DealMarket Digest_Issue 58

DIGEST

58

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 58

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More Secondaries in the Pipeline

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Venture Exit Trend: More M&A and Fewer IPOs

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Endowments in the US to Expand PE Exposure

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Quote of the Week: Luxury Brands

PE Funds Closing Slightly Faster • Preqin Research

Four Billion Dollars: PE Firms Compete for Getty Images • Deal of the Week

• Preqin Research

July 06, 2012

MORE SECONDARIES IN THE PIPELINE The secondaries market continues to thrive with two more portfolios on the market, according to BusinessWeek. Lloyds and Groupama deliver further evidence of financial companies selling PE assets to free up required capital in an effort to comply with tighter regulations stemming from Europe's sovereign-debt crisis.

British government-backed Lloyds Banking Group is planning to sell a EUR 1 billion portfolio of interests in European buyout funds, while French insurer Groupama is seeking to sell EUR 600 million worth of stakes in buyout and venture capital funds held both in Europe and the US. The Lloyds move follows its EUR 500 million sale of private-equity assets last year and a sale of 500 million pounds of leveraged loans in March. Groupama has hired UBS to market its portfolio. It has EUR 1.8 million in assets under management across 16 funds, according to the BW report.

PE FUNDS CLOSING SLIGHTLY FASTER Some positive news this week in fundraising for PE managers. The number of private equity funds that have reached an interim close increased in Q2 2012 from the previous quarter, reports Preqin research. There were 145 funds that held interim closes, raising USD 48.5 billion towards their overall fundraising targets in the latest quarter, as compared to USD 33.7 billion raised in the first quarter of this year.

Another positive trend, seen over the year, is the shorter time it takes for private equity funds to close, decreasing from 18.5 months in 2011 to 16.7 in 2012. Viewed in context, the two findings add evidence in support of an increasing momentum in the market, even though the aggregate capital raised by equity funds reaching a final close in Q2 2012 is similar to the Q1 total, according to Preqin.

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FOUR BILLION DOLLARS: PE FIRMS COMPETE FOR GETTY IMAGES

Image source: Getty Images website

The deal of the week looks to be the potential sale of Getty Images, the US-based photo and digital image agency for a rumored USD 4 billion, according to the WSJ. It is currently owned by PE firm Hellman & Friedman which acquired the company in a take-private deal for about USD2.4 billion. Two of the five bidders at that price are rumored to be KKR and TPG. The size of the deal is large, points out the reporter, considering the current tough debt financing conditions for PE deals. The WSJ says buyout firms still need to put up around 30% of a deal's value in cash. It also points out that club deals are on the wane, limiting the number of PE transactions above USD 5 billion.

VENTURE EXIT TREND: MORE M&A AND FEWER IPOS Globally, M&A dealmaking is stalled in the first half of this year, according to data gathered by Zephyr and reported in an article in Xconomy (see Zephyr image below). But when it comes to VC-backed companies the trend is slightly different. The latest data from Dow Jones VentureSource says that IT and software M&A is on the rise, while IPOs are slowing for most regions, except Silicon Valley startups. The second quarter ended with 11 IPOs of US venture-backed companies, nine fewer than the first quarter.

Other findings: • Eleven US venture-backed companies raised USD 7.7 billion through IPOs in the second quarter, a drop in offerings from the same period last year when 14 IPOs raised USD 1.7 billion. • M&A increased slightly to 110 deals, up from the 98 M&As in the first quarter of 2012 but a 6% decline in deal activity compared to the second quarter of 2011.

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• IPOs are down due to the economic situation in Europe and Facebook’s problematic public debut, according to the report.

• Currently, 44 U.S. venture-backed companies are in IPO registration. Eleven of those companies registered in the second quarter.

• Information technology (IT) was the most active industry for M&A as 47 deals raised $5.3 billion, a 9% increase in deals and 40% increase in capital raised.

• The healthcare industry saw a drop in deal activity as the number of acquisitions fell from 25 in the second quarter of 2011 to 18 in the most recent quarter. (Image source: DJ VentureSource) • It is taking less time for VC-backed companies to reach an M&A or buyout: a median of 5.1 years, which is slightly less than the 5.7-year median a year earlier.

ENDOWMENTS IN THE US TO EXPAND PE EXPOSURE Average private equity allocations by North American endowments, the fourth largest institutional private equity investor group, are on the rise, according to the latest LP survey from Preqin. Investment has increased from 8.4% of assets under management in 2007 to 13.2% in 2012. Some 94% of those surveyed intend to increase or maintain their exposure to private equity in the longer term. Over half (58%) of North America-based endowments expect to make their next private equity commitment before the end of 2012 and a further 10% in 2013.

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Average private equity allocations by North American endowments, the fourth largest institutional private equity investor group, are on the rise, according to the latest LP survey from Preqin. Investment has increased from 8.4% of assets under management in 2007 to 13.2% in 2012. Some 94% of those surveyed intend to increase or maintain their exposure to private equity in the longer term. Over half (58%) of North America-based endowments expect to make their next private equity commitment before the end of 2012 and a further 10% in 2013.

QUOTE OF THE WEEK: VC’S GOLDEN AGE “Careful that is . . . that is a Lewis Vuitton.”

Image source: YouTube

Who said it: Zack Galifianakis character in the Warner Brothers film The Hangover II In Context: The one liner quoted above and the image of a knock-off Louis Vuitton carryon luggage item were the cause of a trademark lawsuit initiated by Louis Vuitton Malletier SA against Warner Bros, according to FindLaw blog. In an airport scene (which can be viewed on the YouTube link below) one of the film’s quirkiest characters mispronounces the luxury brand name and points to a “designer” bag on the seat next to him. The luxury brand was not amused. The case began in 2011. In June a New York federal judge dismissed the suit against Warner Bros, saying public confusion over the accessory's origin was implausible. The FindLaw blog said the judge emphasized in his ruling that Galifianakis character is saying something funny, quoting from a scene in which he continually calls Thailand "Thigh-land". He noted that in the airport scene, the reference to his Vuitton bag comes across as funny because he mispronounces the French 'Louis' like the English 'Lewis.'" LV is the number one luxury brands globally, based on "brand value (USD 25.9 billion, outpunching Hermes which is in the number two at USD 19.2 billion), according to this source.

Where we found it: FindLaw blog

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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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