie Thompson, Zurich DealMarket DealMarketlaunchedin2011andisgrowingfast.Justone yearafterlaunch, DealMarketcountsmorethan61,000recurringusersfrom154countries,and over 3,000deals and service providerspromotedor listedontheplatform. DealMarket is an online platform enabling private equity buyers, sellers andadvisorstomaximizeopportunitiesaroundtheworld–aone-stopshop for Private Equity professionals. Designed by Private Equity professionals forPrivateEquityprofessionals,theplatformiseasytouse,costeffectiveand secure, providing access, choice and control across the investment cycle. DealMarket’s offering includes • DealMarketPLACE , brings together buyers, sellers, and PE advisors from around the world. PLACE gives access to deals (direct invest ments, funds, and secondaries), investors, and PE service providers. Searching and postingis free. (no commissions). PLACE PRO is the exclusive deal exchange platform made for engaged professionals and companies with a truly unique value added proposition. • DealMarketSTORE offers affordable access to industry-leading third- party information and services on demand; and • DealMarketOFFICE is a state-of-the-art deal flow management tool, helping Private Equity investors to capture, store, manage and share their deal flow more efficiently. DealMarket was voted the “Best Global Private Equity Platform for 2012 and 2013” by Corporate LiveWire.