DealMarket Digest_Issue 66

DIGEST

66

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 66

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Advent to Buy Dutch Pharma Company for a Billion

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US-based PE Investors See Slight in Improvement in Exits and Valuations

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The BRICs: A Magnet For PE Capital

• Deal of the Week

Big Buyouts To Remain Scarce • Trend news

Risk Benefits Make Alternatives Attractive to GAMs • Natixis GAM survey

• Siguler Guff Whitepaper

Experienced Cleantech Investor Shifts to Growth Companies Quote of the Week: Ad Tech Battles on

Horizon

September 28, 2012

ADVENT TO BUY DUTCH PHARMA COMPANY FOR A BILLION This week’s deal of the week looks to be one involving a European target. Boston buyout firm Advent International Corp. agreed Monday to buy listed Dutch medical devices and pharmacies group Mediq NV for EUR 1.03 billion including debt, reports the Deal Pipeline. Another big deal is emerging but will be some time before it closes. Reuters broke the news that global sports and entertainment business, AEG, is for sale and is attracting a range of media and private equity firms including Liberty Media Corp and Guggenheim Partners LLC, in a deal that could fetch more than USD 6 billion, citing unnamed sources.

Others possible acquirers were listed including Thomas H. Lee Partners LP, Bain Capital LLC and Colony Capital LLC.

US-BASED PE INVESTORS SEE SLIGHT IN IMPROVEMENT IN EXITS AND VALUATIONS A new survey by Eisner Amper, an accounting consultancy in the US, reveals that a majority of private equity investors anticipate that the same number or an increased number of acquisitions and exits will occur by the end of this year compared to the first half. The same group is working harder to access and close deals due to increasing competition for both acquisitions and exits. As a result they are spending the majority of their time on business development and sourcing deals. They also will spend much of their time looking for and working on acquisitions. Eisner Amper writes that despite earlier optimism and media predictions for a surge in new acquisitions in 2012, pressure on private equity firms to invest capital from their aging funds has not been adequate to close deals. Economic uncertainty, market volatility and debt market conditions continue to create a yet-unbridged gap between buyers and sellers, making closing deals difficult. With worldwide political and financial crises fueling uncertainty, the private equity market, and all related markets and activities, will continue to be unstable for the foreseeable future. Private equity firms may want to augment their focus on the investments they have made.

EisnerAmper has been tracking the views and opinions of senior private equity fund executives in the US for three years.

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Other findings • Those surveyed were not optimistic about an improvement in the availability of debt financing; however, more expect it will stay level as compared to 1H 2012.

• As for dry powder, the majority of executives felt that they would be investing a quarter or less of it this half year and that the percent of capital remaining in most funds is steadily decreasing.

• When it comes to fundraising, more than half of those surveyed plan to have their firms spend little or no time on fundraising.

• Fewer funds are raising more of the dollars because institutional investors are supporting large, established firms and "brand names".

BIG BUYOUTS TO REMAIN SCARCE The frequency of mega-buyouts has slowed down over the last few years and lags by far the years 2005 to early 2007, reports Private Equity Beat. It is no secret that credit markets haven’t been particularly receptive to heavily leveraged deals, but what is less obvious but also contributing to the demise of mega-buyouts is that established buyout players are raising smaller flagship funds this time around, according to the report.

Image source: Private Equity Beat

It said that Apollo Global Management, Kohlberg Kravis Roberts & Co., Carlyle Group and Warburg Pincus are raising their latest main buyout funds with smaller targets than the preceding funds. The article included a table showing this year’s largest deals, only one of which was greater than USD 5 billion.

RISK BENEFITS MAKE ALTERNATIVES ATTRACTIVE TO GAMS The June-July survey of 482 institutional investors in Asia, Europe, the Middle East, the US and the UK by Natixis reveals that an overwhelming a majority (91%) are increasing allocations to hedge funds, private equity and venture capital as a key to managing portfolio risk, with 89% favoring liquid alternatives such as global macro or long/short equity strategies, according to PI Online.

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Image source: Natixis GAM

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Furthermore, three in four global institutional investors (74%) have changed their approach to risk management over the past five years and now consider the use of alternative investments essential to diversify portfolio risk (76%) primarily due to market volatility. The survey targeted investors with a median asset level of USD23 billion. Various sections of the research report are available on Natixis’ website, such as country by country breakdown of GAM survey results.

Other findings • Eight in 10 (80%) global institutional investors say market volatility is here to stay and a similar proportion (84%) believe that volatility creates investment opportunities. (SEE GRAPHIC) • The vast majority (81%) of global institutional investors say they find it difficult to mitigate the impact of market volatility on their portfolios.

• On a global basis, three in four (74%) institutional investors find it difficult to adhere to asset allocation targets during periods of market volatility); one-third (32%) say they cannot effectively manage portfolio risk because of unpredictable market volatility. Only 22% of institutional investors in the U.S. claim say they cannot effectively manage portfolio risk because of unpredictable market volatility.

• The No. 1 investment priority over the next 12 months selected by institutional investors across the globe is to use strategies that limit exposure to market volatility (15%); a full 31% of institutional investors in the UK say it is their top investment priority.

THE BRICS: A MAGNET FOR PE CAPITAL Capital flow to the so-called emerging BRICs has been growing since mid-2000s, driven by the strong performance of the asset class and the increasing appetite of institutional investors for alternative investments in emerging markets, according to a new whitepaper from Siguler Guff titled, Private Equity Opportunities in the BRICs and Beyond.

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The paper reveals that investment opportunities in Russia as well as the other BRIC (Brazil, Russia, India, and China) countries are likely to dominate future fundraising as these four countries climb to the top of global economic power and growth rankings. Consumer oriented sectors and services among the attractive areas for investing, says the report.

Image source: Siguler Guff

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Emerging market PE as an asset class “shows strong potential for better returns and better downside protection than the public markets”. The key to success, according to the report author, “Patience, selectivity and a deep local understanding of the macroeconomic, regulatory and private equity dynamics in each market are key ingredients to investing successfully in the emerging markets”.

EXPERIENCED CLEANTECH INVESTOR SHIFTS TO GROWTH COMPANIES The cleantech sector fundraising may have slowed but a range of investors are still putting money into the sector as the graphic above shows. An article in Fin Alternatives describes the current strategy for cleantech investor SAM (Sustainable Asset Management) in Switzerland, one of the older players in the field. The opportunity lies in growth ventures, “profitable, fast-growing and have a solid customer base … especially technologies that are resource efficient, that provide solutions to the energy, water utilities and transportation industries, and the food and agriculture sectors”. Less attractive are the venture capital type investments in startups with unproven technology and markets, says SAM.

Image source: SAM

Elsewhere, PI Online examines some of the returns from pension funds that invested in cleantech and reports that investors are “still waiting” for their cleantech portfolios to produce expected returns, particularly VC portfolios.

SAM says the underlying rationale for cleantech investing is strong. It is economics 101. There is “only so much arable land on this planet and if the population continues to grow and become more wealthy, people are going to consume more. The world needs to come up with more solutions and products that can somehow sustain that population and consumption pattern or figure out how to make consumption less resource intense”.

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Inflows of capital to cleantech ventures remain strong as the graphic here shows. Since 2000, almost 400 cleantech funds have raised USD 65 billion in venture capital, expansion capital and project investments and last year it hit a record high-level point. SAM says the fund universe is maturing, with several managers raising their third- or fourth-generation funds.

The most common exit for PE investments in cleantech is M&A. Strategic buyers spent a value of USD 42 billion disclosed, making it the most important exit market for cleantech growth ventures.

Other facts from SAM • 2011 was higher than during the crisis years of 2008 and 2009.Private equity investments in clean tech companies—including majority stake investments, takeovers or private investment in public equities deals—totaled USD 12.3 billion in 2011 (USD 35.6 billion since 2001), according to SAM. • Since 2005, more than 350 clean-tech companies have gone public, raising USD 58 billion, and although the market slowed in 2011, after record activity in the fourth quarter of 2010, initial public offerings raised USD 10.5 billion last year.

QUOTE OF THE WEEK: AD TECH BATTLES ON HORIZON “Online advertising spending has grown by a factor of 7x between 2002 and 2011.

Forecasts predict double digit growth in online ad expenditure reaching close to USD 100 billion in 2014.”

Who said it: Nicolas von Bülow and Antoine Ganancia in a Clipperton Finance whitepaper In Context: The boutique investment bank, based in Paris, sees a huge opportunity in online and mobile advertising technology and innovations. Its report makes the case for new kinds of “brandingoriented” marketing and points out that a lot of the most popular websites just do not work for advertisers. The solution to that issue is emerging and it will further blur the lines between branding and performance marketing through the use of innovative formats, measuring technologies and improved targeting. The winners will be those than can leverage the “vast inefficiencies” of today’s online advertisement market. Clipperton provides a surprisingly long list of European ad tech companies in the report that will be contenders in the coming battle to find a profitable tech solution.

But the report does not offer the answer.

Where we found it: Clipperton Ad-Tech White Paper

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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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