Deal Market Digest, Issue 104, 19 July 2013


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Our weekly pick of Private Equity news

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Deal Market Digest, Issue 104, 19 July 2013

  1. 1. SEE WHATS NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 98 DIGEST104 July 19, 2013 1 2 3 4 Exit Deal For Grohe’s PE Backers Buyout Fundraising Climbs to Highest Levels In Four Years M&A in Financial Technology Dips in 2013 PE Strategies That Outperform: E&Y Study Valuation Algorithms: New Markit Technology Quote of the Week: Silicon Valley Upswing
  2. 2. 2 Exit Deal For Grohe’s PE Backers (Image Source: EMPEA Deal Dashboard This week’s deal of the week is a private equity exit worth up to USD 4 billion, namely the acquisition of German bathroom and kitchen fixtures maker Grohe from its private equity backers, according to Reuters. The company has attracted takeover interest from Thailand’s Siam Cement and Switzerland’s Geberit. Grohe is currently owned by TPG and Credit Suisse. (Image source: Grohe) Buyout Fundraising Climbs to Highest Levels In Four Years PE fundraising hit a high in the US and Europe in the first half of the year, according to LBO Wire, citing based Dow Jones LP Source data. Almost 300 US-based private equity funds raised USD 103.19 bil- lion, up roughly 16% from the USD 88.89 billion raised by 258 funds during the same period last year. A reshaping of portfolios to balance public and private holdings, as well as an increase in exits and distributions helped to drive money into new funds, said LBO Wire. European figures for PE fundrais- ing were for the most part up, a trend driven by improved debt conditions and an open IPO exit window.
  3. 3. 3 M&A in Financial Technology Dips in 2013 Berkery Noyes, an independent mid-market investment bank, says that M&A in the financial technol- ogy market sector this year is not keeping pace with the peaks of 2012. Its latest study looks at M&A in the past six months compared to previous half year periods. This market includes information and technology companies in Capital Markets, Payments, Banking, Insurance, and other related financial services. Deal volume underwent an eight percent decrease in first half 2013. Transaction value fell 42 percent over the past six months, from USD18.99 billion to USD10.95 billion. Both volume and value throughout the past two-and-a-half years reached their respective peaks in second half 2012. When compared to first half 2012, volume increased seven percent and value dropped 11 percent in first half 2013. The median revenue multiple between second half 2012 and first half 2013 decreased from 3.0x to 2.1x, while the median EBITDA multiple declined from 11.0x to 9.8x. The segment with the largest half-to-half year increase in volume was Insurance, driven by large sized acquisitions by SAP and Oracle. Trends behind the M&A include taking advantage of big data, addressing holes in data security, adapt- ing to new regulations, and mobile banking.
  4. 4. 4 New Trend: LPs Seek Local Manag- ers in Emerging Markets; PEI PE Strategies That Outperform : E&Y Study A new study of North American private equity (PE) by Ernst&Young reveals that growth strategies are “in” and cost-cutting and value-preservation are “out”. This shift has set the stage for positioning companies well at the outset of the deal to achieve successful, higher value exits while also driving higher returns, according to the value creation study. In a volatile M&A environment, PE firms have consistently proven to be opportunistic investors, utilizing readily available financing to acquire busi- nesses and refinance portfolio companies, says E&Y. As a result of the value creation strategies and organic revenue growth, returns are outperforming comparable public market returns. For exits in the 2006 to 2012 periods, PE has outperformed by a factor of 5.4, with PE’s strategic and operational improvement initiatives driving a large proportion of the overall return. In Europe, PE has outperformed public markets by a factor of 3.5 for exits over the eight-year period from 2005–12, with PE’s strategic and operational improvements accounting for the largest component of returns. Similar results were found in emerging markets. E&Y’s study of value creation in Africa, for example, found that PE value creation generated returns of almost double the Johannesburg Stock Exchange All-Share Index, and in Latin America, PE outperformed the iBovespa index by a factor of 2.4.
  5. 5. 5 New Trend: LPs Seek Local Manag- ers in Emerging Markets; PEI Quote of the Week: India’s PE Market “Fundraising is globally tough, though India has fallen off quite a bit because of a simple reason. Because investors are saying: I have put bil- lions of dollars in India and not only is it not marked up, it’s stuck. I can’t keep allocating money indefinitely to India; I need to see some return.” Who said it: Nikhil Raghavan, a principal at private-equity firm Bain Capital LLC in Mumbai. Context: IIn an interview published on Moneybeat, a WSJ blog, Ragha- van describes the cooling of interest in Indian PE markets due to slowing economic growth and slow exit opportunities. Bain Capital has been in India since 2008 and has made several investments, one of which it has exited, according to the article. The article suggests that fundraising is getting more difficult, in the same way it has in most other regions around the world. Typically emerging markets have been more robust that Europe, for example, however it looks like even India is experiencing a slowdown. Overall investment activity in India is expected to fall this year with private-equity funds to allocate USD 5 billion to USD 7 billion into Indian companies this year. This compares with investments of USD 9 billion made by private-equity and venture funds in 2012, according to research firm Venture Intelligence in Chennai. As the quote above suggests what will reignite the market in India is PE investors returning some of the cash to their funds’ LPs. trends in Silicon Valley. He confirms an up-cycle based on the stock market being about as “high as it has ever been” and the fact that his law firm set revenue records in each of the last three years. Other indicators Where we found it: WSJ Blogs Valuation Algorithms: New Markit Technology An announcement from Markit, a financial information services company, caught our eye this week because it is evidence of the shift or expansion to online technologies in the PE industry. Markit an- nounced in a statement that it has launched “ Markit Portfolio Valuations – Private Equity”, a new valu- ation service for investors in private, unlisted companies. The service includes the provision of valua- tions for equity investments in growth and buy-out stage companies. An article in FN contrasts Markit’s software solution with current valuation services offered by ana- lysts and specialists employed by corporate finance consultancies. FN says these human resources offer “stiff competition” to the new technology based solution. The idea behind Markit’s software is to offer an independent and third party figure based on transparent data. It is meant to remove analyst subjectivity, replacing it with observable inputs and extensive peer comparisons to deliver objective, market-driven prices.
  6. 6. 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 Editor: Valerie Thompson, Zurich DealMarket DealMarketlaunchedin2011andisgrowingfast.Justoneyearafterlaunch, DealMarket counts more than 61,000 recurring users from 154 countries, andover3,000dealsandserviceproviderspromotedorlistedontheplatform. DealMarketisanonlineplatformenablingprivateequitybuyers,sellersand advisors to maximize opportunities around the world – a one-stop shop for Private Equity professionals. Designed by Private Equity professionals for Private Equity professionals, the platform is easy to use, cost effective and secure, providing access, choice and control across the investment cycle. DealMarket’s offering includes • DealMarketPLACE , an unfiltered view of the global deal and advice mar ketplace, where searching is free and postings are the price of a cap puccino a day (with no commission). • 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 2013” by Corporate LiveWire.