DealMarket Digest_Issue 63

DIGEST

63

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 63

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PE Giants Increase Exposure to Brazil Quick Fundraising Provides Clues About PE Winners • Transparency Improving?

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This Years’ M&A Deal Drivers and Trends for Europe and Middle East

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Front-line Tips on Due Diligence for Entrepreneurs

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• Report on 1H2012 by Merrill DataSite

Carlyle in Multi-Billion Dollar Automotive Coatings Company Buyout • Deal of the Week

Quote of the Week: From Pro Basketball to PE

September 7, 2012

PE GIANTS INCREASE EXPOSURE TO BRAZIL There may have been news this week of a stalled IPO market in Brazil (see Reuters), but the country is definitely not slow to attract private equity giants. BW reports that Goldman Sachs is returning to Brazil with the intent to invest in private companies in the infrastructure, commodities and telecommunications sectors with hopes of achieving up to 35% returns. What could block achieving the high returns that GS is hoping for are fiscal and legal challenges, exchange rates, as well as the overall macro environment, says BW. The articles says that along with GS, other big names such as Advent, Warburg Pincus LLC, Hamilton Lane Advisors LLC, Actis LLP, TPG Capital, 3i Group Plc and Carlyle Group LP have opened offices in Brazil since 2008. Elsewhere, an article in a Brazilian real estate publication also describes private equity opportunities country with a focus on infrastructure investing in an in-depth look at 3i’s activities in Sao Paolo.

QUICK FUNDRAISING PROVIDES CLUES ABOUT PE WINNERS

Image source: Preqin

It is not always easy to learn about the kind of strategies and funds that are winning in private equity.

But the sources of information are increasing. For example, the Deal Pipeline profiled an up and coming PE fund manager, called American Securities. It has a low risk, low leverage strategy and a recent stellar IRR that has made it possible to fundraise quickly compared to peers.

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Citing Preqin data, American Securities' fifth fund, raised in 2008, has achieved the second-highest return among global 2006 to 2008 vintage funds raised at the peak of the LBO boom. Its 52.1% net internal rate of return was second place to the 53.9% net IRR of the maiden fund of Australia's Anacacia Capital Pty. Ltd. As a result of its outperformance, American Securities relatively quickly attracted USD 3.64 billion in commitments for its sixth vehicle, which closed in March, reports The Deal Pipeline. And it did so without altering its terms or fees.

Other funds that have made strides in raising new capital without adjusting fees, according Bloomberg Private Equity Briefs, include Apax and Nordic Capital.

Another source for this kind of performance information is data provider Preqin. It recently published a research note based on its Performance Monitor data service. The sample data lists the top 5 consistently outperforming buyout funds over three or four funds. The top three managers are Altor, Lovell Minnick Partners and Southern Cross Group (all three funds are top quartile) and the next two are Israeli-based FIMI and Netherlands-based Waterland with three funds in the top quartile and 1 each in second quartile. The graphic above from the same research newsletter offers some insight into which types of fund strategies are performing well at the moment.

THIS YEARS’ M&A DEAL DRIVERS AND TRENDS FOR EUROPE AND MIDDLE EAST

Image source: Merrill DataSite

Underlying deal drivers are strong in the European and Middle East regions (EMEA), according to the latest M&A report from Merrill DataSite, but activity levels are down compared to last year.

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The first two quarters of 2012 closed with 2,307 announced deals worth EUR 269 billion in the EMEA region, representing an 18% decline in volume and a 10% decline in value compared to last year, according to the report. Private equity activity fell by 27% in volume and 7% in value to hit 441 transactions (worth EUR 37.7 billion). Volume is concentrated in the UK & Ireland (24.1%) and in the Germanic countries (17.7%), followed by France and the Nordic region.

The underlying Deal Drivers include the following: Asian investors seeking European assets, Strategic buyers have cash on hand; valuations are “attractive” and a renewed focus on core operations which drives supply of M&A targets. Of note were several private equity exits through M&A, including Molson Coors Brewing Company’s acquisition of Czech brewery StarBev LP from UK-based CVC Capital Partners, and China-based Bright Food Group’s purchase of a 60% stake in Weetabix Limited from Lion Capital.

The report, which is 56 pages in length, and done in partnership with data provider Mergermarket, includes plenty of details on volumes and value by sector, geography, and buyer locations, as well as the heat chart above, and lists of the top advisors in legal, corporate finance, and public relations.

FRONT-LINE TIPS ON DUE DILIGENCE FOR ENTREPRENEURS What to disclose - and when to disclose it - during the due diligence process was the topic of two lengthy detailed PE blog posts this week, one by Edward Zimmerman, a lawyer and angel investor, and one by Mark Suster, a tech entrepreneur that now works with GRP Partners. Suster says it is important to disclose the following: major lawsuits, founder friction and early resignations, people in the company who were convicted of felonies, as well as major firings from previous companies (which would mean that reference phone call may not go well). Zimmerman added some thoughts on when to disclose, as well as a few other ideas on what to disclose, including medical conditions, such as previous heart attacks, family pressures due to illnesses, employee or founders’ criminal records, bankruptcy, and resume inaccuracies.

CARLYLE IN MULTI-BILLION DOLLAR AUTOMOTIVE COATINGS COMPANY BUYOUT Carlyle’s name comes up again this week in what looks to be this week’s biggest deal, a USD 4.9 billion buyout of DuPont Performance Coatings. Dealbook said that DuPont is selling the automotive coatings business, to reduce its focus to food, energy and protection materials. DuPont Performance Coatings makes the bulk of its money, 43 percent, from sales to auto repair shops.

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Carlyle was involved in the recent Getty Images deal which was also a deal of the week. Bloomberg says did some data analysis and reports that Carlyle has been “the most active buyer among the three largest private-equity firms this year” with at least USD 16 billion of acquisitions, Blackstone Group LP, the largest buyout firm, has been involved in USD 6.8 billion of purchases, and Apollo Global Management LLC, the third-biggest, has agreed to buy USD 7.9 billion of assets.

QUOTE OF THE WEEK: FROM PRO BASKETBALL TO PE “One thing famous sports and music figures bring to a private equity firm is brand awareness, which certainly cannot hurt fundraising… Everyone will take a meeting with Bono, Steve Young and Yao Ming”.

Image source: Yao Ming Foundation and WildAid

Who said it: Bruno Roy, managing partner of McKinsey & Co.’s office in Beijing in a Private Equity Beat article.

In Context: Private equity has often been a second (or third) career choice for former presidents and prime ministers, even rock stars and Hollywood actors. But professional sports figures have been rare in private equity, which is why the news that NBA basketball pro Yao Ming has started a new PE company caught our eye. There were several articles reporting that Yao Ming is taking his private equity activity and interest to the next level by acquiring and rebranding a Chinese PE fund manager, now called Chongqing Yufu Assets Management Group.

It is not only fundraising where celebrities can help PE funds, they can also raise awareness of the brand amongst target companies, which can help in generating dealflow, says the WSJ article. Less likely is that a sports superstar would be successful in deal sourcing.

Yao is no stranger to PE deals. He backed the launch of D&F Capital, China’s first sports industryfocused private equity fund. He has previously invested in music site Top100.cn, and global satellite navigation systems provider, Beijing UniStrong, according to Alt Assets. Yao Ming is also working with charity WildAid, among others, and that is where we sourced the image for this article.

Where we found it: WSJ Blog: Private Equity Beat

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

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Editor: Valerie Thompson, Zurich

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