DIGEST 111

October 4, 2013

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Venture Capital in Europe Rebounds Ahead of US

Buyouts Are up 19% This Year To-Date

Europe’s Hottest Tech Startup You’ve Never Heard Of

Mega-buyout for Blackstone Hotel Invest-ment

Family Offices’ Growing Role in Silicon Valley

Quote of the Week: Choosing a Private Equity Partner - The Investors View

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VENTURE CAPITAL IN EUROPE RE-BOUNDS AHEAD OF US

The slowly improving macro environment in Europe is inspiring confidence in both private and pub-licly held technology ventures. The sector is now attracting the attention of global investors, says this month’s analysis from Go4Venture. It also said that the European venture market is “well ahead” com-pared to its last peak of 2008 compared to the US market, which is just passing the threshold to recov-ery (see graphic above). The team’s data shows European venture is up approximately 30% in 2012 vs. 2008 and it is forecasting that it will probably grow 50% by 2013 year end compared to2008. The UK intermediary’s monthly report says that exits via IPO, some high profile trade sales, are behind their positive view, as well as insider news they have about half a dozen fund managers that are on the fundraising trail who are having success, namely Serena Capital which has had a first closing of a EUR 100mn fund, WHEB Partners, a UK cleantech investment team, TIME Equity Partners, too. For more analysis of the European venture market, Go4Venture published online a presentation it made at a recent tech event in Berlin.

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BUYOUTS ARE UP 19% THIS YEAR TO-DATE

Preqin’s latest research is reporting a big jump in buyout dealflow in the first nine months of the year compared to 2012. It is up 19% on the same period in 2012. Preqin says that this “demonstrates private equity fund managers continue to find good opportunities for investments, despite some concerns that deal flow is decreasing”. The aggregate value of private equity-backed buyout deals so far in 2013 stands at USD 217bn, an increase com-pared to USD 182bn for Q1 to Q3 2012.

This is positive and contrasts with the fact that the third quarter report says that a total of 666 private equity-backed buyout deals were

announced in Q3 2013 valued at an aggregate USD 60bn, representing a decrease in aggregate value compared to the previous quarter when 654 deals were valued at USD 67bn. Private equity-backed exit flow also declined, with 289 exits valued at USD 63bn in Q3 2013 compared to 344 exits valued at an aggregate USD 94bn in Q2 2013.

Other Key Facts• North America has more than twice the volume of Europe for PE backed buyouts in the third quarter (USD 36bn in Q3 2013 USD 15bn) • Buyout deal flow in Asia was up, with USD 7.1bn worth of deals in Q3 2013 compared to just USD 2.5bn in Q2.• 43% of all deals in Q3 2013 were leveraged buyouts, and these accounted for 66% of the aggregate value of global deals in Q3 2013.• Small caps rule with 77% of all deals in Q3 2013 (less than USD 250mn in size), whereas large-cap deals (those valued at over USD 1bn) represented 6% of the number of all global deals.• The industrials sector was again the most prominent sector in terms of the number of investments, accounting for 21% of all deals in Q3 2013, while consumer/retail sector accounted for the largest volume of capital invested in Q3 2013 at 30%.• The largest private equity-backed buyout deal this quarter was the USD 6bn secondary buyout of• Neiman Marcus Inc. by Ares Management and CPP Investment Board from TPG and Warburg Pincus.

Other positive news came from Preqin that fundraising volume is up for PE teams this year too. Its latest fundraising research shows 179 private equity funds closed in Q3 2013, securing an aggregate USD 87bn, a figure which is expected to increase by 10 to 20% as more information becomes available. A total of 606 funds have closed so far in 2013, which is less than the 684 funds which closed between Q1 and Q3 in 2012.

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The winner of the 8th Annual Innovation Award, which celebrates Europe’s most successful companies for leading innovation and entrepreneurship, was Tobii Technology, according to HearldOnline. The award is presented by Tech Tour Association which has a knack for finding under the radar success stories in the European venture market. Tobii Technology, which was founded in 2001 and employs 400 globally, because it is a world leader in eye tracking and gaze interaction. Over the last decade, Tobii emerged as one of the key drivers of eye-tracking technology and has become a “partner of choice” for OEM solutions. Tobii works with major product manufacturers across a wide array of industries, such as computers, gaming, medical devices and automotive, to develop mass market products that lever-age the power of eye tracking. For the PC market it is developing products that go from point and click, to look and do. (Image source: Tobii)

There were several new billion dollar plus buyouts in the works appearing in the news this week but the largest that we could see is La Quinta Inns and Suites, which is currently owned by PE giant Black-stone, according to Reuters. There are several potential acquirers, both strategic and buyout funds, which would make this a PE to PE transaction. The deal size could end up being USD 4.5 billion, says Reuters.

MEGA-BUYOUT FOR BLACKSTONE HOTEL INVESTMENT

EUROPE’S HOTTEST TECH STARTUP YOU’VE NEVER HEARD OF

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FAMILY OFFICES’ GROWING ROLE IN SILICON VALLEY Family offices and high net worth individuals are playing a more important role in the venture capital market in Silicon Valley, reports The WSJ. In recent years, investment by individual investors (as op-posed to VC firms) has been on the rise, and they are filling an important gap in the market, particu-larly for later stage investments, as the graphic that WSJ provided with the article shows. There were a couple of examples, such as media entrepreneur Oakleigh Thorne and his family office, and Tom Miller the retired CEO Siemens Healthcare.Established venture fund managers seek to bring in family offices and HNWIs for their capital but also their business acumen to help startups reach the next level of growth and industrial success, accord-ing to the article. The advantage for the Family Office is the chance to make a less risky late stage investment, a segment they typically could not access in the past, and still have a chance at the kind of returns that a pre-Mezzanine type of investment that established VCs can achieve

QUOTE OF THE WEEK – GOING PRIVATE

sive and interventionist or are they supportive and generally hands-off? Is the funder trustworthy, and can deliver on the price or terms offered. Is it likely the funder will alter terms as they progress through due diligence? “The only way to really understand this is for the business to do detailed re-search,” said Walker. That process includes contacting other portfolio firms, meeting as many of the GPs and partners as possible to see if there is a good cultural match, and it also means knowing ex-actly what kind of fund that the GP runs, as well as its level of liquidity, and pressures the fund may or may not have to exit. Mobeus is a UK based private equity investor that manages several VCT funds.

Where we found it: Real Business this week

“Aside from terms offered, the personal chemistry with a potential funder is crucial. You are entering a long term partnership that has to be posi-tive, productive and enjoyable.”

Who said it: Mike Walker of Mobeus Equity Partners

Context: Mike Walker gave his view and some tips on what entrepreneurs and business owners should look for in a private equity funding partner in a Real Business article. He said it is essential to understand the charac-ter of the potential funder. Entrepreneurs need to ask, are they aggres-

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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 notewor-thy news items, scoping trends and currents events in the global private eq-uity 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:  Pro-fessional, Accessible, Transparent, Simple, Efficient, Effective, and Global. To receive the weekly digest by email register on www.dealmarket.com.Editor: Valerie Thompson, Zurich

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