DIGEST 144

June 06, 2014

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Momentum: A Strong Global Secondary Market Forecasted

M&A Momentum Expected until 2016 in US

Online Media Venture Switches PE Investors

Maturing: Asia and Africa Dealmaking

Back on Track: European Buyout Resurgence

Quote of the Week: Angel Guide3

2www.DealMarket.com/digest

MOMENTUM: A STRONG GLOBAL SECONDARY MARKET FORECASTED

The secondary market for LP commitments to PE contin-ues to be strong. A research note from Preqin indicates that there are 27 private equity secondary funds currently in the market seeking an aggregate USD 23bn, illustrating a “healthy investor appetite” for fund that seek to acquire slices of LP portfolios that are being sold off these days. Last year, 21 such funds were raised. Preqin said that it expects the fundraising momentum for dedicated secondary vehicles to continue through 2014. Another indicator of the continued appeal of secondary PE portfolios, is the recently announced plan by private equity giant KKR and NASDAQ to develop a secondary exchange to buy and sell limited part-ner commitments in PE funds. Unlike the existing ones like SecondMarket or PEQX, it will be targeted at institutional investors with a million or more dollars to invest. KKR has a large PE business. Of its USD 102.3 billion in assets under management as of the end of March, more than half or USD

60.5 billion is invested in private equity and real estate funds, while about USD 30 billion in credit, ac-cording to Reuters.

M&A MOMENTUM EXPECTED UNTIL 2016 IN USUS companies and private equity firms polled by Deloitte in its first comprehensive M&A market report see M&A activity holding strong for the next 24 months. Deal size is expected to increase by 79% of respondents, while 40 % expect a pick-up in deal flow. The survey asked 2,182 executives at US companies and 318 executives at private equity firms to gauge their expectations, experiences, and plans for M&A in the coming year.PE executives said they plan to accelerate di-vestments of portfolio companies with 64 per-cent of the respondents anticipating strategic sales within the next 12 months. The greatest concern express in the survey was the failure to

integrate acquired companies. Elsewhere, dealogic reported that consumer M&A volume broke its 2008 YTD record. The global volume stands at USD 26.6bn in 2014 YTD, up 89% from the same time

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ONLINE MEDIA VENTURE SWITCHES PE INVESTORSOn Tuesday Internet Brands announced that KKR is to buyout its shares held Hellman & Friedman and JMI Equity, all private equity investors for USD 1.1 billion. The size makes it the buyout of the week. Your DealMarket Digest editor notes that it was one of only a few of deals of that size this week. Inter-net Brands has already completed several acquisitions since taking on a PE investment in 2014. More are likely now that KKR is involved. The company hosts websites for business and runs branded sites in auto (carsdirect.com), health, legal and home/ travel segments. It has 1,600 employees and is head-quartered in El Segundo, Calif. KKR’s track record in in technology includes Go Daddy, Mitchell, Aceco TI, Visma, Fotolia, and Ipreo.

MATURING: ASIA & AFRICA DEALMAKINGThis week KKR reportedly made a USD 200 mn investment in an Ethiopian Fairtrade rose farm-ing venture. TPG invested USD 100 mn in an Indian eCommerce venture last month. Both were good sized investments in growing businesses. The deal-flow news is coming from emerging markets, but they still represent a small portion of the overall PE volume. Nevertheless, the private equity sec-tor in emerging economies is said to be maturing, according to a report in Pensions & Investments. The number of managers with a track record is in-creasing; other strategies besides top-line revenue

period in 2013 (USD 14.1bn) and is the highest since 2008 YTD (USD 142.5bn). Cosmetics & Toiletries is the most targeted subsector within Consumer M&A, with $9.4bn in volume via 25 deals.

The data provider notes that Apple’s USD 3.0bn bid for Beats Electronics is the second largest Consumer M&A deal this year. (Image source: Deloitte and dealogic)

growth, such operation efficiency and M&A, are starting to be more common. Emerging markets-fo-cused private equity funds attracted around 8% of global PE investments in recent years, and only 12% of the dollars raised in 2013, down from 21% a year earlier and the lowest level since 2009, according to data from the Emerging Markets Private Equity Association. (Image source: EMPEA)

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A new report from legal advisory firm White & Case describes details of the resurgence in European private equity activity based on MergerMarket data. Growth in PE dealmaking is linked to the IPO boom and also the number of exits, loosening up capital for re-investment. It says that exit volumes in 2013 more than doubled 2009 levels with 24 European IPO exits in 2013. Southern Europe had a fair chunk of that activity (30 percent), while the UK accounts for more than a quarter of European buyout volume and value. Pension funds and family offices have stepped up their buyout involvement. The most favored sectors are “Industrials and chemicals” businesses with 24 percent of buyout volumes and 18 percent of value in 2013. The report authors were not over the top bullish on Europe, noting that mega deals are not back yet, but the trend is that deal size range is in- creasing, driven in part by use of a “new US-European funding hybrid”, which has sprung up from a converging of global debt markets.

BACK ON TRACK: EUROPEAN BUYOUT RESURGENCE

QUOTE OF THE WEEK: ANGEL GUIDE“The founder is more important than the idea, yes. Because ideas are really a multiplier of execution, and how the founder executes on that idea is really critical, so we will almost always take a world-class founder with a moderate business plan, as opposed to a great business plan but with a founder who can’t execute.”

Who said it: David S Rose, Founder and CEO of GUST

In context: In the interview where we sourced the quote, David Rose is explaining the view of dealflow, selection criteria, and metrics to be considered for success-ful venture capital investing. He says that early stage investing has to be done long term with a view to having at least 20 or 30 or more companies in the portfolio. Most will fail. He does not try to make VC more or than it is, pointing out it is a combination of “art and science and experience and the market”. He’s written a book about his theories and experience, which has actually become a NY Times Bestseller, suggesting that there are a lot of people interested in becoming a business angel, and they are thirsty for advice.

Where we found it: Motley Fool

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

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