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DealMarket DIGEST Issue 105 // 23 August 2013


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DealMarket DIGEST Issue 105 // 23 August 2013

  1. 1. SEE WHATS NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 98 DIGEST105 August 23, 2013 1 2 3 Global PE Volume Holds in July But Value Decline • Zephyr Research J-curve Analysis Could Impact PE Industry PE Returns Climb in 2013 Study PE Appetite for Technology Deals Soars in Second Quarter European M&A Still Slow Quote of the Week: Feeling Wealthy
  2. 2. 2 GLOBAL PE VOLUME HOLDS IN JULY BUT VALUE DECLINE According to the latest figures from Zephyr, the value of global private equity investment weakened for the second consecutive month in July, falling back by more than a fifth over the four weeks to USD 16.5 billion, the lowest figure since September 2012 (USD 14.4 bn) worth of announced deals. Volume remains steady, but the lack of blockbuster transactions means that PE transaction value totals are down. The value is down 43 per cent compared to July 2012. J-CURVE ANALYSIS COULD IMPACT PE INDUSTRY As most Digest readers well understand when drawdowns and distributions are combined to show the net cash flows to investors over time, this nor- mally results in a “J-curve”, illustrated in the chart above from VentureChoice. A new study about fund performance and the J-curve by Cyril Demaria of the University of Saint-Gallen in Switzerland is the topic of an editorial in Private Equity International. The theory put forward by Demaria is that because these J-curves are quite distinctive in shape, it starts to become clear from about the third year of a fund’s life which performance category it is likely to end up in.
  3. 3. 3 The editors assessed the study’s limitations and conclusions and agree with Demaria that the conse- quences of such analysis could be significant for the PE Indusstry because it helps to overcome prob- lems with the lack of transparency and liquidity in a portfolio of funds. “If an LP can get a decent sense of how a fund is likely to perform after just a couple of years, it should allow them to address these concerns and assess the level of risk in their portfolio more accurately. This could help inform new investment decisions [by limited partners] and mitigate regulatory capital demands.” It also has impli- cations for the secondary market, and helping to benchmark performance across the portfolio. PE RETURNS CLIMB IN 2013 STUDY It looks like private equity investments can indeed provide decent returns to investors in times of economic uncertainty. That is the conclusion by Preqin in the Executive Summary of its 2013 Preqin Private Equity Performance Monitor published in its monthly spotlight news- letter. Annualized returns for the ten year period to December 2012 for all private equity stand at 17.9%. The best performing in this period are buyout funds with an annualized IRR of 24.3%. Returns between the different types of funds vary significantly, with mezzanine funds report- ing an annualized IRR of 10.6%, funds of funds 8.6% and venture capital funds 5.4%.2013. PE APPETITE FOR TECHNOLOGY DEALS SOARS IN SECOND QUARTER PE dealmaking in the technology is soaring, according to EY’s global technology update for the second quarter of 2013. Overall the report shows a mixed picture because corporate dealmaking continued a three-quarter-long slide. Ac- cording to EY’s Global technol- ogy M&A update: April–June 2013, there will be gradual growth for technology M&A volume and value for the rest of 2013 based on PE strength. According to the report, technol- ogy is slightly different than the overall M&A trend for all indus- tries which look to be undergo- ing a fundamental reset to a lower level of long-term activity. PE’s strength appears to come from a combination of factors, says EY. Some technology targets’ valua- tions have been weakened by slow innovation in products, enabling activist shareholders to take posi- tions in the stock.
  4. 4. 4 Another factor is ease of financing at low interest rates; and the pursuit of value-creation opportunities through operational improvements that may not be as attractive a rationale for corporate buyers PE and non-technology buyers together accounted for 54% of Q213 quarterly aggregate value, dominating every other sector but one into net seller positions. EUROPEAN M&A STILL SLOW European middle-market M&A activity decreased by 6.9% in Q2 2013, the fifth successive quarter of contraction, according to the latest quarterly European M&A update from Harris Williams & Co. The pace of the slowdown in activity may be decelerating. The biggest declines were noted in the Energy & Power and Healthcare sectors. The use of leverage is on the upswing. The equity contribution in LBOs averaged 47% in the first quarter of 2013, compared to 52% during the full year 2012, demonstrating improved credit markets and lending appetite, says the report. QUOTE OF THE WEEK: FEELING WEALTHY A whopping 70% of those with at least USD 1 million in assets that are invested or available to invest, excluding home values, don’t consider themselves to be wealthy... Rather, it’s only when they hit the USD 5 million mark that millionaires begin to feel ‘wealthy’. Who said it: CNN Money
  5. 5. 5 Context: Most millionaires don’t feel wealthy until they have more than five mil- lion dollars in assets, according to a new wealth survey by UBS. This was the fourth edition of UBS Investor Watch, which que- ried 4,450 US-based investors from June 23 to July 1, 2013. Slightly more than half of the respondents were men. One of the most surprising findings says the survey author, is that four out of five investors are providing financial support for adult children or aging parents. And one in five is sharing a home with those adults. The top two personal concerns for investors are long-term care and the financial situa- tion of children and grandchildren. Where we found it: CNN Money
  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.Justone yearafterlaunch, 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 2012 and 2013” by Corporate LiveWire.