KKR Leads Billion Dollar Insurance Buyout in
Global M&A Up Slightly in 2H2103 and PE Exits Improve
Feminine Alpha: New PE and Hedge Fund
Study on Performance and Prospects
E.European and Gulf States Dominate Frontier Markets Ranking
Quote of the Week: Drivers behind Billion
Dollar Startup M&A
January 31, 2014
KKR LEADS BILLION DOLLAR INSURANCE
BUYOUT IN US
This week’s buyout of the week looks to be the acquisition of Sedgwick Claims Management Services
by KKR, which has agreed to buy from Hellman & Friedman LLC and Stone Point Capital LLC for USD
2.4 billion, according to Bloomberg. This is a secondary transaction with PE investors selling to another PE fund manager. Sedgwick Claims Management Services, said in a statement that it is leading
provider of technology-enabled employee compensation/insurance claims and productivity management solutions. It sees an alignment between its innovative approach and KKRs.
GLOBAL M&A UP SLIGHTLY IN 2H2103
AND PE EXITS IMPROVE
Merger and Acquisition activity in the second
half of 2013 was in a “strikingly similar position” to the same period in 2012, says mergermarket’s latest report on dealmaking. Value
declined 3.3% year-on-year (YoY) to USD 1.2tn,
while volume edged up 3.2% to 7,177 deals. Exit
activity increased globally in the latter half of
2013 by 19% YoY by volume to 910 deals. Value
paints an “equally encouraging” picture, increasing 11% to USD 161.9bn over the same
Trade sales were on the upswing, giving secondary buyouts a bit of competition on the exit front.
Analysts said that because private equity firms
typically look to sell for premiums in order to
recoup their initial investments, this trend points
to corporates being in better financial positions,
or being more bearish about the prospects of transformative acquisitions, than they were in previous
The report highlighted Sysco Corporation’s USD 8.2bn announced acquisition of US Foods from Clayton, Dubilier & Rice and Kohlberg Kravis & Roberts. The deal sees the two firms exiting their initial
investment of USD7.2bn in 2007. Outlook for 2014 is not showing an uptick in exit activity yet but dealmaking trends suggest that private equity firms are seeing returns on their pre-crisis investments,
and are in an increasingly strong position to re-invest capital over the coming month. (Image source:
FEMININE ALPHA: NEW PE AND HEDGE
FUND STUDY ON PERFORMANCE AND
Although there are not a lot of them, womenowned or managed funds continue to perform
ahead of the industry benchmark, according to
a report released this week advisory and services firm Rothstein Kass. The study, entitled
“Women in Alternative Investments: A Marathon, Not a Sprint”, says that since June 2007,
its specialized WAI Index (see graphic), which
tracks performance of female led funds, returned 6 percent, while the S&P 500 gained 4.2
percent and the HFRX Global Hedge Fund Index
dropped -1.1 percent during the same period.
The report said that performance comparisons
are “more difficult” in the private equity area
but a small sample of women-owned or managed private equity funds reported net returns
of 14.8 percent in 2012, topping the Cambridge
Associates LLC private equity fund index number of 13.8 percent. “Our research shows
women-owned and managed funds continue to demonstrate strong performance during what has
been a difficult period for many alternative investment funds,” said ,” said Meredith Jones, director
at Rothstein Kass and head of the Rothstein Kass Institute, in a statement. (Image Source: Rothstein
• There is broad optimism about the opportunities available for alternative investment firms in 2014
• Respondents are targeting above-average returns in 2014, as more than 50 percent of those polled
hope to generate returns of 10 percent or more next year.
• Women typically occupy operational, financial or compliance roles and females hold the highest per
centage of C-level jobs within the financial suite, at 39.7 percent.
• Increased competition for deals was cited as the primary concern of private equity and venture capi
tal investors (31.4 percent. VC funds were most concerned about exit opportunities (43.7 percent) and
much less concerned about competition (3.1 percent).
• There is no consensus on outperforming strategies for 2014. While long/short strategies took first
place overall at 30.1 percent, responses varied widely among the various demographic groups.
E.EUROPEAN AND GULF STATES DOMINATE FRONTIER MARKETS RANKING
Private equity investors like to keep their eye on the momentum, regardless if it is in a sector, sub-segment, or at the higher macro level, so a report on Bloomberg ranking the economies in both Emerging
and Frontier Markets is worth a read. The leading Frontier Market (FM) economies are all Gulf nations,
then Eastern European and it is not until position 12 that an Asian economy appears, namely Vietnam.
The gains for the Gulf nations is mainly attributed to the high price of oil petroleum products which
means more cash for investment in oil rich countries. Qatar and the U.A.E. have progressed to a point
that MSCI said on June 11 it would upgrade them from frontier to emerging status in May, for example,
Other non-European and non-Gulf states in the FM ranking are Argentina at position 14 and Nigeria at
position 15. Three Asian nations led the Emerging Markets ranking, with China in the number one spot
for the third consecutive year, followed by South Korea and Malaysia. The research was conducted by
Bloomberg Markets is based on 19 measures of the investing climate, from forecasts of gross domestic product growth for the next two years to the ease of doing business.
ASIAN AND US PE INVESTORS TARGET EUROPEAN PE DEALS
Back in 2009, private equity firms outside Europe represented only 76 deals but that figure nearly
doubled to 136 deals in 2010 and has remained consistently high since, reaching a record 169 deals
last year, according to Financial News citing data provider Mergermarket. Large global players, such
as Blackstone Group and Kohlberg Kravis Roberts, are now being joined by smaller foreign players
in the European lower mid-market. The average size of deals in Europe by foreign firms has changed
dramatically since the boom era. Data reflects the trend with average deal size of USD 206 million,
which is less than a third of the USD 696 million average size recorded in 2006, says the report.
Interest from private equity firms in Asia is
also evident with 12 deals in Europe last year,
worth USD 2.8 billion. This was the same
number as the previous year, making it the
joint highest year for deals since the financial crisis. Again, targeted is the mid-market,
with the average size coming in at USD 230
million. China was mentioned as a leader in
this segment, targeting Western technologies
to bring them back to China to fuel domestic growth. “Chinese private equity firms are
deploying their capital to generate returns
out of Asian growth, and they see the important role that European companies can play in that Asian
growth,” says the report. (Image source: Intralinks/mergermarket)
QUOTE OF THE WEEK - DRIVERS BEHIND
BILLION DOLLAR STARTUP M&A
“Every once in a while, however, a $1 billion or even multi-billion M&A deal for a venture-backed, relatively young company pops up, such as the recent Nest/Google announcement. These deals defy conventional valuation logic since the acquired companies are early in their revenue curve or sometimes
even pre-revenue. Where do these billion-dollar deals come from and what factors are involved in their
Who said it: Glenn Solomon, Partner with GGV Capital
In Context: In an article providing guidelines on entry into the billion dollar
M&A club, published on the GGV blog (featured in TechCrunch), Solomon
also describes drivers of outlier billion dollar M&A valuations. To put a billion
plus price tag in context, he pointed out that the average valuation for venture-backed M&A deals is USD 161M in the US. So such mega valuations are
truly outliers. The three drivers are 1) “Rocket Ship Riding”, where fast early
growth drives a decision to pay a premium for potential growth. Google’s
near USD 1 bn acquisition of Waze and Facebook’s buyout of Instagram are
examples. 2) “Fear of Losing Out” Acquisition prices can be driven up to billion dollar levels when an acquirer develops the fear, real or not, that they might lose an opportunity,
either to a competitor or to the target itself. Examples are Google paying USD 3.1 bn for DoubleClick in
the face of Microsoft’s rumored pursuit of the target. And 3) Lottery Pick on Draft Day a seemingly random event where management at a larger, established tech company want to bring in a new team who
are perceived to have skills and abilities to drive innovation.
Where we found it: Techcrunch
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