DealMarket Digest_Issue 45

DIGEST

45

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 45

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M&A Deal Activity Down Everywhere Except ME

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PE Fundraising Steady But More TimeConsuming

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Mega Buyouts on the Horizon?

• Slow Start For M&A in 2012, Zephyr

• Preqin report

• Debt financing improvement

Big Deals: Sweden’s Bravida and UK’s Iglo Attract PE Bids More LPs Ready to Co-Invest with GPs •

New Preqin study

Quote of the Week: Fishy Business

April 05, 2012

M&A DEAL ACTIVITY DOWN EVERYWHERE EXCEPT ME Data provider Zephyr has released several reports on M&A and PE activity for key M&A markets, including Europe, North America, Iberia, Middle East and Asia Pacific, as well as South Africa. Zephyr said that despite continuing unrest in the region, deal activity targeting Middle Eastern companies remains strong, as value increased from USD 2.2 billion to USD 5.7 billion. (See graphic). This was also an improvement on the Q1 2011 figure. In all other regions, Zephyr found lower activity, both in terms of value and number of deals done.

Image source: Zephyr 1st Quarter 2012 ME Report

The trend is different for PE activity. Zephyr, which also tracks PE dealmaking, said that globally there was a “massive increase� in February, from USD 8.5 billion to USD 20.6 billion. The figure is also up on the year-ago period, when value stood at USD 19.9 billion, according to Zephyr.

PE FUNDRAISING STEADY BUT MORE TIME-CONSUMING In the first quarter, some USD 50.6 billion was raised by PE funds, which is comparable to recent quarters, reports Preqin. Competition is intense, according to Preqin, as the number of funds on the road hits a record 1,858. In addition to the 116 funds that held a final close in the quarter, a further 123 funds held interim closes, securing a combined USD 33.7 billion towards their fundraising targets.

Preqin expects to see some improvement in private equity fundraising figures in the coming quarters, according to Helen Kenyon, Senior Manager and Preqin spokesperson.

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Fast Facts

Image source: ibid

• North America funds raised the most capital; Europe-focused funds were next.

• Buyout funds raised the most capital of all funds closed in Q1 2012, with 23 funds closing • Venture funds were the most numerous amongst those that closed, 35 funds raised USD 9.7 billion • It is taking increasingly longer to close funds. In Q1 2012 it took an average of 20.9 months to fundraise. This exceeds the previous average high of 20.4 months for funds closing in 2010.

• Looking forward, the survey revealed 75% of investors were satisfied with the returns generated by their private equity portfolios.

MEGA BUYOUTS ON THE HORIZON? M&A dealmaking may be trending downwards, but some market observers are wondering if megabuyouts are on the horizon. PE Hub noted that Coty’s USD 10 billion offer for Avon, and despite it not being a PE deal, the publication speculated that the transaction may signal the return of mega-sized LBOs due to the amount of debt involved. The PE Hub article says that there has not been a PE deal of that size since 2008.

Elsewhere, Zephyr analysts are thinking along the same lines. Its blog has an article analyzing February’s increase in PE deals. The author speculates that PE might be getting “second wind”, pointing out that after a “rather downbeat end to 2011”, when the value of deal making by the sector amounted to a less than impressive USD 13.15 billion, compared to 2011’s of USD 32.2 billion chalked up in July, and an even more worrying start to 2012, with a paltry USD 8.5 billion recorded in January, “the green shoots are putting in an appearance”, as figures soared to a “very healthy” USD 20.6 billion million last month.

Recent news from Reuters suggests that while the market has yet to deliver a USD 10 billion deal, there are indeed some large PE transactions underway, suggesting debt-financing is easing.

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BIG DEALS: SWEDEN’S BRAVIDA AND UK’S IGLO ATTRACT PE BIDS Four private equity firms are bidding to buy Sweden’s Bravida, worth around USD1 billion, according to Reuters. The PE players involved are EQT, Apax Partners, Bain Capital and PAI Partners. It is currently owned by another PE fund, Triton. Yet another Northern European transaction is in the news due to buyout fund interest. UK-based Iglo is putting together a EUR 2 billion debt package to finance a buyout because Permira is considering the sale of the frozen food group. Reuters writes that this is “hefty deal” and there are not many which could be done at this size.

MORE LPS READY TO CO-INVEST WITH GPS

Image source: Preqin report

Co-investing alongside fund managers is an attractive investment strategy for LPs. It is more risky but could deliver higher returns, more transparency and increased control over portfolios, according to Preqin, which recently interviewed a sample of 118 investors to establish their future intentions for co-investing. The report said that 65% of LPs that have established interest plan to increase their allocations to co-investments going forward.

One Swiss LP, for instance, that expects to step up its exposure to co-investments alongside its fund managers commented: “People have become disillusioned about fund investments as fund sizes are getting smaller. We want to make as many co-investments as we can with existing managers.” About 75% of LPs are asking GPs for co-investment rights when making new fund commitments, says Preqin.

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QUOTE OF THE WEEK: FISHY BUSINESS

Image source: Paine & Partners

“Tuna don’t know whether they are in the US, Canadian, or Taiwanese waters.

So what you need is a global fisheries policy and global management, and that’s one of the things the World Bank is focused on...”

Who said it: Dexter Paine, CEO of private equity firm Paine & Partners In Context: In an interview with Forbes’ Electric Eclectic blog about his involvement in the World Bank Group’s Global Partnership for Oceans, Dexter Paine made the above statement. He has become involved with the private and public sector partnership which aims to “bolster ocean health”. Some USD 1.5 billion is hoped to be raised by 2017 for the cause. Paine’s interest is not purely altruistic; his PE fund specializes in food and agribusiness investments. Its USD 1.2 billion portfolio includes Seattle-based salmon and crab processor Icicle Seafoods, according to the article.

It also owns fish oil Scanbio Marine Group and a Houston-based environmentally-conscious waste management company for oil and gas producers R360 Environmental Solutions. Paine points out that the World Bank might be able to use its influence, its power, and its lending ability to help create improved global fisheries policy, explaining that for someone, like him, who’s in the fisheries business through investments, “a global policy makes sense and it’s important for our business in the long term.”

Where we found it: Electric Eclectic

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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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