DIGEST
26
SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 26
1 1 2 2 2 3 3 3 3 4 4
Fundraising’s Chilly Third Quarter OPIC Seeks to Place $400 million
PE Grows in Sustainability Trend Golden Gate Capital in Quick Fundraising PE-Backed IPOs Still Have Stigma • Survey by BDO UK reveals investment bankers’ view
IPO Market in Doldrums • But maybe not for Internet companies
Mega-buyout Instead of IPO ? Big Buyout Firms Pursue Smaller Deals • Until debt markets return
What’s the Value of PE in the Portfolio ? NLVC Raises $400 mn Chinese VC Fund
Quote of the Week • How to be a VC November 3, 2011
FUNDRAISING’S CHILLY WATERS
Preqin’s latest fundraising data is showing continued signs of coolness. During this year’s third quarter, 97 private equity funds reached a final close, raising an aggregate USD 44.8 billion. Preqin says that figure is “significantly” down on those seen compared to Q2 when USD82.8 billion was raised by 175 funds. In addition to the 97 funds that reached a final close in the quarter, a further 109 funds held interim closes, securing commitments totaling $42.7bn towards their fundraising targets. Funds focusing on North America have been doing better than others, able to raise double what was raised in Europe, which was tied with Asia in the quarter. It is not all bad news. It might be taking about seventeen months to fundraise, which is higher than the average of 11.4 months taken to raise a fund in 2007, but it is still an improvement on the average of 20.4 months taken to raise funds closed in 2010.
OPIC SEEKS TO PLACE $400 MILLION The US agency announced in a press release that it seeks to commit USD 400 for investment in emerging markets to managers of PE investment funds worldwide. The Global Engagement Call seeks qualified fund managers to invest in new, expanding or privatizing companies in any of the emerging markets where OPIC operates and across industry sectors. It will be open to private equity, debt, mezzanine, fund-of-funds and hybrid fund strategies. The deadline is January 12, 2012.
1 www.DealMarket.com/digest
PE GROWS IN SUSTAINABILITY TREND Sustainable and responsible investing (SRI) is increasingly making major strides alternative asset classes, according to a new report prepared for the US SIF Foundation. The latest research shows that private equity and venture capital funds lead the field of ESG alternative investment vehicles numerically with 233 distinct funds in 2011, or 62 percent of total funds tracked. But it is not number one in assetweighted terms, however. PE and venture funds are the second largest of the three asset categories studied, with USD33.9 billion in combined assets under management, or 41.9 percent of the ESG alternative investment market.
GOLDEN GATE CAPITAL RAISES BUYOUT FUND IN 60 DAYS Fundraising isn’t tough for everyone, it seems. With an apparently winning strategy of doing public to private deals, Golden Gate Capital has emerged from a tough fundraising environment, raising USD 3.5 billion after only 60 days on the market, according to PEI. The fund, which was oversubscribed, reportedly received most or all of its commitments from existing limited partners. Investors in the firm’s previous funds include AlpInvest Partners, the Harvard Management Company, New York Life Insurance Company and the University of Virginia Investment Management Company. The data comes from a new resource from the publishers of PE, called Private Equity Connect. Golden Gate invests other strategies but lately take-privates have come to fore lately. The San Francisco-based fund manager has completed more than 13 going-private transactions in the technology sector since its inception in 2000 and has about USD 9 billion under management. Some of its holdings include California Pizza Kitchen, Conexant (networking equipment) and Lawson Software (planning software).
PE-BACKED IPOS STILL HAVE STIGMA We picked up on some recent research that confirms that PE fund managers are not that great at self-appraisal and the PE-backed IPOs still have a poor repute in the market. According to BDO UK, the accounting and corporate finance giant, a survey of analysts from ten investment banks reveals that 90 percent believe that PE-backed IPOs are perceived negatively (45 percent ) or suspiciously (45 percent) by the market. When the same question was asked of private equity houses, just 18 percent felt that PE-backed IPOs are viewed negatively by the market, with 38 percent thinking that such IPOs are perceived suspiciously.
2 www.DealMarket.com/digest
IPO MARKET IN DOLDRUMS Lack of liquidity due to a slowdown in demand for IPOs is not good news for PE and VC investors. So we are paying attention to industry media reporting on the trends for floatations and sourcing news from around the world. In the US market, the WSJ blog says the only signs of life with regards to IPOs are in the Internet sector. In a video interview on the Digits channel, VentureWire’s editor, Scott Austin, said that this past month has been the worst in two years.
But Groupon, the Internet ecommerce company, is still heading to the IPO gate next week, with Zynga perhaps on its heels. Elsewhere, a panel discussion at a technology venture conference in Beijing also addressed the topic, which was reported at Penn Olsen. There too, the consensus was that the market is still receptive to IPOs, particularly for Internet companies, especially Chinese ones. Image Source: Dow Jones: Digits
MEGA BUYOUT INSTEAD OF IPO ? CVC Capital Partners is seeking to buy the insurance arm of Royal Bank of Scotland for about USD 6.5 billion, according to Reuters, which cited the Mail on Sunday as breaking the news. RBS Insurance is Britain’s largest automobile insurer and it is 83 percent state-owned. It was believed to have been preparing for an IPO. CVC and SwissRE had made a failed joint bid for the unit back in 2008.
BIG BUYOUT FIRMS BIDE TIME WITH SMALLER DEALS Dealflow for mega-buyouts continues to be stalled. Reuters reports that after a strong first half in which large buyouts returned to the scene, the third quarter saw a remarkable drop in activity. Turbulence in debt markets, brought on by a crisis of confidence are the cause. The result is that some of the big buyout firms are moving into the mid-market, where debt packages at reasonable rates can be found. In addition, disposals are more difficult too. France Telecom had been trying to sell Orange and an Iceland Foods deal have been put on hold. One deal that is going through, not quite a megadeal though, is the BC Partners buyout of Swedish ComHem for USD 550 million via a high yield bond.
3 www.DealMarket.com/digest
WHAT’S THE VALUE OF PE IN THE PORTFOLIO ? In a long article written by a private equity insider on IPE, the impact of incorporating private equity and venture capital into the portfolio is analyzed with an eye to its ability to provide diversification benefits. One of the findings is that both VC funds and buyout private equity funds are pro-cyclical, shooting down one of the favored reasons to add PE to the portfolio. Buyout and private equity funds do underperform in absolute terms during economic down-cycles, but compared to public equity markets they outperform. In other words, while VC and PE might not be delivering on the ideal diversification strategy, the performance is significantly and positively differentiated from that of a public equity market strategy alone. Research also indicates that when averaging returns across a private equity or venture capital, the investor must be aware of the fact that the individual experience of fund managers can have a significant impact on venture performance.
NEW CHINESE EARLY STAGE VC FUND Chinese tech investors might be getting some criticism for copy-cat-ism but that has not stopped Northern Light Venture Capital from being able to raise its third fund of USD 400 million. The Chinafocused early stage venture capital firm was founded by Dong Feng, a former tech entrepreneur, reports PEI. NLVC cooperates with big brand VCs in the US, namely Greylock and New Enterprise Associates. Dong Feng co-founded NetScreen Technologies, which went public in 2001 on NASDAQ and subsequently acquired by Juniper Networks in 2004 for US$ 4.2 billion. The capital was committed by leading institutional investors from the United States, Europe and Asia.
QUOTE OF THE WEEK “We look at ourselves more like a service organization there to help companies growing and expanding. ..The reality is that most startup companies are not working. So another big important thing is to have fun.” Who said it: Niklas Zennstrom, entrepreneur turned venture capitalist Atomico Context: Zennstrom, the Swedish co-founder of Skype rarely speaks to the media, but this week he gave his views on his experience and opinions about being a successful venture capitalist at Disrupt Conference in Beijing. Where we found it: disrupt Liveblog
4 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