DIGEST 130

February 28, 2014

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PE Shuns Pricey Buyouts; Seeks Alternative Strategies Southern Europe Back on the PE Radar Non-bank Lenders to Boost Buyout M&A Activity

PE Execs Making Top Dollar on Wall Street Global IPOs Float Private Equity’s Boat

Quote of the Week: IMF Chief Gives Her Savvy View on Tech Impact

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PE SHUNS PRICEY BUYOUTS; SEEKS ALTERNATIVE STRATEGIES There is growing investment in distressed and turnaround situations, carve outs, and buy&build in certain industrial and service sector niches. These somewhat non-traditional strategies are some that buyout houses are using in order to avoid overpaying for assets, according to Reuters. Several larger fund managers are even taking minority stakes, according to the report. Elsewhere, several healthcare niches, such as “Hospitals and health systems”, as identified by experts as being attractive for pri-vate equity investment in 2014, according to McGuire Woods in a report on 19 healthcare niches for PE investment.

SOUTHERN EUROPE BACK ON PE RADAR Spain and Italy are back in favor for buyout and other PE deals, according to Reuters. US based funds have avoided southern Europe since the debt crisis, but are now coming “back in force”. Banking reforms, labor market reforms, better corporate balance sheets, and a plethora of non-performing corporate loans and mortgages are attracting PE investors, as is the slightly improv-ing economic growth rates forecast for both Italy and Spain. The amount of capital raised by fund managers is also on the rise, according to Preq-in (see WSJ graphic).

It should be noted that the interest of buyout fund managers has yet to translate into deals done. Dealmaking figures for Southern Europe are still in the doldrums, according to data cited in the report. (Image source: WSJ)

NON-BANK LENDERS TO BOOST BUYOUT M&A ACTIVITY With tech M&A at the highest levels since the dotcom boom, what is happening in other parts of the market, asks CNBC in a report about PE investment trends. The answer is that IPO markets will con-tinue to be receptive to PE transactions and leveraged buyouts will likely increase. Including leverage there is about half a trillion dollars of capital available for buyout activity, according Robin Doumar, managing partner at Park Square Capital in an interview on CNBC. He predicts that buyouts in Europe will increase. Such deals, according to Doumar, have been dampened due to debt and financing dif-ficulties but that is changing with the rise of “non-bank lenders”, which means larger M&A deals are increasingly feasible. “You can put together multi billion buyout of 3 to 4 billion €, which was not do-able since the crisis,” said Doumar.

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PE EXECS MAKING TOP DOLLAR ON WALL STREET Private equity executives are at the top when it comes to compensation these days, outpunching their peers in the investment banking sector, according to BW. Leon Black, top executive at Apollo Global recently earned about USD 369 mil-lion, while Blackstone’s Stephen Schwarzman, will net about USD 311 million, and KKR’s top men, George Roberts and Henry Kravis earned USD 165 million and USD 161 million, respectively, while Carlyle’s David Rubenstein, William Conway, and Daniel D’Aniello are each slated to receive USD 88.4 million for 2013.BW contrasted these pay packages with those of

GLOBAL IPOS FLOAT PE’S BOAT Private-equity backed IPOs are setting records in the first two months of the year, according to Dealogic in a market insight issued this week. Exits via M&A are also strong with USD 38.0bn in 2014 year to date (YTD), the highest YTD volume on record, despite a lower number of deals compared to earlier years Globally, PE firms were behind 23 IPO issues so far, the highest YTD level on record and more than double the ten PE-backed IPOs priced in 2013 for the same period. Volume is up to USD 6.8bn, the highest total since 2011 for the same period. The US market leads

executives at investment banks like Goldman Sachs (USD 23 million) and JP Morgan (USD 20 million), and added that the annual minimum wage in the US is just about USD 15K per annum. To put the Wall Street figures into perspective, your DM Digest editor selected a graph that shows personnel cost av-erages in Swiss Francs for five leading Swiss banks. (Image source: efinancialnews)

by far. It is followed by EMEA IPOs and then Asia Pacific IPOs. Dealogic says the IPO pipeline is full, particularly in EMEA. Dealogic’s outlook was positive for the coming months due to the pipeline in place as of this week.

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QUOTE OF THE WEEK - IMF CHIEF GIVES HER SAVVY VIEW ON TECH IMPACT“Those of you who are students probably do not even remember a time when phones were not smart, when cameras contained film, when texts meant school books, and when wireless referred to an old-fashioned radio... If the previous revolutions were about using machines for brawn, this is about using machines for brains…connected brains. The major test of the new technological era is simple: can it provide decent livelihoods for all people?”

Who said it: Christine Lagarde, Managing Director, International Monetary Fund

In Context: Besides influencing decisions about how the IMF will deploys its EUR 550 billion in potential funding for member states, Christine Lagarde is a popular and fast-witted public speaker. The quote above is from a speech she gave this week at Stanford University, following her participation in the G20 summit in Sydney. She well-informed about how technology is making an impact on markets and industries and makes the link between that hot topic and the IMF’s call for financial reforms, sustainable economic growth, and improving government policies. Private equity has an interest in technology and sustainable growth, so we summarized the relevant points in her speech: be highly aware of how technology advancement affects jobs and productivity. Second, seek ways to address income inequality (at the level of government policy but also within corporations), and third, get more forceful and creative on the importance of training and education.Incidentally, she’s one of a handful of women that have made their way to the top banking and finance world, along with Abigail Johnson of Fidelity investments, Teresa Ressel, COO of UBS Securities Americas, Dominique Senequier at Ardian (formerly AXA private equity), and Nicole Arnaboldi of Credit Suisse, according to NW.

Who we found it: Eurasiaview

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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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