DIGEST 73 SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 73

November 16, 2012

M&A Deals Increase in Size in EU and NA in October

Apax Buys into Canada’s Garda

Early Stage VC Fundraising Upward Trend Continues • Preqin Data

Ups and Downs: VC-Backed Internet Exits

The Art of Valuation in China’s PE Market • New Study from Deutsche Börse and CMS

Hasche Sigle

Advent Breaks Away From the Pack in Fundraising

Quote of the Week: Nomura Fund Piggy-

backs on PE Trends

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M&A DEALS INCREASE IN SIZE IN EU AND NA IN OCTOBER

The value of North American M&A was up significantly in October (see graphic), as it was in Europe too, reports Zephyr. Deals valued at USD 119.2 billion in North America took place and in Europe, the total value of transactions was up over the previous two months to 54.2 billion.

APAX BUYS INTO CANADA’S GARDA This week’s deal of the week looks to be the Apax-backed take-private of Garda for about USD 1.1 billion. The only other large buyouts in the news over the past seven days are the previously covered Best Buy deal and the USD 1.9 billion Douglas bid by Advent, which has now reached its board seeking approval, according to Reuters. Both are take-privates.

Image source: Zephyr

EARLY STAGE VC FUNDRAISING UPWARD TREND CONTINUES Preqin is reporting that fundraising to November this year is improving for VC early stage funds, with 58 funds coming to a final close, raising USD 10 billion. This is a distinct upward shift for VC compared to last year’s total USD 8.7 billion, and 2010’s aggregate total of USD 7.1 billion.

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Preqin said that the largest fund to close so far in 2012 is Andreessen Horowitz Fund III at USD 1.5 billion. The largest fund currently in market is the EUR 300 million is Atomico Ventures’ third fund, managed by a team of entrepreneurs turned investors targeting internet and tech ventures. Just less than half of the 158 early stage VC funds in the market have had at least one interim close, representing an aggregated total of USD 2.5 billion. The US remains home to most of the VC funds in market, with 23% targeting opportunities in Europe, and the rest targeting Asia and Rest of World.

We take it that the ability of some VCs to close new funds is based on improved returns, but that information is not easily accessible for journalists. What we do get are clues and pointers to where such datasets can be found. For example, a dataset released by Correlation Ventures to LifeSciVc shows that indeed realized returns have been steadily improving over the past several years (see graphic above). The top decile of VC financings is delivering 4X multiples, while the top 1% is actually delivering 15X. No further details on what, who, or where the top 1% invest are located, except to say that it was in the US market. Correlation Ventures is a new VC fund manager in California that primarily co-invests with established lead VCs, and promises to make decisions within two weeks, according to its website.

Image source: Correlation Ventures

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Up: Four months after its IPO, Kayak the travel website operator has been acquired by Priceline in a deal. It is good news for at least some of its VCs as they are able to sell their shares that could not sold during the IPO.

Down: One of the largest VC-backed IPOs of the year was Groupon but its performance since IPO has been dismaying. This week its shares were down 90% since IPO, according to a number of sources.

UPS AND DOWNS: VC-BACKED INTERNET EXITS

THE ART OF VALUATION IN CHINA’S PE MARKET When it comes to investing in Chinese private companies, standard financial analysis and due diligence practices cannot automatically be transferred, some adaptation is required, says the latest study by Deutsche Börse and CMS Hasche Sigle on China’s private equity market. For example, there is often a lack of data for making comparisons with publicly traded companies and sorting out tax issues remains troublesome.

Image source: Kayak.com

The report also said that price/earnings multiple averages have decreased from 60x, in 2010, to 48x, in 2011, and 30x, by the end of Q2 2012, but they are “relatively high” by international standards. This year the focus for investors shifted and they are less focused on export-dependent sectors and much more on tapping China's growing domestic market in sectors like consumer goods industry or the healthcare market. Furthermore, with growth slowing PE/VC investors have become more cautious, particularly in valuing target companies. There is also information about IPOs and valuation from an auditor’s perspective.

Image source: Deutsche Börse

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QUOTE OF THE WEEK: NOMURA FUND PIGGY-BACKS ON PE TRENDS

“Research indicates that if we know when buy-out managers invest and

divest in various companies, the value can be captured by investing in similar

publicly traded securities…”

Who said it: Matthew Peakman, head of funds derivatives trading at Nomura.

In Context: The above quote is from an article in the FT about a new index that Nomura has created called PERI. Nomura’s press release about the new fund says that PERI is the “first daily investible index which targets returns similar to those which may be achieved through a global broad-based investment in private equity buyout funds”. The index is based on research that shows that a substantial portion of PE returns can be attained through an investment in the “public market equivalents”, implying that PE managers are as good at deriving returns from market momentum, as exploiting other skills such as selecting targets and executing operational improvements, explains the FT. Nomura is in talks with asset managers about launching exchange traded and mutual funds that would track the index. Where we found it: FT

ADVENT BREAKS AWAY FROM THE PACK IN FUNDRAISING Advent International announced closing its latest buyout fund at EUR 8.5 billion with the plan to continue its established strategy in developed markets of North America and Western Europe and selectively on other global markets. Advent said it is the largest buyout fund closing since the fall of Lehman, according data-provider Preqin. Deal Pipeline says it remains to be seen if Advent's new fund will keep its position as the largest buyout fund since the “Great Recession” for long because Warburg Pincus’ current fund is targeting USD 12 billion and Apollo just announced it is also raising a big one too. The article also said that Blackstone raised a larger PE-related fund last month, but it was targeted at real estate investments.

Image source: Stony Brook University AMS

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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 noteworthy news items, scoping trends and currents events in the global private equity 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: Professional, Accessible, Transparent, Simple, Efficient, Effective, and Global. To receive the weekly digest by email register on www.dealmarket.com. Editor: Valerie Thompson, Zurich