DealMarket DIGEST Issue 148 // 04 July 2014


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Read what's new and noteworthy in Private Equity this week.

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DealMarket DIGEST Issue 148 // 04 July 2014

  1. 1. DIGEST148 July 04, 2014 1 2 Sell Sell Sell: PE Exits Climb Speculation on a Multi-Billion Dollar Buyout of LuluLemon Access to Finance Still a Worry for SME’s in Europe Global Real Estate M&A Hits Six Year High Risky Regulations for PE Quote of the Week: Game Up 3 4
  2. 2. 2 SELL SELL SELL: PE EXITS CLIMB This past quarter delivered a strong exit environment for PE firms to sell portfolio companies, says Preqin. Activity jumped this quarter to 392 exits valued at USD138 bn compared to 331 exits valued at USD90bn in the first quarter. When it is a good time to sell PE holdings, it is not necessarily a good time to buy and sure enough dealflow is down of late. Preqin says that deals worth USD78 bn were completed in the most recent quarter, compared US- D82bn in Q1 2014, which is a 5% drop in aggregate deal value. Key Findings and Trends • North America witnessed 3 98 private equity - backed buyout deals valued at USD 39bn in Q2 2014, a 20% decrease in the aggregate value compared to Q1 2014 . • The aggregate value of European buyout deals in Q2 2014, at USD27 bn, was 69 % higher than it was for deals in Q1 2014 . • The aggregate value of buyout deals in Asia was down to USD 8bn. (Image source: Preqin) SPECULATION ON A MULTI-BILLION DOLLAR BUYOUT OF LULULEMON The WSJ journal, and others, is reporting that private-equity firms, including Leonard Green & Part- ners, are being contacted to see about a buyout of LuLu Lemon. The size of this potential transaction makes it the deal of the week. The athletic apparel company’s owner is seeking a take private solution and has hired investment bankers. The WSJ reporter could not find evidence of a deal in the works, and buyout-industry insiders contacted said such a transaction would face significant hurdles, given the premium that would be required to top the company’s USD 6 billion market capitalization. (Image source:
  3. 3. 3 ACCESS TO FINANCE STILL A WORRY FOR SME’S IN EUROPE Small and medium sized businesses in Europe are not as worried about accessing finance as they were in the last quarter, according to the latest ‘’Survey on the Access to Finance’’ from the European Commission’s and European Central Bank. Being able to get bank loans is less worrisome in some parts of Europe than it is in others, however. In Greece, Ireland, Italy, Spain and Portugal, “Access to finance” is a very pressing problem for SMEs, while in Germany, Austria or in Finland less than 10% of SMEs reported ‘’Access to finance’’ as the most pressing problem. The report also said that it is not exactly measurable to what extent current weaknesses in bank lending to SMEs are driven by demand- or by supply-side factors. It said that there is a risk that even in countries where weak bank lending is driven by the demand side it is uncertain whether banks are able and/or willing to provide the neces- sary lending once the demand picks up (driven by economic recovery, respectively the expectation of the latter). The report also contains predictions about bankruptcies in Europe, which may be of interest to readers in the distressed and debt areas of private equity. Data cited from the Euler Hermes Global Insolvency Index suggests that a decrease of insolvencies is expected this year (minus 8%). The figures are trend- ing downward for the third year in a row (-2.4% in 2013 and - 1.5% in 2012). (Image source:
  4. 4. 4 RISKY REGULATIONS FOR PE A large percentage (89%) of Private Equity general partners (GPs) that were recently surveyed are con- cerned about regulatory and litigation risks due to a lack of clarity in the new rules. In particular, 80% and 60% of GPs expressed concerns about Alternative Investment Fund Management Directive (AIFMD) and Foreign Account Tax Compliance Act (FATCA), respectively. The Dodd-Frank Act comes in third, with 52%. Those surveyed said that such legislation could result in GPs pulling back from raising capital in certain geographies, plus it may affect operational and investment activities. The survey which is avail- able to the public was conducted on a random sample of 36 GPs in Europe, North America and Asia by London Business School and Adveq. The aim was to assess the state of risk management practices in the private equity industry as general partners adapt to a new regulatory landscape. GLOBAL REAL ESTATE M&A HITS SIX YEAR HIGH Global Real Estate M&A is on a roll, with volume hitting USD 164.5bn this year so far. It is the highest level since the same period in 2007 (USD 295.1bn), according to Dealogic. The US is the most targeted nation for Real Estate M&A in 2014 YTD with deal volume totaling USD 35.6bn. China and Germany fol- low in second and third with USD 27.2bn and USD 18.9bn, respectively. The largest deal was Shanghai Jinfeng Investment Co’s USD 10.9bn acquisition of Greenland Holding Group Co in March which was the largest Real Estate targeted M&A deal so far in 2014, according to the report. (Image source: Dealogic)
  5. 5. 5 Key Finding in “Risk Management Practices at Private Equity Firms” • Risk management remains a key focus for private equity firms. Just 4% of respondents, the majority of whom were based in Europe, said that they do not have any form of risk management policy in place, while 83% ranked risk management as “high” or “very high” on their list of concerns when engaging in investments. • The majority of private equity fund managers tend to give responsibility for risk management to very senior personnel, either their chief risk officer, managing partner, board, or an executive risk man agement committee. • 98% of private equity fund managers are unsure of the benefits of increased regulation. • New rules are seen as lacking clarity, with 58% of GPs involved in the survey stating that they believe guidelines are unclear. QUOTE OF THE WEEK: GAME UP “When I talked to entrepreneurs, they complained that very few people were making game investments, and that’s still the case. But in venture, it’s often beneficial to be counter-cyclical, to be a contrarian. We know that markets wax and wane. I see a trend happening in gaming that’s starting to wax.” Who said it: Dominique Senequier, Founder and President, Ardian In context: Venture capital trends come and go, but Sanderson has been steadily investing in gaming technology companies for many years and these days he’s bullish on the segment, which will be good news for gaming tech entrepreneurs. He says, that people will realize this year that “you can make a lot of money in gaming”. His fund has been “doubling down” on investments of late, basically buying before the general VC interest warms up again. Interest will change this year he says as it becomes public knowledge that companies like CandyCrush creator, King, for example, is generating almost two billion dollars in revenue. The financial results of market leaders will affect valuations positively. He sees opportunity for investing in companies that are developing tablet games and mobile gaming applications. Sanderson goes much deeper into what is hot and not in the interview, which was published in March in VentureBeat. Before IDG Ventures, he was a GP at WaldenVC for 10 years, and before that at Robertson Stevens, investment banking boutique. He’s on the boards of Simply Hired, Telltale Games, and Midverse and led invest- ments in BandPage, Leap Commerce and Iddiction. (Image source: IDG Ventures USA) Where we found it: GamesBeat in VentureBeat
  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 DealMarket launched in 2011 and is growing fast. Just one year after launch, DealMarket counts more than 61,000 recurring users from 154 countries, over 3,000 deals & service providers promoted or listed on the platform. DealMarket is an online platform en- abling private equity buyers, sellers and advisors to maximize op- portunities around the world – a one-stop shop for Private Equity professionals. Designed by Private Equity professionals for Private Eq- uity professionals, the platform is easy to use, cost effective and se- cure, 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, 2013 and 2014” by Corporate LiveWire.