DealMarket Digest_Issue 37

DIGEST

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SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 37

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Israel PE Dealmaking Up in 2011

• More money flowed into fewer companies in 2011

China Drives M&A Boom in Australia • Zephyr says mining industry is hot

What’s Hot in US Cleantech Investment Angel Investors in US Go Online

• OECD study spots and analyzes angel trends

Swiss Secondary Player Predicts Steady Dealflow in 2012 BCG Busts Five Myths of the CEO’s First 100 Days German Corporate Finance Boutique Rides Boom in Technology M&A Quote of the Week: US Politics and PE

February 09, 2012

ISRAEL PE DEALMAKING UP IN 2011 More money flowed into fewer companies in 2011 than in 2010 in Israel’s PE market, as investors did fewer but with larger transaction sizes, according to the latest release from the IVC, 60 Israeli private equity deals attracted USD2.88 billion, an 18 percent increase from USD2.44 billion attracted by 65 deals in 2010. Ten deals that were greater than USD100 million accounted for USD2.15 billion, or 75 percent of the total.

Cleantech led all sectors, accounting for 33 percent of value. Software accounted for 29 percent of deal activity. And the Infrastructure sector accounted for 11.

Rick Mann, Managing Partner of GKH, which sponsors the report, said in the statement, “In 2011, we saw the continuation of two trends in the Israeli private equity market. The first was the growing role of local private equity funds in small and medium size deals, but the dominance of foreign private equity funds in large deals. The second was the attractiveness of Israeli technology-driven businesses to foreign private equity investors. The latter was particularly evident in the Cleantech, Software and Internet-related fields. I would expect these trends to continue in 2012.”

CHINA DRIVES M&A BOOM IN AUSTRALIA Zephyr’s M&A portal has a good feature on the current M&A activity in Australia. Activity is on an upswing because of China’s need for natural resources which has driven dealmaking, primarily in the mining sector. According to data from Zephyr, seven such transactions worth a total USD 1,203 million were announced in the last month, representing the highest number since June 2010 and the greatest total investment since April 2011. Volume rose 75 per cent from four in January 2011, while value leapt almost 20 times from the USD 61 million recorded in the year-ago period.

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WHAT’S HOT IN US CLEANTECH INVESTMENT Ernst & Young has published a good overview of Cleantech investment in the US last year. The total amount invested was just short of five billion dollars, according to data from VentureSource. Overall investment activity was flat 2011 compared to 2010, which is not surprising in view of the tough conditions in the global economy, say the E&Y analysts.

Key Trends and Events • Energy/Electricity Generation segment was tops with USD 1.5 billion raised in 71 rounds • The Solar sub-segment received the largest proportion of VC dollars at USD 284.5 million • Second most popular was the segment Industry Products and Services which raised USD1.0 billion, a drop of 34% compared to 2010.

• Energy Storage segment ranked third in terms of total amount invested • Money flowed primarily to later stage, revenue generating companies.

• Five Cleantech IPOs took place in 2011 : Solazyme, Gevo, KiOR, Intermolecular and Rentech • M&A dealmaking covered 79 deals with a total disclosed value of USD 2.8 billion.

Further discussion in the report covers corporate activity in Cleantech, as well as strategic partnerships and joint ventures.

ANGEL INVESTORS IN US GO ONLINE A new OECD study entitled, Financing High-Growth Firms: The Role of Angel Investors, reveals several important trends and activities in various countries, as well as implications for policymakers. One trend that caught our eye was that US angel groups and networks are using online tools, such as Gust.com, formerly known as Angelsoft, and AngelList. The latter has “attracted a number of high quality experienced angel investors and provides extended matching between investors registered in the system and entrepreneurs”, but not all such online platforms have been successful, at least in the past, says the report. Danish angels created a marketplace in 2001 to 2004 but closed it because it was too expensive to maintain. (Editor’s note: Those were the days before cloud computing had been widely established.)

The concept of “crowd funding” has also started to catch on. The report says that these online services “can reduce information search costs for investors”, but they “do not replace the necessity for personal contact and face-to-face interactions” or hands-on investment strategies, which are important trust-builders between investors and entrepreneurs. The online platforms serve as vehicles for increasing the number of financial investments but don’t replace hands-on support from the angel investor to the entrepreneur, the analysts concluded.

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SWISS SECONDARY PLAYER PREDICTS STEADY DEALFLOW IN 2012 Baar, Switzerland-based secondary investor, Montana Capital Partners (MCP), says in its latest market update that prospects are looking good this year for investors in secondary buyouts. It is not the only one saying that. The Deal in a commentary says that secondary transactions are now more acceptable than ever, while the FT reports that the secondary market hit a landmark in recent months, with 165 deals done.

Over the past half year, MCP processed dealflow of more than 50 transactions in its “sweet spot” of smaller transactions (below USD 15 million). In total, the opportunities it is considering were on average 75% funded. Proportionally, by strategy, buyouts dominated representing 80% of dealflow.

A good 60% were sourced directly from the seller. MCP hopes to be able to two in the first half 2012. The firm also said that pricing “seems to have stabilized” on an average level of 10 to 20% discount to net asset value based on September valuations. The actual discount varies depending on the size of the stake at hand, the maturity of the portfolio, and the investment strategy, as well as other variables. Montana Capital Partners is currently raising its Annual Secondary Program 2012 fund, targeting its preferred markets described above.

BCG BUSTS FIVE MYTHS OF THE CEO’S FIRST 100 DAYS In a Harvard Business Review blog article, two experts from BCG give their views on myths associated with strategic moves in CEO’s first one hundred days. They said the first myth is that a new CEO's worth can be judged in the "first 100 days”, rather it takes longer and they go on to discuss the kind of mistakes made, contrasting them with best practices, which include introspection, preparation, research, and consultation in order to manage the transition smoothly.

The “myth busting” exercise could also be translated into a Do’s and Don’ts list, which we did below.

• Do introspect. Don’t over-inspect or disparage the preceding company leadership • Don’t turbo-charge reorganization and growth plans without consulting stakeholders and company insiders first.

• Do look to recruit team players, rather than individual superstars, when establishing a new “inner circle”.

• Do communicate before defining standards and evaluation criteria for others and before that CEOs should first establish and communicate how they themselves will be evaluated.

• Do research various management team’s field of expertise enough to ask good questions, but don’t try to be omniscient, or the new CEO could miss out on constructive suggestions from the management team.

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GERMAN CORPORATE FINANCE BOUTIQUE RIDES BOOM IN TECHNOLOGY M&A Specialization in Internet, media and technology transactions is driving the growth of CFP, which issued a bulletin for journalists this week, reporting it had done 300 deals for a 10 billion Euro turnover since founding the boutique in 1998. Last year it advised trade sales to Google, Paypal, Living Social, Nextag, Axel Springer, RTL Group and others. According to CFP’s press spokesperson, most of the important tech exits in Germany last year were advised by CFP. It is benefitting from its Berlin base and says it will double its office size there in March. “The ‘Berlin Valley’ has become the center of gravity for the Internet in Europe,” said CFP in the statement. It also has offices in other European markets, the US, and China.

QUOTE OF THE WEEK “We're troubled by recent political attacks that demonize the industry, but we're not surprised. The misleading attacks are based on a handful of unrepresentative investments, many of which occurred 20 or 30 years ago, that don't reflect the current economic reality of how private equity works”.

Who said it: Steve Judge, interim president of the Private Equity Growth Capital Council In Context: Judge wrote the quote above in an OpEd piece in USA Today. He heads up the PEGCC, which recently launched a new website and blog to provide information about the “positive contributions” of PE to the American economy. The PEGCC is an advocacy and communication organization whose members include Carlyle, Kohlberg Kravis Roberts, MidOcean and Hellman &Friedman among others.

Image Source: PEGCC

Where we found it: USA Today via PEGCC Newsroom

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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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