DIGEST
23
SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 22
1 1 2
Mega Buyout Revives PE in Japan
2 3
Niche Strategies Attract LP Interest
3 3
Spot Poll Takes Pulse of PE
• Nomura and Bain in secondary deal
Buyout Activity Down in 3Q: Unquote SEI Survey Reveals Current PE/LP Challenges • Finding alignment on disclosure is an issue
• Energy, debt, and specialized funds are among recent successful fundraising effors
Buyout Giants Team for $3.9 bn Drug Deal • Carlyle Group and Hellman & Friedman take PPD private
• PE executives see limited supply of good investments, and demise of megafund and closed IPO window
Quote of the Week • China’s role in world economies
October 14, 2011
MEGA BUYOUT REVIVES PE IN JAPAN Bain Capital is reportedly close to acquiring a Japanese restaurant chain called Skylark for USD 3.4 billion from Nomura Holdings private equity unit according Bloomberg. The deal would be the largest buyout in Japan since the financial crisis. The Skylark transaction would be at least the third sale by Nomura’s PE unit this year, activity driven by its plans to expand internationally including, the U.S. Nomura last year sold its holdings in Huis Ten Bosch, a Japanese holiday resort, and builder Misawa Homes Co.
BUYOUT ACTIVITY IN 3Q; DOWN There were no big surprises in the third quarter Unquote PE Barometer for anyone involved in the industry. The Arle Capital Partners sponsored report said total deal activity in Q3 was down 36 percent compared to the previous quarter.
Values were down by 49 percent to EUR 14.8 billion. There were 96 buyouts completed in Q3, almost a quarter less than the 127 in Q2, and less than a handful of megadeals worth just over EUR 4bn in total, compared to 8 deals worth EUR 11.5bn in Q2. The good news is that year to date buyout values remain 24 percent up on 2010. And on a year-todate basis, deal values are up by 15percent on 2010 at EUR58.3bn. Commenting on the latest figures, John Arney, Managing Partner of Arle Capital Partners said that the sovereign debt problems in the Eurozone and “extreme” uncertainty across global markets has affected the confidence of the debt markets in this quarter, “starving those PE firms bold” to attempt leverage for buyouts. He expects activity to remained subdued until at least the first quarter of 2012.
1 www.DealMarket.com/digest
SEI SURVEY HIGHLIGHTS ALIGNMENT OF INTERESTS IN PE/LP RELATIONSHIPS In the latest SEI latest research report 2011 SEI Private Equity Survey: Part Two of Three Searching for Alignment, industry insiders expressed concern over the supply of attractive investments. As for their own portfolio firms, three out of four express anxiety over the prospect of poor performance. Meanwhile, more than a third of investors are concerned with valuations and uncertainty over exit dates. This is especially true for public-sector investors. One area where there is a misalignment between LPs and GPs is on the topic of information provided to investors. PE fund managers are showing a bit of complacency regarding disclosure. While managers largely think they have got it right, with 85 percent saying they feel that their investors currently receive all of the information they need, there investors are not so sure. Only 43 percent say they receive all of the information they would like to get from their fund managers. Foundations and endowments are the least satisfied, with only one in eight saying that they get all the information they need. Consultants are even less happy with 85 percent saying they do not receive all of the information they would like. As the private equity sector picks up steam, fund managers will want to be mindful of the gap between their newfound optimism and the often more skeptical perspective of institutional investors, concluded SEI. (Image: SEI PE Survey Part 2)
NICHE STRATEGIES ATTRACT CAPITAL P&I reports that niche strategies are hot in the first half. Many of the largest funds raised had an energy or debt theme, including the USD 4.1 billion EIG Energy Fund XV, an energy mezzanine fund; Oaktree's OCM Opportunities Fund VIIIB, a distressed debt fund; and the USD 1.2 billion First Reserve Corp.'s Energy Infrastructure Fund. Other niche strategies among the largest funds closed included a USD 2 billion turnaround fund from Gores Capital Partners and a USD 1.2 billion fund from ABRY Advanced Securities Fund for media and information services industries related debt.
2 www.DealMarket.com/digest
BUYOUT FIRMS TEAM-UP FOR $3.9 BILLION DRUG RESEARCH DEAL The largest deal of the week is probably a buyout of publicly traded Pharmaceutical Product Development (PPD), based in the US by Carlyle Group and Hellman & Friedman. It will likely also be of the largest PE deals of the year at USD 3.9 billion, according to New York Times’ Dealbook. PPD provides outsourced clinical research and laboratory services to drug companies. Growth is driven by outsourcing from the world’s largest pharmaceutical companies seeking to cut costs of getting drugs approved. PE firms see value these companies for their relatively stable cash flow, allowing the firms to easily borrow money to fund their purchases.
SPOT POLL TAKES PULSE OF PE Buyout executives provided some interesting predictions and insight in a series of spot polls run by the organizers of the 19th Dow Jones Private Equity Analyst conference in New York earlier this month. Some of the results appeared in Financial News Blog. Industry executives believe that the IPO window is bolted for at least the next 6 to 9 months. The energy sector is the best sector to invest in 2012, according to 38 percent of 110 respondents, followed by healthcare, which got 19 percent of the vote. Executives also see challenges in locating good deals. Some 28 percent of respondents believe it’s the most challenging issue over the next six to 12 months, ranking above the tough exit market and fundraising. Another large majority see the demise of the mega-fund on the horizon (37 percent majority of attendees it made no sense in the current environment).
QUOTE OF THE WEEK “Perception is reality…When the West looks to China for help it’s an opportunity for China to step up.” Who said it : Kai-Fu Lee, founder of InnovationWorks, a VC fund. Formerly head of Google China and Microsoft China, he just raised an oversubscribed USD 180 million fund to invest in Chinese innovators. Context Kai-fu Lee said the above one-liner on a panel in Dalia, China run by the WEF where the discussion was about increasing investing in European economies. Other panel members did not necessarily agree that it was appropriate to invest abroad. Three of the four other panelists expressed a view, that China should take care of its own business first, by investing in infrastructure and reducing income gaps. Where we found it China Debates: Should It Save the World? (Photo Source: World Economic Forum : Meeting of the New Champions 2011)
3 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 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
DealMarket is the first port of call for private equity professionals who are looking for simplicity, choice and greater speed in how they access the marketplace. Just as real estate portals have improved the way people access the property market, DealMarket does the same for private equity and corporate finance. It is an online platform designed to bring transparency, efficiency and value to the business of connecting buyers, sellers, and advisors. There is no pre-screening of deals, giving you an instant, unfiltered view of the market. If you are a buyer you can seek out deals, investment ideas and opportunities for free, tailoring your search according to exactly what it is you are looking for. If you are a seller, you can post a deal for the price of a cappuccino a day. If you are an advisor it is a quick and cost effective way of promoting your expertise to a global audience. If you are an investor and poor management of your deal flow data is holding you back, use our deal flow data management tool MyOffice@DealMarket. It’s easy to use and free of charge.
www.DealMarket.com