DIGEST 151

August 29, 2014

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VCs Are Bullish on Cloud Computing, Global Capital Markets & Economic Growth

European PE&VC the Best Segment for 10yr Returns

PE’s Consistent Outperformers of 2014

PE Dealmaking Expected to Rise

Significant Growth for HNWIs and Their Alternatives Investments

Quote of the Week: China Luxury

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VCS ARE BULLISH ON CLOUD COMPUTING, GLOBAL CAPITAL MARKETS &ECONOMIC GROWTH

When it comes to the economy overall, VC investors around the world reported more confidence this year compared to last year. VCs in India and Sweden are bullish on their own countries, according to a survey this summer by Deloitte.

The survey evaluated VC confidence in various regions, technologies, capital markets, and economies, including VCs in Europe, the Americas, Middle East, and Asia Pacific.Overall respondents were more confident than last year in the world’s capital markets, too. Technolo-gy-wise, both Cloud and SaaS are seen as most attractive because they are less capital intensive for entrepreneurs and investors. Semiconductors and hardware were least favored, across the board. In India, mobile technology generated the greatest confidence in VCs.

Geographically, the US market is seen as attractive due to strong IPO markets, despite weakness in federal policy to support the VC industry. Global confidence levels continued to wane in Brazil and China, while Canada, Israel and the UK show increased confidence. The 2014 Global Venture Capital Confidence Survey was conducted jointly by Deloitte & Touche LLP and the National Venture Capital Association (NVCA).

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PE’S CONSISTENT OUTPERFORMERS OF 2014

EUROPEAN PE & VC THE BEST SEGMENT FOR 10YR RETURNS

The top ten year returns are being generated by European PE&VC investments, followed by US/Ca-nadian Private Equity, according to the latest ILPA Private Markets Benchmark study. For one year returns European PE& VC takes second place to US Venture Capital. The benchmarks are based on Cambridge Associate’s dataset, which contains 2,890 unique funds. The snapshot of the pooled Net IRRs is shown here.

Who are the repeat top performers in PE, VC and Fund of Funds this year? Preqin has an answer with its new League Table of 35 funds based on the fund universe that it tracks. Four buyout fund manag-ers achieved top scores. One from Sweden, Altor, and the rest based in the US, namely Rhone Capital, Trilantic Capital Partners and Wynnchurch Capital Partners. Preqin said that Rhone Capital and Trilan-tic Capital Partners are new entries to the league table this year.Five venture capital fund managers were identified as top consistent performers, namely Pittsford Ventures Management, Sequoia Capital, Benchmark Capital, OrbiMed Advisors and Union Square Ven-tures (all headquartered in the US).Only one fund of funds manager got the best average score, Nordea Private Equity based in Denmark. Preqin discloses the limitations and source of the data for its league tables here.

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PE DEALMAKING EXPECTED TO RISEWhat do you expect to happen to the number of venture capital financings/private equity buyout activity over the next 12 months?

Successful exits and thriving IPO markets in July have investors expecting more deals over the next year, according to a survey by mergermarket. Telecoms, media, and technology (TMT) is where the greatest activity is expected. Deal competition is the greatest worry for VCs, while buyout managers are most concerned about valuations; prices are too high, “unrealistic” amongst sellers. (Image source: mergermarket)

Key findings• PE exits in Q1 reached a record since 2001 (USD 111.9bn), average deal size reaching $589m. • US healthcare had notable influx of capital investment in Q1, with multiples reaching pre-crisis levels.• In the first quarter venture-backed deals grew to USD 9.99bn invested across 880 deals, an increase of over 44% in funding for the same quarter in 2013. • First quarter US VC saw the total number of valuations greater than USD 1bn equal to that in all of 2013

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SIGNIFICANT GROWTH FOR HNWIS AND THEIR ALTERNATIVES INVESTMENTS

There has been “significant” growth in the number of high net worth individuals (HNWI) and in the size of their investable wealth in the past year, according to the World Wealth Report by Capgemini and RBC Wealth Management. The behavior of institutional and ultra-HNWIs often leads the rest of the market, and their preferences are likely to have an impact on overall HNWI behavior, so it is worth noting that the world’s wealthiest increased their holdings in alternative asset investments, while reducing cash. (See graphic). Growth trumps wealth preservation, it seems. Private equity, as well as hedge funds and commodities are grouped under alternatives. The world wealthiest segment of the population grew the fastest since 2000 and is at a high. The popu-lation of HNWIs expanded by 14.7% to 13.7 million, well above the nearly 12 million of 2012, while HNWI wealth increased 13.8% to USD 52.62 trillion, up from USD 46.22 trillion. (Image source: World Wealth Report)

QUOTE OF THE WEEK: CHINA LUXURY“It is only a matter of time before a major Chinese company will buy a premium consumer brand, particularly in the luxury area. Chinese enterprises already have created China-owned luxury brands but there is a vacancy in the global luxury brand space.”

Who said it: Yan Xuan President, Greater China for Nielsen

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In context: Lenovo’s acquisition of the former Motorola mobile business and a server business from IBM, and the Pizza Express acquisition are a few of the deals that Chinese buyers have done in recent times, and that kind of activity is expected to continue, according to Davidson. Chinese companies that a few years ago were just domestic players are becoming global players. This goes for state-owned enterprises but, increasingly, Chinese private enterprises who are seeking bigger acquisitions globally. Driving some of the activity is a desire to move up the manufacturing value chain. This will make China a “new force in global M&A”. China is heating up for M&A after a period of lower activity, both outbound and inbound. It is worth noting that inbound Chinese M&A hit a record high in the first half of 2014 with some mega deals initiated by foreign companies seeking to tap the Chinese market, according to PWC figures which were widely reported.

Where we found it: Institutional Investor

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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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