DIGEST 127

February 7, 2014

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Israel Dealmaking Down in 2013

Montagu Acquires UK Packaging Unit from Rexam Recaps Attract PE Investors to Improve Fund Performance

Global PE Dealmaking to Accelerate in 2014

IPO Market Strengthened US Venture Capital Fund Performance in 2013 Quote of the Week: Ontario Pension Fund Blazes VC Trail

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ISRAEL DEALMAKING DOWN IN 2013Private equity dealmaking in Israel was down significantly, by 39 percent, in 2013 to USD 2.2 billion, according to Reuters, citing the latest IVC Research Center data. The report said that the reasons for the decrease include competition from strategic buyers who offer higher valua-tions, private equity funds being more focused on exits, and a cautious investment sentiment. But new regulations about company owner-ship are expected to give dealmaking in Israel a boost in 2014. The IVC said that a large number of companies are expected to be on the shelf as a result of Israel’s recent legislation to restrict

economic concentration and holding company structures means that the coming year will offer signifi-cant opportunities for PE investment. The largest deal of 2013 was a USD 500 million buyout of Alli-ance Tire Group by KKR. (Image source: IVC).

There was a dearth of announcements this week and the buyout deal of the week is not even a one billion dollar deal, however Montagu Private Equity managed to acquire most of the healthcare pack-aging business of the British company Rexam for USD 805 million in cash, a transaction that gave the company shareholders USD 740 million, according to the WSJ. The Rexam business units that were acquired employ 1,500 people and have sales of GBP 250 million in 2012. Rexam will now focus on producing beverage cans.

MONTAGU ACQUIRES UK PACKAGING UNIT FROM REXAM

RECAPS ATTRACT PE INVESTORS TO IM-PROVE FUND PERFORMANCE Eased debt markets are being tapped by private-equity firms to pay themselves dividends from the companies they own, says Private Equity Beat. “Last year, so-called dividend recapitalization deals, in which companies take on additional debt to fund payouts to their private-equity owners, drove a record USD 66.2 billion of bond and issu-ance, breaking the previous record of USD 64.2 bil-lion in 2012, according to the blog, citing data from S&P Capital IQ LCD. The strategy is sometimes

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Industry insiders expect an increase in private equity (PE) activity in 2014 with optimism in both busi-ness and PE sectors running high, according to a survey of 100 PE firms and 1,600 corporations by EY and the Economist Intelligence Unit. More positive economic forecasts ( for example a new report from Grant Thornton is reporting stronger economic growth this year – see graphic), plenty of PE funds available for deals; and growth in mergers and acquisitions, which often “stoke” PE activity are the three main drivers of a more bullish outlook for dealmaking in the coming year. The BRICS countries and emerging markets are expected to attract a good amount of PE money, according to the survey. Other economies that are interesting to those surveyed are Mexico and Colombia, along with Africa which is attracting PE investors to open offices there to physically be on the ground and try and make investments in the Sub Saharan region. (Image Source: Grant Thornton 2014)

GLOBAL PE DEALMAKING TO ACCELER-ATE IN 2014

used by private-equity funds to make gains on portfolio holding if they do not find buyers or take companies public. According to the latest S&P report, Forest Laboratories was the biggest high yield bond issuer last week in terms of volume with a USD 1.05 billion offering backing the pharmaceutical concern’s acquisition of Aptalis from TPG Capital. It was one of new issues last week that involved a private equity concern. One of the PE sponsored deals done last week was a USD 300 million offering backing ARC Financial’s Seven Generations Energy. (Image source: S&P HighYieldBond.com)

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IPO MARKET STRENGTHENED US VEN-TURE CAPITAL FUND PERFORMANCE IN 2013

Venture capital fund performance in the US continued to make gains across most time horizons as of September 30, 2013, according to the Cambridge Associates LLC U.S. Venture Capital Index and the National Venture Capital Association (NVCA). Investment horizons (based on quarterly, 1-, 3-, 5-, 10- 15-year timeframes ) showed higher returns, but there was no change in the 20-year horizon. The 10-year return climbed slightly higher for the fourteenth consecutive quarter and the 1-year performance indicator nearly doubled from one year ago. It is to be noted that the VC Index for 1-, 3-, and 5- year returns did not outperform DJIA, NASDAQ Composite, and S&P 500 as of Q3 2013.

QUOTE OF THE WEEK - ONTARIO PENSION FUND BLAZES VC TRAIL “We’re in the middle of a major revolution in commerce. This revolution is disrupting every aspect of retail: funding, inventory & back office manage-ment, payments, distribution, fulfillment and customer service. As a result, the traditional barriers to entry into the retail market are being demol-ished… Consumers are being empowered to buy any product we want (even rare, unique ones), however we want, from anyone selling them, from any-where in the world. There has never been a better time to be an entrepre-neurial merchant…”

Who said it: Jim Orlando, Managing Director at OMERS Ventures

In Context: This week’s quote of the week may sound like it’s from 1999 at the height of the dotcom bubble but it is actually from press releases from OMERS Ventures, an Ontario, Canada pension fund,

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that is active as a direct investor in PE and VC deals. The press releases were about the fund leading a USD 100 million investment in Shopify, a Canadian ecommerce startup that will use the funding to ex-pand point of sale solutions for retailers. The deal was done along with some of Silicon Valley’s top VC funds. It used to be that pension funds were the co-investors and the big names would lead the deals. So the PE industry is changing.

OMERS is coming up in the international PE markets and it had an impressive 2013 with three PE exits that delivered a 4X multiple. The VC arm of OMERS has completed almost one investment per month and has been involved in some of the largest venture capital investments made in software companies in Canadian history, including the USD 80-million investment (co-investment with NEA) in Kitchener-Waterloo’s Desire2Learn and the USD 165-million investment (teaming with Insight and Accel) in Vancouver-based social media startup HootSuite. OMERS has at least two nominations for industry awards in 2014, for example, a Techvibes award and a Real Deals award.

Where we found it: OMERS Ventures website via the Globe and Mail.

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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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