DealMarket Digest_Issue 40

DIGEST

40

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 40

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Apollo in Mega Buyout of El Paso Corp Unit PE Dealmaking Falls in February in Europe • Zephyr February Report

European M&A Down in February, Despite Xstrata Mega-merger Ahold Acquires bol.com from PE Backers Online Shopping’s Accelerating Growth Curve • Forrester Research forecast

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Zennstrom’s Atomico Fund Targeting Brazilian Startups •

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Early stage investment

Quote of the Week: The Second Bite

March 02, 2012

APOLLO IN MEGA BUYOUT OF EL PASO CORP UNIT The deal of the week looks like it is Apollo Global Management’s buyout of El Paso Corp’s oil and gas exploration and production unit for USD 7.15 billion. The LBO will tap USD 4.5 billion of debt, about 63% of the purchase price, reports The Deal Pipeline . Co-investors included Riverstone Holdings LLC, Access Industries Inc., owned by Lee Blavatnik, and other unnamed parties. The deal is designed to expedite the USD 38 billion sale of El Paso to Houston-based energy company Kinder Morgan, according to Legal Week. That transaction, which is scheduled to close in the second quarter of this year, will create the largest natural gas pipeline network in the US and the fourth-largest energy company in North America.

PE DEALMAKING FALLS IN FEBRUARY IN EUROPE The number of PE deals in W Europe continues to decline in February, according to the latest Zephyr report on the region. The total values fell by 45 per cent from EUR 3.5 billion in in January to EUR 1.9 billion in February. Zephyr analysis says that apart from a spike in December, investment in the region has been dropping since June 2011 when it peaked at EUR 10.1 billion. Volume halved from January, with the 194 deals recorded last month sliding to just 111, the lowest it has been in the last 12 months, the report said. There were no large-sized transactions (over EUR 1 billion). The largest deal came in at just EUR 583 million, which was the acquisition by TPG Capital of a Luxembourg-based hedge fund manager called GlobeOp Financial Services.

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EUROPEAN M&A DOWN IN FEBRUARY, DESPITE XSTRATA MEGA-MERGER The volume of M&A deals targeting Western European businesses was down in for the third month in a row to 1,004 deals (34 percent fewer than in January 2012), according to Zephyr. The value of transactions rose 25 percent month-on-month to EUR 42,724 million, but EUR 20 billion of that was from one deal, the purchase of UK metals miner Xstrata by Glencore International.

Compared to the same period last year both volume and value were down, by 32 per cent and 6 per cent, respectively. The trend was echoed across deals targeting companies based in the expanded European Union of 27 countries. British transactions accounted for 40 percent deals in the region regional. Germany came in second with 84 deals.

AHOLD ACQUIRES BOL.COM FROM PE BACKERS This week food retailer Royal Ahold NV announced that it will acquire bol.com for EUR350 million, according to the WSJ. The transaction is meant to broaden Ahold’s product offering, to include books, TVs and dishwashers. Ahold also owns online grocery stores in the US and Netherlands, namely Peapod.com and Albert.nl.

The sellers of bol.com are two PE companies, Cyrte Investments, originally funded by Dutch media entrepreneur John De Mol, and NPM Capital. The WSJ says Ahold hopes to triple sales from its web holdings by 2015.

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Just to put this transaction in context, it is a fairly large sized one considering that M&A activity in 2011 was USD 1.858 billion in total, according to Internet Dealbook’s recently published Annual Review of Global Internet Investments and Transactions.

Meanwhile in India, the ecommerce sector is reportedly ripe for consolidation as the competition for the country’s 10 million online shoppers increases. VC-backed ventures vie customers with major league incomers, such as Amazon, reports The Times of India.

ONLINE SHOPPING’S ACCELERATING GROWTH CURVE In two other articles in this issue we highlight ecommerce dealmaking, specifically early stage investments in Brazil's ecommerce sector and M&A activity by Dutch food giant Ahold, with its acquisition of bol.com. New market research suggests why these companies are investing now.

Forrester Research released data in a new report this week about the US market. US sales topped USD 200 billion in 2011. The current growth rate 7% is expected to accelerate to 9% by 2016.

Three Growth Drivers • Innovative new business models. Among the most rapidly growing business models of the last decade were the flash sales sites, companies like Gilt Groupe and Woot.

• Consumers have a greater comfort level purchasing certain types of products online.

• More online loyalty programs. While over the years physical stores and brands have managed to capture greater shopper data with loyalty programs and private label credit card programs, online retailers such as Amazon.com have essentially created loyalty programs of their own.

• Ubiquitous mobile web capabilities. Smartphones expedite shopping with instantaneous information about prices or products. Forrester estimates that only 9% of web buyers currently have tablets, but these shoppers convert at much higher rates than smartphone shoppers.

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ZENNSTROM’S ATOMICO FUND TARGETING BRAZILIAN STARTUPS Atomico, the venture capital fund established by Skype co-founder Niklas Zennstrom has made its second investment in Brazil, the company said in a statement . It recently invested in Connectparts, an online vendor specialized in auto accessories, and a top seller on Brazil’s eBay daughter company, according to Hispanic Business. The article says that Zennstrom became aware of opportunities in South America through his earlier startups, Kazaa as well as Skype, where Brazil was one of its largest markets. He learned more about the country’s online ventures through eBay’s acquisition of Skype when he met the founders of eBay’s largest e-commerce site, MercadoLibre. That connection has enabled him to participate in dealflow in the region. Atomico has also recently invested in Bebe Store, a baby products company based in Sao Paul, through this connection, as well as several deals in Argentina, according the report.

QUOTE OF THE WEEK

Who said it: Gary Levy Partner , J.H. Cohn

I tell my clients a lot, when they’re looking doing a deal with a private equity fund, don’t look at the valuation of the first offer. Look at the guy and say, “Who is going to be the one that’s going to really maximize the value of this company in the long run?” That’s the bite of the apple you really want. The first bite is nice, but that second bite, that could be generational wealth changing events.

In Context: In a video interview Gary Levy spoke with Privcap, a new media company focused on PE, spoke in a Q&A session about how his company connects middle-market clients with potential private equity partners. The quote refers to the “second bite” of the apple, or the ability of the PE managers to add value to a company that it invests, which is, in Levy’s view, what to really look for when selecting a PE firm if a company owner wishes to maximize the growth and wealth his company can return. The “first bite” is the first offer valuation. (J.H. Cohn is the sponsor of the Privcap series "Crunch Time For the Middle-Market.")

Where we found it: Privcap

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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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