DIGEST 146

June 20, 2014

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Australia’s UGL Property Unit in Billion Dollar Buyout

European Buyouts Trending Downward

Asian Family Offices Concentrated in India and Singapore

Record-Highs for Buyouts in China

Cashing In on Europe’s Tech IPOs

Quote of the Week: Trailblazing PE3

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AUSTRALIA’S UGL PROPERTY UNIT IN BILLION DOLLAR BUYOUT TPG is leading a consortium to buy a property unit from Australian engineering firm UGL for USD 1.15 billion, reports the WSJ. It has several special aspects that made us choose it as the buyout of the week. The deal is seen as an Asian transaction and Asia is hot in buyouts right now. It is also interesting because the consortium of PE players includes PAG Asia Capital and Ontario Teachers’ Pension Plan. Canada’s pension plans do a lot more direct investing than other LPs but usually they do it in their home country. It is also an example of how private equity can tap into the hot international real estate segment, that is, through service providers. The unit acquired in the buyout competes with global property players like CBRE Group Inc. and Jones Lang LaSalle, according to the WSJ.

EUROPEAN BUYOUTS TRENDING DOWN-WARD

European buyouts deals are at a low not seen for several years, says Merrill Datasite. Just 532 PE transactions worth EUR 37bn were closed in Q1 2014 which the lowest deal count recorded in Europe since Q3 2009 it said its latest European PE Breakdown report. Both buyouts and growth deals de-clined between 2012 and 2013. The bright spot was in bolt-on transactions, which jumped 17% last year to 272 deals. The first quarter of the year recorded 72 bolt-ons, which puts this year on pace to leapfrog 2013. This kind of dealmaking to acquire growth “makes sense in Europe” say the analysts, due to “multinational makeup of the continent and the challenges of achieving organic growth” across multiple borders and markets. The increase in bolt-ons may also reflect an effort by investors to make the most of the current environment, “gobbling up” distressed companies that may operate more pro-ductively as a subsidiary of a platform company. (Image source: Pitchbook)

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ASIAN FAMILY OFFICES CONCENTRATED IN INDIA AND SINGAPORE With Asia-Pacific poised to be a growing financial center and magnet for high-net-worth individuals and families, Asia-Pacific-based family offices will be an increasingly important source of investment for the private equity industry, despite representing less than 10% of family offices worldwide that back PE funds, according to Preqin blog. Preqin says it is tracking 32 Asia-Pacific-based family offices with a preference for private equity funds, which is 8.3% of family offices worldwide that are interested in the asset class. India and Singapore are home to the largest proportion (28%) of Asia-Pacific-based family offices with an interest in private equity funds. Hong Kong represents the next most significant location, with 19% of investors based there, followed by Australia (9%). The remaining 16% is split between other coun-tries such as China, Japan, Taiwan and Thailand. Overall, 28% of Asia-Pacific-based family offices investing in private equity have an investment man-date that strictly targets the Asia-Pacific region, and the rest have a wider net. Preqin says its statistics indicate that overseas markets form a critical part of Asia-Pacific-based family offices’ strategic allo-cation to private equity.

RECORD-HIGHS FOR BUYOUTS IN CHINA

The latest stats from dealogic show that China’s buyout volume is hitting a high at USD 6.8bn (30 deals) in 2014. It is the highest year to date level on record and nearly three times higher than the USD 2.6bn (21 deals) in 2013 YTD, says dealogic. China is the most targeted nation in Asia Pacific for the third consecutive year, followed by Australia and Hong Kong. Real Estate is the most targeted sec-tor for China targeted deals with volume of USD 2.6bn this year so far, up nearly nine times from USD 286m, followed by Technology with USD 1.9bn and Agribusiness with USD 844m, the highest year to date level on record in their respective sectors. (Image source: dealogic)

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European Internet IPO’s might not create billionaires like the US does but they do show that the re-gion can at least create billion dollar ventures, a phenomenon that is apparently increasing, with 30 such companies created since 2000. The IPOs in the UK and Europe can provide decent returns for founders and VCs, if Zoopla’s recent floatation is an example, because the startups have not been overfunded due to the scarcity of VC in Eu- rope. In its first days of trading Zoopla achieved a market cap of over USD 1.4 billion while floating a little less than a third of the company. It raised a single digit million amount of venture capital, from Atlas Ventures and Octopus Zenith (a fund that belongs to venture capi- tal trust outfit in the UK which had backed the founder in a previous venture). Atlas Ventures’ Fred Destin wrote about the deal, pointing out that online real estate might not be novel but it is a model that works. Top line growth is steady, and Zoopla’s profit margin is enviable at close to 50%, which he attributes to its backend systems, SEO and lead transformation technologies. According to public sources, Zoopla’s founder Alex Chesterman’ s stake in the company was valued at USD 119 million. Not bad for seven year’s work. (Image source: Zoopla)

QUOTE OF THE WEEK: TRAILBLAZING PE“I began my career as Insurance Commissioner, so I am convinced of the benefits of regulation. Ard-ian’s teams have anticipated these changes and we have hired people to bolster our compliance department in our offices worldwide… there will be no change for our business but there will be more work. However, the impact of the AIFM might be heavier and more difficult to deal with for smaller asset managers.”

Who said it: Dominique Senequier, Founder and President, Ardian

In context: It is not too often to hear a private equity industry insider saying some-thing positive about regulations, even pointing out the benefits, but that is just one of the things that makes Dominique Senequier special. Her view on regulation is not the only unusual thing about her. Under her leadership AXA Private Equity grew from a tiny private equity fund manager with AXA into an organization that she spun out and now manages or advises USD 47 billion. This week’s eFinancial News profiled her for making an “outstanding personal contribution” to private equity. Ardian’s employees all have shares in the company and Senequier said in the firm’s latest annual report that it the “first investment manager in the PE industry to share the gains achieved for its LPs [and itself] with all the employees of the portfolio companies” when it exits too. DealMarket Digest is wondering what that kind of alignment of interests will do to the old private equity “2 and 20 rule” if Ardian’s style sets a trend.

Where we found it: Deloittes Inside newsletter

CASHING IN ON EUROPE’S TECH IPOS

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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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