DealMarket DIGEST Issue 135 // 04 April 2014


Published on

Read DealMarket's weekly PE news

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

DealMarket DIGEST Issue 135 // 04 April 2014

  1. 1. DIGEST135 April 04, 2014 1 2 3 Natural Gas Property in Wyoming Sold to PE M&A Data Confirms Fierce Competition in Europe for PE Players UK Leads in Adoption of Crowdfunding Study Finds Co-Investment Risky for LPs SWFs Dominate Top Ten Public Investor 100 Global Ranking Quote of the Week: Questioning PE’s Role in Mining and Energy4
  2. 2. 2 NATURAL GAS PROPERTY IN WYOMING SOLD TO PRIVATE EQUITY This week’s deal of the week is a USD 1.8 billion dollar buyout of an asset that belonged to Canada’s Encana Corp, a leading natural gas producer. According to BW, Encana sold its Jonah field opera- tions in Wyoming to private-equity fund TPG Capital. The website of TPG says that it typically invests in financial services, travel and entertainment, technology, consumer, retail, media, and healthcare sectors, however Bloomberg recently reported that it was raising USD 1.25 billion for its first dedicated energy fund. M&A DATA CONFIRMS FIERCE COMPETI- TION IN EUROPE FOR PE PLAYERS Private equity-backed mergers and acquisi- tions (M&A) in Europe fell by almost a third to USD 55.2 billion from a year ago, according to Thomson Reuters. PE firms accounted for only 8 percent of M&A deals year to date, compared to 10 percent. Drivers of the shrinking of PE’s share of the market, include fierce competition from the public markets, and competition for as- sets, which leads to higher valuations and unat- tractive multiples. In addition to expensive as- sets, funds are also facing competition strategic investors, said the Reuters report. The European trend contrasts with Asia Pacific M&A, where PE firms had a stellar first quarter, according to Dealogic.
  3. 3. 3 UK LEADS IN ADOPTION OF CROWD- FUNDING Crowdfunding is on the rise with an estimated 50,000 business angels registered on equity financing sites such as AngelList, CircleUp, Seedrs, and Crowdcube. About ten percent of those registered have actually taken the plunge and completed transactions, says a new report from OurCrowd. OurCrowd, which authored and researched the report, claims to be one of the market leaders in this emerging segment. The analysis shows that equity crowdfunding platforms used by individuals to become equity stake- holders in early stage companies have grown in order to meet the needs of startups and small inves- tors who can now participate in a more liberated market in the US. It is worth noting that the UK is home to twice as many platforms as the US, despite its smaller population and GDP. One reason the UK may be ahead of the US is that its regulatory body has been quick to create a policy and an ap- proval process for innovative financial technologies, including peer to peer lending and various types of crowdfinancing. Seedrs and Crowdcube, which figure prominently in the report, both have FCA certifi- cation. Elsewhere, Crowdfundinsider considered other reasons why Great Britain leads the way, noting that leading UK platforms are actively involved in ensuring quality and safer investing support and the fact that secondary deals, as well as fund pools are also possible on the platforms. The UK’s FCA defines crowdfunding as an online platform where consumers can buy investments, such as equity or debt securities that are not listed or traded on a recognized exchange, or units in an unregulated collective investment scheme. (Image source: OurCrowd)
  4. 4. 4 SWFS DOMINATE TOP TEN PUBLIC INVESTOR 100 GLOBAL RANKING Recently Carlyle Group’s prominent CEO David Rubenstein reportedly said that Sovereign Wealth Funds (SWF) may become the largest source of PE capital in the coming years, replacing other types of public investors, such as US pension funds as the dominant players. Whether he is right about the prediction or not, both pension funds and SWFs are important to the PE ecosystem. They provide capital to LPs and they have also been increasingly mak- ing large direct PE investments, such as deals done recently by Canada’s Public Sector Pension Invest- ment Board (CPPIB) and Abu Dhabi Investment Authority. For these reasons, the latest rankings from Sovereign Wealth Fund called Public Investor 100 is of interest. It is worth noting that six out of the top ten are SWFs. Number one this year is Abu Dhabi STUDY FINDS CO-INVESTMENT RISKY FOR LPS The debate about returns in private equity continues unabated this week. Under the mi- croscope this time, is co-investment returns achieved by limited partners. A new data-driven study from Altus Associates, which manages and advises USD 26.7 billion for institutional investors, claims to “expose the shortcomings” of co-investment portfolios. Using a sample of 886 realized US buyout and growth investments ranging from 1979 to 2010 and a co-investment portfolio comprising 10 assets, the study found that “there is a substantial probability that the entire portfolio would generate an IRR below 0%”. The authors added that even with 20 company co- investment portfolios, “It is still possible to lose significant capital as measured by either IRR or mul- tiples”. Altius, which is also a fund of fund manager, warned that the “dispersion of returns indicates that there is a probability that the returns could be poor, even across an entire portfolio”. The weak- nesses of the co-investment model include adverse selection and portfolio concentration, according to Altius Associates. (Image source: Altius)
  5. 5. 5 Investment Authority, a SWF that has been in the news quite a bit of late due to the amount it has invested in the past year. But the size of the assets under management and activity levels are not the only criteria, says the ranking’s creator, influence and trendsetting ability were also considered. Num- ber three and four are also SWFs. Other SWFs that made it in the top ten are Temasek, NBIM, Qatar Investment Authority, China investment Corp. (Image source: SWF Institute) QUOTE OF THE WEEK - QUESTIONING PE’S ROLE IN MINING AND ENERGY “The problem with the commodities space if you have a high gearing is that you are not running Boots pharmaceutical where you have a pretty constant earnings base... you just don’t know your earning base. When you hit bad times, like we did recently, it goes down (quickly). How are you going to feed your debt?” Who said it: Ivan Glasenberg Chief Executive Officer, Glencore Xstrata In Context: Private equity players are creating more specialized and sec- tor specific funds, targeting non-traditional sectors and emerging markets, in their efforts to raise funds in a highly competitive global marketplace that makes it more difficult to attract LP money and find reasonably priced deals. (See Natural Gas buyout below). One of those sectors they are expanding into is the extraction or mining industry (including gas and oil companies) but min- ing industry insiders are not exactly optimistic about PE’s role in their industry. And this trend is what Glasenberg is commenting on in the quote above. He says that PE’s business model, which typically relies on steady cash flows to finance debt, does not fit with mining’s need for patience and deep pockets to make large investments for exploration and lumpy revenue flows. Volatility in the price of commodities is another issue, as is dealflow. Mining industry executives quoted in the article said they are willing to sell non-core assets but they are not about to sell them at valuations that fit PE’s model. His views are complemented by opinions expressed elsewhere in an article in The Financial Post, which adds the time horizon for generating returns in PE being shorter than that of the mining sector, and the need for specialized technical know- how, as two more challenges facing PE investors. That said, the same article described one PE fund manager that has been successful, namely Waterton, which has made returns by limiting its geograph- ical scope, and the range of commodities sought by its portfolio companies. (Image source: Reuters) Where we found it: Reuters
  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, 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.