DIGEST 132

March 14, 2014

1

2

3

Five Traits of Blockbuster PE Exits

Fund of Funds Still in the Game, But Pressure is on Performance

More Women Active in Private Equity PE Firms Seek Manufacturing Company Buyout

M&A Healthcare Deals Grow in More Ways Than One

Quote of the Week: Not So Dumb Money and VC Evolution

2www.DealMarket.com/digest

FIVE TRAITS OF BLOCKBUSTER PE EXITS When PE News published a well-investigated list of 25 of the best private equity-backed sales of Eu-ropean businesses in the last 10 years, it revealed some common strategies exploited in these large exit deals. The Tally blog selected five and discussed them in a short article. Some of the strategies are what one would expect, like buying cheap (which is getting harder and harder to do), make operational improvements and getting the timing right, but there were two that are maybe less obvious. One is that secondary deals are not likely to deliver a blockbuster exit. Only five of the 25 top exits were secondary deals. Yes, there is lower volatility of returns in a secondary deal, but the cost-cutting and expansion work will most likely have been done by the earlier investors, said The Tally. The other common trait was a holding period for longer than usual five years. According to Tally, almost half of the deals listed were held for five years or more, which suggests that success in European buyouts can often take time to achieve.

Private Equity Fund of funds are having a tougher time closing new funds and the amount raised by such funds has been trending downwards since peaking in 2007, despite improved fundraising amounts in other segments of the PE market, according to a special report from Prequin.

The relatively poor performance of FoFs compared to other PE segments is one reason. It only slightly outperforms venture capital, according to the data analyzed by Preqin. The segment is still a key part of the market, representing some USD 288 billion raised in the past ten years. And an investor survey says they are satisfied with the returns of their FoFs, according Preqin, but its analysts also said that the FoFs will need to generate superior returns in order to justify the double layer of management fees intrinsic to such vehicles. (Image source: Preqin)

FUND OF FUNDS STILL IN THE GAME, BUT PRESSURE IS ON PERFORMANCE

3www.DealMarket.com/digest

PE FIRMS SEEK MANUFACTURING COM-PANY BUYOUT

This week Preqin’s latest research on women in the alternative investments industry captured head-lines, as did the new book by high profile Silicon Valley venture capitalist Ben Horowitz. What do they have in common? The answer is they both show that women have some way to go in the domains of technology and pri- vate equity. Horowitz in-advertently revealed just how male dominated Silicon Valley can be, despite trying to be pro-female leadership in his text, according to BW, while Preqin, con- cluded after studying the fact sheets of some 7000 fund managers that statistics show small improvements in the level of female representation in PE.

The percentage of women in PE has in-creased slightly at buyout, real estate, and funds, and stayed the same in VC, according to Preqin. However “the overall proportion of leadership roles that women occupy in private equity is still nota- bly low”. This all might sound like bad news for women who seek to forge a career in PE (and also for institutional investors that seek to put money to work in female-led PE teams), however it is worth noting that there is clearly progress. One sign is that the Annual Women’s Private Equity Summit, which is a two day event for senior-level women in private equity and venture capital, reported this week that it would have 450 attendees. It is the “largest gathering yet” for the event, which is now in its seventh year. (Im-age source: Preqin)

MORE WOMEN ACTIVE IN PRIVATE EQUITY

This week’s buyout of the week is USD 5.5 billion acquisition of Gates Global. PE investors, Blackstone Group and TPG are reportedly in the running for the Denver-based manufacturing company, accord-ing to the WSJ. The company is also mulling an IPO. If a deal is struck, says the WSJ, it would be the second-largest private-equity buyout of the year after Cerberus Capital acquisition of Safeway for USD 9.5 billion.

4www.DealMarket.com/digest

In Asian M&A news this week, IHH Healthcare, Asia’s largest hospital operator, was reported to be mulling a USD 4.5 billion bid for Austra-lia’s Healthscope, also a hospital operator, according to Bloomberg. Healthcare invest-ment is up and coming, particularly in the US. Dealogic reports that its data revealed that healthcare was the third most active in seg-ment in its 2013 global M&A studies. Only Tele-comm and Real Estate saw more activity.

More proof was published by WSJ Private Equity Beat blog which discusses the trends in the latest deals, saying that a USD 500 valua-tion for information technology company Ability

Network “is an indication of how hot it’s getting in the health-care market”. The valuation is 17 times earnings before interest, taxes, depreciation and amortization while the valuation multiple for health-care information technology deals is typically in the 10 to 12 times EBITDA range, says the report. One driver of the valuation jump is that private equity and strategic acquirers are now competing amongst themselves for targets. Another driver is climbing stock market values, which affect both the selling and buying prices. There has been a 36% jump in one of S&P’s healthcare stocks indices in the past year.

M&A HEALTHCARE DEALS GROW IN MORE WAYS THAN ONE

QUOTE OF THE WEEK - NOT SO DUMB MONEY AND VC EVOLUTION “We believe in transparency. If a startup that takes our money wants to publicize the terms of our investment, we’d generally support that… The average pre-money valuation of our investments for the year to date in 2013 was $6M. (We intend to update this number from time to time, but not too fre-quently to avoid inadvertently disclosing the terms of any one deal). ”

Who said it: The Bloomberg Beta Team

In Context: Bloomberg Beta is a USD 75 million corporate venture fund that launched about a year ago. It has taken the unusual step of publishing also published a handbook for entrepreneurs that are seeking funding, which is where we took that quote from. It has already disclosed publicly terms of at least one deal it did last year with a startup called ThinkUp, with the permission of the startup. “We invested USD 200,000 in

Photos from l to r: Roy Bahat, Karin Klein, Partner, James Cham, Partner

5www.DealMarket.com/digest

ThinkUp in a convertible note with a 20% discount and a $6 million conversion cap,” writes Roy Bahrat, who heads up the fund. By revealing such details, Bloomberg Beta challenges the prevailing secrecy around funding for startups. The fund also considers investing in wannabe entrepreneurs that still have their day job, which is quite unusual in the VC world. And, not surprisingly, the fund was an early par-ticipant in AngelList.Bahrat challenges some of the prevailing practices in VC, asking why do startups have to raise money in time-consuming and distracting (for the founders) discrete rounds rather being more continuous, and why keep things so intransparent. It is quite a change because in the not too distant past corporate venture funds rarely disclosed their investments, much less revealing their terms, their preferences, and a willingness to invest at the seed stage (typical corporate VCs invest in businesses with a proven business model and in need of growth financings). TechCrunch recently wrote about the widely held belief that corporate venture was dumb money and how it is changing as the likes of Google Ventures, Intel Capital, and SAP Ventures shift strategies and exert greater influence. It is too soon to tell if the Bloomberg Beta team’s approach will deliver significant returns, but it is clearly sending a signal about the need to evolve the VC model.

Who we found it: Bloomberg Beta Operating Manual

www.DealMarket.com/digest

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

DealMarketDealMarket launched in 2011 and is growing fast. Just one year after launch, DealMarket counts more than 61,000 recurring users from 154 countries, and over 3,000 deals and service providers promoted or listed on the platform.DealMarket is an online platform enabling private equity buyers, sellers and advisors to maximize opportunities around the world – a one-stop shop for Private Equity professionals. Designed by Private Equity professionals for Private Equity professionals, the platform is easy to use, cost effective and secure, providing access, choice and control across the investment cycle.

DealMarket’s offering includes• DealMarketPLACE, brings together buyers, sellers, and PE advisors from around the world. PLACE gives access to deals (direct invest ments, funds, and secondaries), investors, and PE service providers. Searching and postingis free. (no commissions). PLACE PRO is the exclusive deal exchange platform made for engaged professionals and companies with a truly unique value added proposition.

• DealMarketSTORE offers affordable access to industry-leading third- party information and services on demand; and

• DealMarketOFFICE is a state-of-the-art deal flow management tool, helping Private Equity investors to capture, store, manage and share their deal flow more efficiently.

DealMarket was voted the “Best Global Private Equity Platform for 2012 and 2013” by Corporate LiveWire.