DIGEST 136

April 11, 2014

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Billion Dollar Deal for Goldman Sachs’ Pri-vate Equity

More Capital for Fewer Ventures This Year-to-Date

Singapore’s Temasek Expands

Sellers’ Market: Private Equity’s Distributions Jump in 2013

PE Performance Improves Outside the US But Still Below Public Markets

Quote of the Week: Contrarian Views

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BILLION DOLLAR DEAL FOR GOLDMAN SACHS’ PRIVATE EQUITYThis week’s buyout of the week is a USD 2.2 billion potential buyout of inks and colorants manufacturer Flint Group by Koch Industries co-investing with Goldman Sachs Group’s private equity arm, a rumor reported by Bloomberg. Flint is a Luxembourg based supplier to the print and colorant markets. Koch is a privately-owned, Kansas-based is a multi-national business involved in materials and commodi-ties. Real Deals says CVC has been trying to exit Flint since 2010.

MORE CAPITAL FOR FEWER VENTURES THIS YEAR-TO-DATE

The latest venture capital investment figures from Preqin show that startups are receiving more capi-tal per company than they have over the past six years. (See graphic for trend line.) The first quarter of the year saw, USD 15.6bn going to 1,400 companies. This surpasses the previous high of USD 14.9bn in Q2 2011 and is a “significant increase” over the USD 10.0 bn invested in the first quarter of 2013. Most of the activity is as usual in the US, but Preqin noted that China had a blockbuster quarter, with high-growth ventures raising more money in the first three months of the year than they rose over the entire 12 months of 2013. (Image source: Preqin)

SINGAPORE’S TEMASEK EXPANDS Temasek, Singapore’s state investment agency, has been in the news quite a bit this past few weeks. It opened an office in London, according to the FT, and plans another one New York later this year. It is targeting investments in global companies based in Europe, as well as smaller emerging innovative ventures. The giant sovereign wealth fund, which manages USD 170 billion, also announced publicly a co-investment vehicle for institutional investors. Temasek has been investing in PE for over 20 years. Although billed as co-investment vehicle, the SWF Institute said that the new fund is simply the securi-tization of a pool of its existing private equity fund holdings.

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STUDY FINDS CO-INVESTMENT RISKY FOR LPS The latest research from Private Equity Navigator says that the last quarter of 2013 saw an increase in both the sum of capital calls and distributions by PE funds over the preceding quarter. This highlights a period of increased investment and divestment activity, however, with significantly more capital being distributed to LPs than called down (37% less, actually), according to the report. About USD248 billion was distributed to LPs in 2013, up over the USD 193.6 billion for 2012. The Private Equity Navigator is a unique kind of research activity as it looks at PE from the institutional investors’ point of view, bas-ing part of its analysis of private equity returns on two virtual PE fund portfolios. The analysts said that while still some way off from the highs of the “golden period of investing”, the PE industry has shown a quick recovery and entered a period of steady returns but the amount invested by PE groups was the lowest in the last 9 years, even lower than in 2009 during the peak of the financial crisis. That is be-cause GPs are exercising caution, it said, and skepticism towards the economic recovery globally. The report concluded it is indeed a sellers’ market.

PE PERFORMANCE IMPROVES OUTSIDE USA BUT STILL BELOW PUBLIC MARKETS

Private equity funds that invest primarily in developed and emerging markets beyond the US borders started the second half of 2013 with solid returns in the third period, according to Cambridge Associ-ates latest research. Both alternative asset classes generated positive returns for the quarter end-ing September 30, 2013, with investments in developed markets outperforming those in emerging markets for the period. Returns for funds in both asset classes were up from the prior quarter, and the “Cambridge Associates LLC Global ex U.S. Developed Markets Private Equity and Venture Capital Index” rose 6.7% in the third quarter, up from a return of 2.4% in the prior period. The index’s return was aided by a strengthening Euro during the July to September period. Having said that, the Cam-bridge analysts noted that its PE index was outperformed by its public market counterpart, the MSCI EAFE, which earned 11.6% in the third quarter. The PE index improved from a negative 0.4% return in the second quarter to a 3.7% return in the third. Its public market counterpart, the MSCI Emerging Markets, earned 5.9%.

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QUOTE OF THE WEEK - CONTRARIAN VIEWS“We like steel. It’s not a well-liked sector, yet it has been doing very well over the past 12 months. I wouldn’t be shocked if money left the ‘hot’ areas like tech and social media and made its way to the more boring areas like steel.”

Who said it: Ryan Detrick, Senior Technical Strategist at Schaeffer’s Invest-ment Research

In Context: There are several new TV series airing in the US depicting life in Silicon Valley ‘s technology hub, namely a comedy series called “Silicon Valley” on HBO (some episodes on YouTube), as well as “The Shark Tank” and “The

Profit” on other channels. Could this trend signal that the current tech rally is about to deflate, asks a reporter for FoxBusiness who probed the idea that the launch of the TV se-ries is an indicator, in the same way that the Magazine Cover Indicator (MCI) is significant. In other words, the tech rally lead by Silicon Valley startups is about to decline now that Hol-lywood’s touting it. Ryan Detrick was quoted as a contrarian investor, although not necessarily a follower of the MCI. He’s more reliant on quantitative-analysis methods than that.

Where we found it: Fox Business

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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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