DealMarket Digest Issue73 - 16. November 2012


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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: Professional, Accessible, Transparent, Simple, Efficient, Effective, and Global.

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DealMarket Digest Issue73 - 16. November 2012

  1. 1. DIGEST 74SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 74 1 Intralinks Data Shows M&A Dip in Q3 2 Terra Firma buys Annington Homes for USD3.2 billion 2 East Asian PE Dealmaking Doubles in 2012 3 Zulily: The Latest Billion Dollar Internet Startup • And why getting a multi-billion dollar valuation can be a pain 4 Top Five Buyout Funds of All Time • Unquote analysis 4 Quote of the Week: Entrepreneur Country November 23, 2012
  2. 2. INTRALINKS DATA SHOWS M&A DIP INQ3 Image source: IntralinksThere was a 7% overall decline in dealflow in the third quarter, which is not surprising, says Intralinks.There was the US election underway, the usual summer slow-down, and there was a need to processor digest the large amount of activity that started in the earlier part of the year. The news is in its latestDeal Flow Indicator (DFI) which offers IntraLinks’ unique perspective on the level of due diligenceactivity taking place in markets, over various time periods. In this case it is Q32012.The excellent infographic provided by Intralinks says it all. But we can expand a bit here. M&A isexpected to keep up a robust pace as corporates clean up balance sheets, while streamliningoperations and divesting non-core assets, says Intralinks’ experts. Acquisitions are getting done butwith caution and a focus on “digestible” deals in the mid-market, rather than transformational M&A.The sector most active as a result is banking and financial institutions, such deals rose in Europe by 23%compared to last year, much higher than 7% tracked for the sector worldwide. Specific examplesinclude ING Group selling its UK-based savings and mortgage business to Barclays and its Hong Kong,Macau and Thailand-based insurance units to Pacific Century Group for USD 2.1 billion, and its onlinedirect banking business in Canada in a USD 3.2 billion deal.1
  3. 3. TERRA FIRMA BUYS ANNINGTONHOMES FOR USD3.2 BILLIONThe deal of the week looks to be Terra Firma’s acquisition of a “blue chip” real estate holding companyfor USD 3.2 billion. Reuters said that holdings include 40,000 homes with the UK government’sMinistry of Defense as an important tenant. The PE firm already owns a similar venture in Germany,which it might take public next year, according to the same report in Reuters.One other sizable transaction that may emerge is the selling of a 50% stake in a UK-basedtelecommunication venture called Everything Everywhere owned by France Telecom, which hasattracted interest from several un-named PE firms. It may be valued at a whopping USD 11 billion,according to BW.EAST ASIAN PE DEALMAKING DOUBLESIN 2012Private-equity transactions in Southeast Asia have already more than doubled in value this year to USD3.6 billion, up from USD 1.3 billion last year, according to data from the Centre for Asia Private Equity,and cited in the WSJ Deal Journal blog.With that in mind, we digested the latest PE study about Asian markets published by Merrill Data Site.Based on interviews with several regional experts, the report highlights PE trends and developments inEast Asia, including a discussion on take-privates (or delistings) and relisting on page 11 and 12.Key trends• An increase in controlling interest deals• The market is maturing - there are fewer easy to target buyouts of established businesses and market leaders as many have already gone public and have become quite large• PE firms are targeting second and third tier companies. e.g. instead of a bank, people are investing in a leasing company; or instead in investing in the leading shoe company, or leading milk company, investors are moving to inland China, to the second, third, fourth tier cities and investing in second, third, fourth tier companies in terms of size and hoping to make them larger.• Competition is increasing - in addition to the large global funds, more regional funds and a lot more country specific funds, not only in China but in South East Asia, Korea and Australia as well.2 Image source: WSJ
  4. 4. • Due diligence must include local inspection and deep consideration of regulatory and tax issues (a confirmation of last week’s Deutsche Börse study findings that we highlighted here.• The two most popular sectors for private equity in China are financial services, and retail & consumer. There has also been a rise in deals in the industrial sector outside China• China is not a single market – it looks more like an “amalgamation of 30 different provincial markets.ZULILY: THE LATEST BILLION DOLLARINTERNET STARTUPThis week Reuters reported that two-year old flash-sales site Zulily raised USD 85 million in a fundinground that valued the company at USD 1 billion. The company sells baby products and home-decormerchandise in the US and UK. The round was led by Andreessen Horowitz, an up and coming VC firmthat raised one of the largest funds this year, as we mentioned last week.In a relevant BITS blog post, Nick Bilton suggests that getting a billion dollar valuation might seemexciting, almost like “winning the lottery” but it has certain drawbacks. A high valuation limits exitsbecause then only the likes of Apple, Google and Microsoft can finance big ticket transactions like that,and Apple rarely makes such acquisitions. Another problem with start-ups with higher valuations is attracting talent. If an engineer joins a company valued at USD 10 million that grows to USD 1 billion, there is an opportunity to get very rich, but it is not the case when joining a company already valued at 10 figures, which might slip due to a down round or poor post-IPO performance.Based on recent financing rounds and stories about the companies, the billion dollar startup club nowincludes Twitter (USD 8.5 billion); LivingSocial (USD5 billion); Dropbox, (USD 4 billion); Airbnb (USD 2.5billion); Pinterest (USD 1.5 billion) along with European examples (Spotify and Rovio), according toBilton. He says that only some of these companies’ valuations might be justified by revenue andgrowth, e.g. DropBox which has USD 500 million in revenue and 100 million users. Others, like Pinterestand Fab, may be as “overhyped” as during the Tech Bubble 1.0.3
  5. 5. TOP FIVE BUYOUT FUNDS OF ALL TIMELast week, Advent International announced it raised one of the biggest private equity funds investing inEurope in recent years, showing that the appetite for PE amongst institutional investors has hardlydwindled if the right opportunity presents itself, as we reported. This week Unquote did some numbercrunching to see how it compared to the largest buyout funds ever raised. It said that Advents fundmay have been the biggest in years, but it didn’t even make the ranking for its top five biggest funds ofall time.Here’s Unquote’s list (reverse order)• Blackstone Capital Partners VI – USD 16 billion and it closed at the beginning of this year.• KKR Fund 2006 closed in March 2008 on USD 17.6 billion, and backed primarily by from large North American pension funds.• CVC European Equity Partners V USD €11bn and closed in 2009.• TPG Partners VI closed in Sept 2008 on USD 19.8 billion• GS Capital Partners VI the only one to close a USD 20 billion fund (in early 2007)QUOTE OF THE WEEK: ENTREPRENEURCOUNTRY “What do organizations fear most, disruption or destruction? His answer was disruption, and that does not bode well. The evidence shows that company destruction remains a massive risk both for organizations and people alike. In turn, disruption is often the most powerful Image source: Seven Hills antidote for the avoidance of failure.”Who said it: Michael Hayman, co-founder of Seven Hills public relations firm and co-founder of StartupBritain, as well as being a columnist and holding several chairmanships in the UK.In Context: In a blog post about innovators and big company strategies, or lack thereof, Hayman pointsout that the CEO of 3M said that companies fear disruption. He argues that it is the wrong thing to fearbecause disruption driven by innovation is probably the only real tool for companies can leverage toavoid failure or destruction. The mindset does not bode well for companies like 3M IBM and Fujitsu,which were on hand at a summit in London where Hayman spoke. Using high profile examples fromrecent decades, like Kodak and Brother (typewriter company), Hayman suggests that innovation inlarge companies seems to be the preserve of the R&D team, a “flaccid process” to affect productdesign rather than to drive company transformation. He argues that the driver of innovation mustcome from the top of the company. An innovator would have driven a photography business like Kodakto dominate digital in the last decade, he writes, or taken Brother from typewriters to PCs in the 1990s.His conclusion is that survival and growth in markets involves innovative ideas, people, and capital. Bigbusinesses need to seriously seek innovation, even it if means disruption, in all three areas. Where we found it: Entrepreneur Country Magazine4
  6. 6. The Dealmarket Digest empowers members of Dealmarket by providingup-to-date and high-quality content. Each week our in-house editor siftsthrough scores of industry and academic sources to find the mostnoteworthy news items, scoping trends and currents events in the globalprivate equity sector. The links to the sources are provided, as well as aneditorialized abstract that discusses the significance of the articlesselected. It is a free service that embodies the values of the Dealmarketplatform delivers: Professional, Accessible, Transparent, Simple, Efficient,Effective, and Global.To receive the weekly digest by email register on Valerie Thompson, ZurichDealMarketDealMarket launched in 2011 and is growing fast. Just one year afterlaunch, DealMarket counts more than 35,000 recurring users from 154countries, and over 3,000 deals and service providers promoted or listedon the platform.DealMarket is an online platform enabling private equity buyers, sellersand advisors to maximize opportunities around the world – a one-stopshop for Private Equity professionals. Designed by Private Equityprofessionals for Private Equity professionals, the platform is easy to use,cost effective and secure, providing access, choice and control across theinvestment 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 2012”by Corporate Newswire.