DealMarket Digest Issue 101 - 28th June 2013


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- Aerospace Defense Seen as a Safe Bet by PE
- Buyout Trend: Exits Easier Than Dealmaking
- NESTA Study Warns of VC Gap in the UK
- New Transparency on PE Investment in Emerging
- Venture Partners Success is Sticky Independent on
the VC Funds They Work For
- Quote of the Week: Silicon Valley Upswing

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DealMarket Digest Issue 101 - 28th June 2013

  1. 1. SEE WHATS NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 98 DIGEST101 June 28, 2013 1 2 3 4 Aerospace Defense Seen as a Safe Bet by PE Buyout Trend: Exits Easier Than Dealmaking NESTA Study Warns of VC Gap in the UK New Transparency on PE Investment in Emerging Markets Venture Partners Success is Sticky Indepen- dent on the VC Funds They Work For Quote of the Week: Silicon Valley Upswing 5
  2. 2. 2 Aerospace Defense Seen as a Safe Bet by PE (Image Source: EMPEA Deal Dashboard A new study by Squire Saunders, an international law firm, looks at deal activity in the Defense, Aero- space and Government sector, highlighting private equity involvement and the growth of M&A in Asia- Pacific. M&A activity in this sector is driven by strategic buyers seeking opportunities to consolidate supply chains, grow market share and expand into new technologies. PE interest, while small com- pared to strategics, is driven by the idea that is a safe bet for future growth. The trends of interest to PE investors are that aerospace is slated for higher than average growth, there are opportunities for services expansion, and that changes in US export controls could impact the sector positively. In Q1 2013, M&A increased by double digits year-on year in volume and value terms to 22 deals. Another encouraging sign of a healthy aerospace, defense and government services sector is the preponderance of large-cap deals, as the above graphic illustrates. There were 10 deals valued at over USD500m in 2012, compared to seven in 2011 and only five in 2008. Squire Sanders also published a report on M&A trends in the Consumer & Retail sectors worldwide. It is a sector that also trending upwards.
  3. 3. 3 Buyout Trend: Exits Easier Than Dealmaking Large-sized PE buyouts done at the height of the leveraged boom are finding buyers, reports Dealbook blog. It notes “doubles” and “triples” achieved by the likes of Apollo, Warburg Pincus, and Blackstone. The report says that exits are easier these days than buying new companies and doing deals. About USD 62 billion has been invested in companies this year, according to Thomson Reuters. That’s slightly more than all of last year, says the report, but it cautions that two mega-deals, the Dell and Heinz buyout, are skewing the results. The investment trend is actually quite slow. The PE industry has USD 187 billion of dry pow- der to do deals, according to Preqin. At typical leverage ra- NESTA Study Warns of VC Gap in the UK tios, that could amount to more than USD 700 billion of deals. “At this year’s rate, it would take de- cades to put that money to work,” says Dealbook. Two things are driving the blockage for PE dealmak- ers : skeptical boards wary of leveraged buyouts on the sell side, and wariness of current valuations on the buy side. NESTA, a UK based non-profit organization, recently released a report analyzing the perfor- mance of venture capital in the UK and the US. It warns that the UK comes short. Just a few years ago Nesta found that the investment gap had nar- rowed in the 2000s but its latest report shows, the gap is starting to widen again. When measured as a proportion of GDP, UK venture capital is less than half the size of the US industry. UK venture capital investment amounts to around 0.1 per cent of GDP, as compared to around 0.2 per cent in the US. If it were possible to raise UK venture investing to the same level as the US, VC invest- ment in the UK would be USD2 billion higher every year. Returns of UK venture funds are also worse than those of their US counterparts. The report sets out some of the reasons behind the UK-US performance gap. It also examines which factors influence US funds’ decisions to back UK start-ups, with a particular focus on the role regulation might play in encouraging US venture investments in the UK.
  4. 4. 4 New Trend: LPs Seek Local Manag- ers in Emerging Markets; PEI New Transparency on PE Investment in Emerging Markets The Emerging Markets Private Equity Association (EMPEA) has a new online tool to increase transparency of invest- ment activity in the regions it covers. The tool was developed in partnership with SAP. It is a data visualization so- lution that enables investors, private equity fund managers or governments to look closely at capital flows, identify trends and explore regional details. Since EMPEA applies the same research methodology across different regions and markets, industry stakeholders can do comparative analysis with the data dashboards for the first time online. This increased access will help those who rely upon EMPEA’s data to better choose investment locations, opportunities or fund managers. Venture Partners Success is Sticky Independent on the VC Funds They Work For Independent on the VC funds they work for individual venture capitalists are successful at generat- ing returns. Individual VCs are roughly five times more powerful as leading indicators of success than the firms for which they work, reports PE Hub, citing the results of new academic research. The study provides quantitative evidence that individual VCs are more important than the GP firms they work at. It says that LPs have often feared the departure of a particular venture partner from an investment company because they believe his or her performance was due to the firm organizational capital. The results of the study suggest that there is no reason to fear the talent’s departure. The study concludes that successful venture partners will be relatively unaffected by movement and in turn, individual ven- ture partner past performance is a good predictor of future performance.
  5. 5. 5 New Trend: LPs Seek Local Manag- ers in Emerging Markets; PEI Quote of the Week: Silicon Valley Upswing “It isn’t like 1999, when there was too much money chasing too few deals. Now there’s a lot of money chasing a lot of really good deals.” Who said it: Gordy Davidson chairman of the law firm Fenwick & West Context: It looks like Silicon Valley startups, the most promising ones, have the luxury of too much money chasing too few deals. Davidson’s quote appears in an interview that offers his insider view of current trends in Silicon Valley. He confirms an up-cycle based on the stock market being about as “high as it has ever been” and the fact that his law firm set revenue records in each of the last three years. Other indicators of economic activity he points to: increased traffic on Highway 101, job creation in Silicon Valley, in- creased real estate prices. The trend is not particularly robust, he says. “It’s not affecting all industries. But certainly technology is strong right now, with notable exceptions. Some companies are having trouble.” Davidson is a leading lawyer whose firm advises Cisco Systems, Oracle, Intuit, Electronic Arts, Macromedia, Facebook, as well as startups like GitHub, which has had VCs clamoring to invest, accord- ing to the interview. Where we found it: AllThingsDigital
  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.Justoneyearafterlaunch, DealMarket counts more than 61,000 recurring users from 154 countries, andover3,000dealsandserviceproviderspromotedorlistedontheplatform. DealMarketisanonlineplatformenablingprivateequitybuyers,sellersand 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 mar ketplace, where searching is free and postings are the price of a cap puccino 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.