DealMarket Digest_Issue 39

DIGEST

39

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 39

1

Double-digit Returns in Asian PE

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Homegrown Funds Take the Lead in Emerging Markets

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Window Opens for US Internet IPOs

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Valuation Metrics: Size Trumps Performance

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Trendy China Attracts PE Investment

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Quote of the Week: A Buyout Fund’s Military

• New figures from Asia PE

• Emerging Markets: Flux or Maturation?

• Report on mid-market trends from GF Data

• HBM Pharma/Biotech M&A Report

Exercise

February 24, 2012

DOUBLE-DIGIT RETURNS IN ASIAN PE According to the ASIA PE Index which is compiled by the Centre for Asia Private Equity Research Ltd. the returns in Asia are looking robust as of January 2012. The index says that USD127.9 billion has been returned for the period under review 2000 to 2009. It did not provide the overall amount invested in the excerpt that Dealmarket Digest received for review.

Image Source: Asia PE Index

China and Japan are leading the region in returns (IRRs) with 18.4% and 18.7% respectively. The benchmarks for both developing economies are slightly outperforming developed economies in the Asia region, at 14.4% and 13.4 % respectively. The figures are based on cash flow of deals completed in since 1998 for about 2000 exits, including assets fully-realized, and unrealized, spanning the years 2000 to 2009 with values calculated up to September 2011.

HOMEGROWN FUNDS TAKE THE LEAD IN EMERGING MARKETS In emerging markets, a growing local base of fund managers, some already with second generation local fund managers, is competing with the best PE investors from other parts of the world. They are competing for capital and deals. “From Shanghai to São Paulo, Jakarta to Johannesburg, a top-tier cadre of indigenous private equity firms is establishing itself. These buyout shops are gaining strength and ground in the battle for both global money and home-field investments,” reports The Deal.

The local funds have “more experience, a good track record, stable managers” and they are rising significant amounts of capital. So begins an excellent article in The Deal Pipeline, which discusses the history and state of the art in PE investment in the world’s emerging markets, including several tables listing and describing the most prominent indigenous emerging markets private equity funds.

According to the account, China and India capture the most PE capital. In the first three quarters of 2011, according to Empea data, China alone accounted for 40% of the USD21.5 billion invested in emerging markets.

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India accounted for another 26%. By average deal size, however, India and China trailed Brazil and Russia, reflecting a difference within markets between buyouts and growth capital. There are some warning signs in several markets of a capital overhang, says The Deal, and while there have been several good exits, there have been few homeruns, and returns are lagging, taking longer to come than in other more developed markets.

Image Source: The Deal Pipeline

WINDOW OPENS FOR US INTERNET IPOS This week Internet video hosting platform provider, Brightcove went public, raising USD 55 million, reports Bloomberg. Its backers include Accel and General Catalyst Partners who own about 21.4 percent of the company after the offering, according to Reuters. It follows Zynga, which listed in December. Yelp, a user-generated review site, is also planning an IPO, according to BW. But the buzz about these two fades into a hum compared with the upcoming Facebook, public offering which seeks to raise USD 5 billion.

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VALUATION METRICS: SIZE TRUMPS PERFORMANCE A new report from GF Data, which is a subscription-only data provider for the PE industry, says that overall valuations in the mid-market were up in 2011. One of the trends it notes is that valuations for larger sized companies are at a premium. Smaller companies that have good balance sheets and performance are valued lower. “Private equity investors in the middle market are paying significantly higher multiples to acquire larger firms, while the premium for above-average financial performance is diminishing,” GF Data said in the report.

Highlights from the current GF Data report are listed here • Aggregate deal valuations in 2011 were 6.1x, up from an average of 5.9x in 2010.

• Total and senior debt multiples are averaging in the mid-threes and mid-twos, after being in slightly higher, between the “low twos and low threes” for the previous five quarters.

• Equity as a share of average capital structure dropped from levels above 50% to 48.2% 2011, which GF Data attributed to the rise in available leverage.

• Senior-debt borrowing costs did not increase in step with rises in the 90-day LIBOR rate. Spreads dropped from LIBOR plus 5.65% in Q2 to LIBOR plus 4.1% in Q4.

GF Data’s 2011 year-end report includes valuation, volume, leverage and key deal-term data on 1,332 private equity backed transactions in the USD10-250 million value range completed since 2003. The data reflects deal activity by 185 private equity firms, including 166 active contributors.

TRENDY CHINA ATTRACTS PE INVESTMENT The luxury goods sector is one of the few that is growing at double digit rates in recent years, according to Bain&Co, and the PE industry is not missing that opportunity. The latest deal announced is one with CITiC Capital and L Capital, a private-equity fund backed by French luxury giant LVMH, buying a minority stake in Chinese apparel company Trendy International Group, reports China Daily.

According to the report, Trendy owns 300 stores and franchises and the Ochirly chain is its flagship.

The deal is part of a trend that began with Hermes acquiring the Chinese brand ShangXia, the report notes. In a separate report, Reuters India, said that L Capital is raising a new Asian fund that could be up to one billion dollars in size.

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QUOTE OF THE WEEK “Raising the money at a time of widespread skepticism among investors about the ability of large buy-out firms to secure lucrative deals and finance them with cheap debt was an 18-month, military exercise.”

Image Source: Intelsat

Who said it: Charlie Bott, head of BC Partners’ investor relations In Context: In an article about BC Partners’ recently announced blockbuster fundraising event, Bott was quoted extensively. BC Partners, which has current investments in Intelsat, Spotless, and Com Hem closed BC European Capital IX with a hard cap of EUR6.5bn. In a statement, the company said that “strong demand was generated from both existing and new investors leading to a 60% increase in the firm's investor base and the fund was oversubscribed. Its LPs are dominated by pension funds and sovereign wealth funds.

Where we found it: FT

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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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