DealMarket Digest Issue124 17 January 2014


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- Fashion Retailer Seeks PE Bids
- M&A Prospects for 2014 Unclear
- India PE Dealmaking Strong in 2013
- Europe Accelerated VC Growth in 2013
- Emerging Markets Help Drive LP’s Stellar Returns
- Quote of the Week: Tech Disruption

Published in: Economy & Finance, Business
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DealMarket Digest Issue124 17 January 2014

  1. 1. DIGEST 124 SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 124 1 Fashion Retailer Seeks PE Bids M&A Prospects for 2014 Unclear 2 India PE Dealmaking Strong in 2013 Europe Accelerated VC Growth in 2013 3 Emerging Markets Help Drive LP’s Stellar Returns 4 Quote of the Week: Tech Disruption January 16, 2014
  2. 2. FASHION RETAILER SEEKS PE BIDS This week’s buyout deal highlight is a relatively small one at USD 600 million with Aeropostale as the target. According to Bloomberg, the deal would be a take-private of a company that has been the target of activist investors. The newsflow is telling us that buyout firms are more in a seller’s mindset than buyers with the US based fashion retailer reportedly seeking bids from private equity funds, rather than getting unsolicited offers. The fact that this week’s buyout blockbuster is sub-USD 1 billion is to be considered against the backdrop of several much larger deals underway, such as Carlyle’s acquisition of a Johnson and Johnson unit for USD 4 billion, and rumors of PE interest in Riverbed Technology at a valuation of upwards of USD 3.2 billion, as reported by Bloomberg and Dealbook, respectively. M&A PROSPECTS FOR 2014 UNCLEAR Some high profile and large sized M&A deals of late (Google/Nest, Charter/Time Warner and Jim Beam/Suntory) may make it look like dealmaking is in for a blockbuster year but analysts are hesitant to be overly optimistic. MarketWatch points out that M&A volume has been “leaping forward and lurching back” since the aftermath of the financial crisis. Global volume was up 9% last year above a mediocre 2012. Yet the year’s volume was still down 8.2% from the record year of 2007. More striking, says MarketWatch is that the number of deals — 37,212 — was the lowest annual total since 2005, citing Dealogic. Furthermore, valuations of US targets was just 20% in 2013, down from 33% in 2012 and a record low average. Forbes says the conditions for M&A are good for 2014 but it hinged hopes on PE players being more active, business owners being more open to M&A, and international economic stability being maintained throughout the year. Elsewhere, it was pointed out again that M&A in recent times is trending down. Activity in the US, typically the largest market has been declining for three years in a row, according to DJX VentureSource, cited in a Venture Capital Dispatch article that discussed the lack of acquisitions of VC-backed startups. 1
  3. 3. INDIA PE DEALMAKING STRONG IN 2013 India had a strong year in private equity in 2013. Private equity investments increased 11% in terms of deal value from USD 9.49 billion in 2012 to USD 10.5 billion in 2013, reports Financial Express. The size of the individual transactions was larger compared to the previous year too. The median deal amount was a notch higher at USD 4.5 million from the USD 4 million in 2012. The average deal value increased by a third from USD 16 million to USD 21 million. But big ticket deals (>USD 100 million) accounted for only 3%. Fundraising totaled USD 3.3 billion, with LPs committing USD 2.8 billion of capital across 33 India dedicated funds. M&A increased too. Big- ticket deals (USD 100 million+) accounted for 80% of the total disclosed M&A deal value in 2013. (Image source: EUROPE VC GROWTH IN 2013 Preqin says that over USD 6 billion was invested in European venture capital deals in 2013, which is an increase of 42% over 2012. It is the highest amount invested in European companies since 2007. But Preqin’s figures make clear that Europe is only a fraction of global VC compared to the US with its 3,686 venture capital deals in 2013 valued at a total of USD 31.6bn. Globally VC dealmaking targeted companies for a total USD46.3bn, which was a 6% fall in number and a 5% rise in aggregate value compared to 2012, according to Preqin. Favorite sector was Software & related companies, which received 21% of the global aggregate value of investment during 2013 , up from 14% in 2012, with the number of deals in this sector as a proportion of the global total rising from 18% in 2012 to 22% in 2011. 2
  4. 4. EMERGING MARKETS HELP DRIVE LP’S STELLAR RETURNS Your DealMarket Digest editor has an eye for where the smart money is investing and an article in Financial News this week suggests that the asset management arm of International Finance Corporation (IFC), which is a part of the World Bank, has mastered the art of selecting private equity managers in the world’s upcoming economic regions. The emerging market veteran has a portfolio generating an internal rate of return of 18.3% a year between the start of 2000 and June 2013. FN says that compares with a 9.6% return for the average fund in Cambridge Associates’ table of emerging-market private equity funds and 8.9% a year for the MSCI Emerging Markets index. While other institutional investors have been wary, as the graphic shows EM are typically around 10% of the global market, the IFC has quietly been doing PE investing in emerging economies for over a decade. This strategy has apparently helped the fund avoid some of the macro shocks in Europe and the US. The IFC says that its strong results come a template due diligence process that is open to firsttime teams. The IFC has 30 staff covering the globe, enabling its strong performance. (Image source: EMPEA) 3
  5. 5. QUOTE OF THE WEEK: TECH DISRUPTION “Technology is poised to disrupt the massive global financial services industry. Following the recent credit crisis, banks are becoming more risk adverse and more highly regulated. Also–Internet competitors have key advantages relative to traditional banks including lower operating costs and incremental online “signals” to inform credit decisions… We expect this activity to increase dramatically!” Who said it: Jeff Jordan, Andreessen Horowitz In context: Journalists at Forbes rounded up predictions for the coming year from brand name VC funds to highlight what they see as hot and cold. Jordan’s view that online finance is poised for growth is no doubt based on his experience in the veteran eCommerce sector. He is a former c-level executive at PayPal, OpenTable, and eBay. He became a GP and portfolio company manager at Andreesen Horowitz in 2011, a firm that recently invested in crowdfunding startup, Crowdtilt. The crowdfunding category has a high potential with nearly 1,000 platforms emerging on every continent except Antarctica, according to estimates made in a World Bank Crowdfunding study, published last October. The actual dollar figures involved are much debated, but it is a trend for entrepreneurs to crowdfunding to raise either debt or equity financing for their businesses in 27 countries, and that list is rapidly growing. Where we found it : Forbes 4
  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 through scores of industry and academic sources to find the most noteworthy news items, scoping trends and currents events in the global private equity sector. The links to the sources are provided, as well as an editorialized abstract that discusses the significance of the articles selected. It is a free service that embodies the values of the Dealmarket platform delivers: Professional, 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, and over 3,000 deals and service providers promoted or listed on the platform. DealMarket is an online platform enabling private equity buyers, sellers and 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 marketplace, where searching is free and postings are the price of a cappuccino 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 2013” by Corporate LiveWire.