DealMarket DIGEST Issue 106 // 30 August 2013


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DealMarket DIGEST Issue 106 // 30 August 2013

  1. 1. SEE WHATS NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 98 DIGEST106 August 30, 2013 1 2 3 ParkNShop Buyout Valued at up to USD 4 billion Growth Ahead for USD 5.5 Trillion Alt Asset Industry: Preqin Research Shows PE Fund Team Turnover Has a Positive Effect Emerging Markets PE Returns Solid in 2012 Under the Radar Buyout Teams Top Preqin’s New Ranking Quote of the Week: Venture Capital Evolution 4
  2. 2. 2 PARKnSHOP BUYOUT VALUED AT UP TO USD 4 BILLION (Image Source: EPrequin GROWTH AHEAD FOR USD 5.5 TRILLION ALT ASSET INDUSTRY: PREQIN This week’s buyout deal of the week in the news is a multi-billion dollar auction underway for ParknShop, owned by Hutchison Whampoa and controlled Li Ka-shing, one wealthies men in Asia, according to Reuters. The auction has received at least seven offers for the Hong Kong supermarkets business. Hutchison is seeking a price of between USD 3 to 4 billion for the busi- ness, which operates 345 stores in Hong Kong, mainland China and Macau. The price may be too high for private equity teams from KKR and TPG, who are rumored to be bidding, according to another article on Reuters. The latest industry survey by Preqin sees a “hugely positive for the future of the alternatives industry”. Allocations are set to increase or stay the same for more than 85% of those survey participants who hail from a range of investor types, from family offices to pension funds. The positive sentiment among this group is driven by satisfaction with returns they generated by their alternatives allocations, says Preqin.
  3. 3. 3 RESEARCH SHOWS PE FUND TEAM TURNOVER HAS A POSITIVE EFFECT New research from Europe is turning on its head the common wisdom that says that team stability is important for performance and returns. Contrary to widely held beliefs, higher staff and executive turnover equals improved private equity performance, say the report’s authors. There is now evidence to support the theory that team evolution is necessary for continued performance, and it is based on a data rich study of 145 senior fund management teams from around the world and dating back to 1990. There is actually a much stronger link between staff turnover and positive performance than team sta- bility, so LPs should be seeking what the researchers call team evolution, that is, a staff turnover of at least 1%, according to research by Capital Dynamics and the London Business School’s Coller Institute of Private Equity. Key conclusions: • Teams that experienced turnover from one fundraising to the next performed better on the next fund; a 1% increase in turnover led to a 10% increase in subsequent net IRR. • The average net IRR of fund managers with the highest turnover was 25% compared with 11.5% for those with the lowest turnover. • The impact on performance differed according to professionals’ backgrounds. Between funds, higher turnover of professionals with operational backgrounds led to a significant improvement in perfor mance, while the turnover of professionals with financial backgrounds did not impact performance. • Fund managers with higher turnover during recessions performed better than those with lower turn over; a 1% increase in turnover led to a 3.1% increase in net IRR. Regulations, though a concern, do not seem to be having any impact on investors’ plans for new investments in the majority of cases, and many are setting aside a significant amount of capital for new alternative investments. Preqin interviews and surveys fund managers, LPs, and family offices to determine investor atti- tudes to private equity, hedge funds, real estate and infrastructure. As the graph here illustrates, private equity is doing very well on “exceeding expectations” and the level of satisfaction on increased dramati- cally in the past year.
  4. 4. 4 EMERGING MARKETS PE RETURNS SOLID IN 2012 Solid results and returns were reported for 2012 for Global (outside the US) developed and emerging markets PE and VC investments. Both of these private fund classes earned their third quarter of posi- tive growth for the year and each had double-digit gains as measured in U.S. dollar terms, according to Cambridge Associates latest research. Although neither did as well as comparable public equity indi- ces in 2012, the results looked better over longer periods, particularly at the three and five year mark, according to Cambridge Associates. UNDER THE RADAR BUYOUT TEAMS TOP PREQIN’S NEW RANKING Despite improvements made in the level of disclosure across the private equity industry, it remains challenging for LPs and GPs to access reliable, accurate and fully transparent data necessary to effec- tively benchmark funds. Lack of transparency in that regard is an oft-iterated criticism of PE. So when Preqin published its new consistently out-performing fund managers ranking this summer, we took notice, especially because it claims to draw on a significantly sized dataset. There are a few surprises in the Preqin Consistent Performers in Private Equity Report, which covers all the major segments of the global industry. Some of the name in distressed and buyout may sur- prise, particularly in the US and UK buyout markets because they are under the radar, as far as press coverage and branding are concerned. The top performers in VC were less surprising. For buyouts, the best were Inflexion, Veritas Capital, Vista Equity Partners, and Wynnchurch Capital Partners. In the venture capital sector the most consistent out-performers are Benchmark Capital, Pittsford Ventures Management, and Sequoia Capital. ATP Private Equity Partners and NorthSea Capital, both from Den- mark, along with Morgan Stanley Alternative Investment Partners are the top fund of fund managers.
  5. 5. 5 Context: Money has become a commodity in venture capital business and angels are getting all the good startups, says Griffith in a feature article, and as a result VC is changing again. Over the years, VCs have QUOTE OF THE WEEK: VENTURE CAPITAL EVOLUTION 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 “The dramatic drop in the cost of creating a company over the last decade … has had an obvious effect on the venture capital world. Serious venture investment is not required in the earliest stages of a company’s life, so angel investors have been getting the best seed deals.” had to adapt to changes in capital requirements and tech trends to attract the best entrepreneurs, as the graphic here shows. They established brand names in the normally at that time secretive private equity world, then they went international and on to create super-angel funds and accelerators. (See Heardable for the top brands in VC in 2012) Now they are adapting again, especially some of the VC Silicon Valley players. VC firms, like Andreessen Horowitz, have adopted agency-like models, where they provide in-house PR, marketing and recruiting, while others have become community builders enabling their portfolio companies to share knowledge and help each other, says Griffith. They are even becoming publishers with professionally produced content on their websites. For example, An- dreessen Horowitz hired Wired editor Michael Copeland and Battery Ventures hired former Wall Street Journal reporter Rebecca Buckman. Where we found it: Pando Daily
  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.