Dealmarket Digest-17

DIGEST

17

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 17

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PE Performance Revealed • Latest Preqin data shows top performers

Chinese Buyers Drive M&A, Globally • Appetite for a range of industries and geographies

PE’s Real Estate Passion • A suprisingly large number of PE firms raising funds

How Google Stays on Top • Interview with CFO describes M&A tactics and goals

US Funds Still Dominate VC Rankings • French University delivers the data on fund fitness

Technology’s Mega Deals Continue Regulatory Reshaping • Banks change PE business units and strategies

Secondaries Attract Institutionals Quote of the Week • Tech IPO boom goes bust. What’s next?

August 25, 2011

PE PERFORMANCE REVEALED Preqin’s latest Performance Monitor offers some great insight into fund performance and selection trends. Here’s our summary in a Q and A format.

Has private equity performance recovered since the financial crisis? Yes, but three-year performance is lower, for the asset class overall, with buyout, mezzanine and funds of funds remaining in the black, but venture and real estate funds are in negative territory as a result of the downturn.

How can performance metrics be used to help inform fund selection? Institutional investors can examine past performance, although it is not a guarantee of future success, it can still be a helpful indicator as to a manager’s talent and expertise. There is a significant correlation between the performance of predecessor and successor funds.

Who are the 10 buyout fund managers that have performed best over multiple generations of funds?

CHINESE BUYERS DRIVE M&A GLOBALLY Cross border merger and acquisition activity by Chinese buyers has reached a new record for the six month period from January to June 2011, reports Domain B, citing research by PWC. The level of activity has increased by 14 per cent compared to the same period last year, and Europe is frequently the region preferred for M&A. The conclusion of the article forecasts that China will remain active in M&A deals abroad across a wide range of industries and countries.

EMERGING REAL ESTATE TREND Real estate fundraising is bigger than ever among PE firms, reports The Observer and Crains. Some 440 funds are being raised, up by 63 compared to what a year ago. A profile of Jonathan Gray, the Blackstone executive offers who started the trend is interesting, while Crains explains that the crisis of 2008, did not kill opportunities in commercial real estate which is seen as a space for outsized returns.

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HOW GOOGLE STAYS ON TOP We liked an article about Patrick Pichette, Google’s down to earth chief financial officer that was published in McKinsey Quarterly. It describes the search giant’s M&A strategy and how it aims to maintain a start-up culture despite its USD 30 billion in annual revenues. Key takeaways from interview: • R&D is focused on building software that at least a billion people will want to use. Figuring out how to monetize it comes afterwards • No business units - capital and engineers allocated by merit and/or urgency • M&A strategic acquisitions based on technology needs and human resource/specialist requirements • Google continues to attract and retain immensely high-caliber talent. They’re the top 1 percent of the top 1 percent of the top 1 percent, according to Pichette.

US STILL DOMINATES VC RANKING .

Arguably the least loved asset class, European venture capital, still has a hard time making the rankings, reports PEN in what looks like an exclusive article about the latest research by Paris HEC professor Oliver Gottschalg. The professors “fitness” ranking shows eight of the top ten venture firms worldwide based in the US. Only Apax Partners resides in the top five of the ranking.

TECHNOLOGY’S RECENT MEGA DEALS The technology sector continues to deliver the large sized M&A with three large transactions this month, showing the technology sector is as hot as ever.

• Bain Capital is poised to purchase an Australian accounting software company MYOB for about USD 1.3 billion. MYOB, an abbreviation of the phrase "Mind Your Own Business", is being sold by Archer Capital and HarbourVest Partners, which bought it for about AUSD 450 million in 2008.

• HP prepares to acquire Autonomy in a mega sized acquisition at a price of USD 11.7 billion. HP beat British software company Sage group and US buyout firm Kohlberg Kravis Roberts to the deal.

• Google acquires Motorola Mobility Holdings Inc. for USD 12.5 billion, the largest wirelessequipment transaction in more than a decade.

An interesting aspect to the two bigger deals was reported by Business Week, that is, Frank Quattrone’s Qatalyst Partners that advised the largest two transactions listed here. Quattrone will be familiar to anyone who was working in the industry during the dotcom bubble, as he worked on almost 200 initial public offerings, including Amazon.com Inc., Cisco and Netscape. He founded Qatalyst after a five-year hiatus from the industry, after successfully defending himself against allegations that he hindered an investigation of the firm’s IPO practices, says BW.

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REGULATORY RESHAPING Legislative changes in the United States and Europe have forced banks to restructure their private equity divisions, changing the shape of the PE industry, according to research by Preqin. It is the Volcker Rule in the U.S. and Basel III in Europe. While global banks are restructured or spinning out their PE businesses, others have taken a different approach, dividing their operations based on strategic or geographic focus. Banks have been major investors in private equity, new restrictions will lead more banks to alter their investment strategies, concludes the researcher.

SECONDARIES ATTRACT INSTITUTIONAL INVESTORS The private equity secondaries market is increasingly attracting attention from outside its core investor base. Newcomers such as pension funds, insurance companies and asset managers are seeking to get a share of the booming market.

In fact institutional investors now dominate the market, reports PEN. The traditional investors, specialist secondaries fund of funds, represent just 37 percent of the market nowadays.

QUOTE OF THE WEEK “Innovation is an irrational act. Species only do it in the biological world when they’re under stress, so risk is embedded into our architecture. It’s well within our comfort zone.”

Who said it: Paul Saffo, a technology forecaster at investment firm Discern Investment Analytics Context: When the technology sector IPO boom went bust this month, The Wrap asked Mr. Saffo if technology IPOs were over. He replied with a discussion about the resilience of the technology sector, albeit delivered in a highly idiomatic way, pointing out that innovation is what Silicon Valley is known for. Entrepreneures will continue to take risks, companies will need cash to grow and they will raise that capital by undertaking an IPO. Inthe meantime, only four of the seventeen companies that were slated to go public this month will do so, making it the slowest IPO month since July 2009.

Where we found it: TheWrap.com.

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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.

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Editor: Valerie Thompson, Zurich

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