DIGEST
31
SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 31
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PE Trends for Asia Pacific
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Challenges in the LP/GP Relationship
• Forecast upbeat, says EY
The Continuing Appeal of Secondary Buyouts • Acanthus study reveals differing views
SAP Boosts Technology M&A • Billion dollar acquisitons
Where to Find Outperformance More PE Firms Eye Yahoo! Quote of the Week • High tech entrepreneur and winemaker
December 08, 2011
PE TRENDS FOR ASIA PACIFIC EY published its latest Asia Pacific private equity report this week to show the trends and challenges facing active PE investors in the region. It is based on a survey conducted by mergermarket of 100 deal professionals, bankers and institutional investors between July and August 2011. The findings are upbeat. The region is expected to be relatively more active than other parts of the world in the coming year, particularly in making acquisitions. Almost half of those surveyed expect to raise new capital, and close to 40% expect to be able to exit some of their current investments. The form of exit in Greater China and India over the next 12 months will be the IPO. And in more developed markets such as Australia and Japan, most respondents anticipate secondary buyouts or trade sales over the next 12 months. Indonesia is increasingly attractive as a target for investment activity, says EY. When looking at Asia Pacific as a whole, 70% of respondents anticipate expansion of private equity activity. The majority (54%) expect a slight expansion, while 16% expect significant growth. Sector specialization is important, says the report authors, particularly energy, mining and utilities as well as consumer sectors. Graphics source: EY Asia Pacific Outlook
THE CONTINUING APPEAL OF SECONDARY BUYOUTS Business Insider published an article prompted by some Preqin research showing that secondary buyouts now account for 30% of global deal flow and that so far this year there have been 291 secondary buyouts worth a total of USD 60.4 billion. Last year there were 251 such deals. The article maintains that secondaries are popular with GPs because exiting via a secondary buyout means being paid a lump sum, as opposed to the uncertain compensation that comes with IPOs and their lockup periods. But for LPs that might find themselves invested in twice through more than one GP, it can be “fairly frustrating” because it means paying transaction fees on both sides of the deal. The article concludes: Although sometimes LPs negatively refer to secondary buyouts as ‘passing the parcel’ the process is helpful and sometimes necessary for building a company to its full potential and scale.
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CHALLENGES IN THE LP/GP RELATIONSHIP To give European PE professionals some insight ahead of fundraising next year, Acanthus published details of its sixth annual survey. It revealed that the relationship between LPs and GPs remains as challenging as ever. According to Acanthus's LP-GP Survey 2011, there is little agreement on terms and conditions and on the level and quality of communications to investors. It is important to address this say the authors because mid-market firms want to raise more than EUR 50 billion in Europe over the next 24 months. Key Points, According to Acanthus • Almost all LPs are bothered by fees, 97 % agreed or tended to agree that current fee structures cause a divergence of interests between the parties, while just 22% of GPs concurred. • Just 15% of limited partners rated general partner communications as "good", compared with 81% of GPs. None of the GPs thought their communications were unsatisfactory. • Only 15% of GPs rated LP feedback as "good" in terms of clarity and effectiveness, emphasizing that the dialogue has room for improvement from both sides. • Both LPs and GPs agreed strongly that the quality of communications was an important factor in investment decisions, which is ironic considering the previous two points revealed by the survey. • On a more positive note, the research found that only around one in ten LPs and GPs thought the overall relationship was weak, while a majority of LPs (58%) believed the IR process had improved over the past year. • 76% of LPs agreed that GPs should invest more in their own funds in order to promote a greater alignment of interests - just 22% of GPs agreed, but there is evidence that their opinion is shifting in line with the LP view • 70% of LPs think they bring more than just money to the relationship - but the majority of GPs disagree • Just 3% of LPs thought investor protection clauses were strong, while most GPs (78%) thought they were adequate • Over 25% of GPs rated LP feedback as "poor" in terms of clarity and effectiveness, while only 6% of LPs agreed - both parties thus appear to overrate the quality of their communications.
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SAP BOOSTS TECHNOLOGY M&A Germany enterprise software company SAP is buying for USD 3.4 billion SuccessFactors, a vendor of cloud computing software and services. This is the third large-sized transaction for a company that is better known for making a large number of much smaller sized acquisitions. Bloomberg points out that SAP has spent USD 9 billion on two takeovers in the past year, which is significant as SAP does not have a track record of spending lavishly on M&A activity, compared to Oracle, for example. Oracle has spent more than USD 42 billion on takeovers since the beginning of 2005. The other recent acquisition for SAP was in May last year when it bought Sybase, a maker of mobiledevice applications, for USD 5.8 billion. SAP’s largest prior transaction was to acquire Business Objects for EUR 4.8 billion in 2007.
WHERE TO FIND OUTPERFORMANCE The performance of indexes of VC and PE funds are the topic of a commentary published by Cambridge Associates LLC this week. It caught our eye because the information was a bit counterintuitive, specifically that developed regions outside the US, including Europe, earned “solid returns” over the past two quarters (it should be noted that non-US returns were aided by a weak U.S. dollar ). Furthermore, both asset classes generated better returns than their public market counterparts. The Indexes in question include PE and VC funds that focus on Australia, Canada, Israel, Japan, New Zealand, and Western Europe. The other index it tracks includes private equity and venture capital funds that invest primarily in Africa, emerging Asia, emerging Europe, Latin America, and the Middle East ex-Israel. Key Points • The 2004 vintage year funds were the best performing in both Indices • The largest vintage year in the developed markets index, 2006, generated an 8% return for the quarter. • In the emerging markets index, 2007 was the largest vintage; it rose 4.0%. • Media companies were the chief driver of the 2004 vintage's performance in the developed markets index, while IT companies were the main contributor to the same vintage's return in the emerging markets index.
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MORE PE FIRMS EYE YAHOO! The buyout of Yahoo! continues to make news this week as Reuters follows up reports that Blackstone Group and Bain Capital are pondering a USD 25 billion bid for the Internet giant. The buyout attracting a growing number of potential PE bidders, it seems. Not only are Bain and Blackstone interested in acquiring the venture, according to Reuters, other offers also involve PE firms. One is a consortium led by Silver Lake and Microsoft Corp, and another from TPG Capital. The report says that the transaction would be a “test” of institutional loan market, which may only be able to provide USD 3 billion to USD 5 billion toward USD 20 billion price tag.
QUOTE OF THE WEEK
“The guys on my mailing list are a who’s who of Silicon Valley.” Who said it: TJ Rodgers, founder of Cypress Semiconductor and angel investor Context: The comment was made about why the buyers of Rodgers’ new Pinot Noir label would care about having a 100 dollar microchip on each bottle, according to a Reuters report describing a recent tour of his winery. Rodgers has undertaken the California-based winemaking venture with his wife Valeta and seems to be taking it on with a dash of self-irony. He’s reportedly using some old methods of producing wine but also some high-tech developed by Cypress engineers, according to Reuters, to measure sugar content, liquid pressure and other critical factors in the winemaking process and then send data back to Rodgers’ computer for analysis and monitoring. Image source: Clos de la Tech Where we found it : Reuters
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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
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