DealMarket Digest_Issue 60

DIGEST

60

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 60

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Secondary Buyouts Boom Boost Faltering PE Market

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Cable TV and Pharma Deals Loom Large

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India: PE and VCs Cautious in First Half of 2012

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Global M&A Value Continues to Decline

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Quote of the Week: From Fab to

• Unquote Research

US Venture Capital Up in Latest Quarter • CB Insights

• Zephyr’s latest research

Flameout

July 20, 2012

SECONDARY BUYOUTS BOOM BOOST FALTERING PE MARKET The strong secondary buyouts market in Europe does not appear to be slowing either. The latest ARLE/Unquote Barometer report says that there’s been an increase in larger deals in the second quarter, much of it a result of secondary buyout activity. But the overall trend in PE is less positive with first half dealflow totaling less than two thirds of what was delivered in the same periods in 2011 and 2010.

Other findings • The DACH region “bucked the downward trend” with a six fold increase in deal values reflecting a more stable economic environment.

• The UK was the most active region for buyouts • Mid-market activity remained stable in the second quarter but values are up 34% • The large cap sector saw deal values soar to EUR 4.5 billion in Q2

CABLE TV AND PHARMA DEALS LOOM LARGE The deal of the week looks to be a secondary buyout involving a US cable TV and broadband operator, called Suddenlink Communications. The USD 2 billion buyout is led by BC Partners and Canada Pension Plan's CPP Investment Board, according to the WSJ. The syndicate aims to acquire Suddenlink from GS Capital Partners, Quadrangle Group and Oaktree Capital Management. According to the report, this deal is the latest in a number of cable industry transactions amid industry consolidation in North America, a trend that has been ongoing over the past two or three years.

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Large cable companies have often outbid PE firms, says the WSJ, including Cablevision Systems, which paid USD 1.4 billion for Bresnan Communications, while Time Warner Cable paid USD 3 billion for Insight Communications, and as recently as a few weeks ago, Canadian cable company Cogeco Cable announced a plan to acquire Atlantic Broadband for nearly USD 1.4 billion.

Coming in as a close second for deal of the week is another American transaction, a public to private deal led by TPG Capital which aims to acquire Par Pharmaceuticals, a US-based generic drugmaker, according to a Bloomberg report. The deal is valued at approximately USD 1.9 billion. Further bidding on the company is expected until the end of August.

INDIA: PE AND VCS CAUTIOUS IN FIRST HALF OF 2012 India’s Economic Times reports that PE and VC is trending towards the cautious in a report based on data from Venture Intelligence. A weak business environment and high interest rates, is causing PE players to be “circumspective of their investments in India”, said the newspaper. PE companies invested USD 1.9 billion in 102 deals in the quarter, which is a decline of 34 percent compared to the same period last year.

US VENTURE CAPITAL UP IN LATEST QUARTER US-oriented data provider CB Insights says that venture capital investment has hit its highest level since dotcom bubble days. A 37% increase in funding and 3% increase in dealmaking was tracked compared to the previous quarter. On a year over year basis, funding and deals were up 5% and 4% respectively.

According to CB Insights, investment in mobile, internet, and seed rounds are all up, while healthcare, Greentech, and Massachusetts are less vibrant. The report provides not only data but some insight into VC trends and the psychology behind them. For anyone interested in technology VC and the US market, the report is worth perusing.

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Image source: CB Insights

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GLOBAL M&A VALUE CONTINUES TO DECLINE The value of global M&A transactions in the first half of this year fell to its lowest level in the last five years, according to Zephyr. The latest quarter figures show a 10 per cent decline from USD 1.5 billion to USD 1.4 billion under the first quarter, which is continuation of the decline that began in 2009.

Compared with the USD 2 billion recorded in the first half of 2008, the figure is down 33 per cent, and is less than half the USD 31 billion recorded in H1 2007. Volume also took another tumble in the first six months of the year, says Zephyr, dropping 12 per cent to reach the lowest level in five years.

As for PE it also fell for the third consecutive six-month period, dropping 12 per cent compared to the same period last year, confirming findings elsewhere. But it is still not as low as 2009 levels (see figure below). Volume slid due to a lack of high-value deals but Zephyr points out that PE dealmakers remain active in smaller and mid-size transactions.

Image source: Zephyr

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QUOTE OF THE WEEK: FROM FAB TO FLAMEOUT “Watching a hot young Internet company run itself into the ground is the technology world’s version of rubbernecking at a traffic accident – it’s impossible to look away”.

Who said it: Zoran Basich, contributor to Venture Capital Dispatch blog In Context: Flameouts of hot young Internet companies happen often and dramatically. The latest example is news-sharing site Digg which was reportedly sold for USD 500,000, writes Basich. The social media startup’s founder, Kevin Rose, was once on the cover of business and tech magazines, as well as much in demand speaker at industry events. Now he’s an executive at Google. Basich lists five others startups that were once highly valued only to fizzle out with little fanfare. One was Friendster, which was once a serious competitor to Facebook, also MySpace which was valued in a strategic sale at USD 580 million in 2005 but was sold on in early 2011 for just USD 35 million. Another example is BEBO, a UK startup that made its VC backers and founders quite wealthy when it was acquired for USD 850 million. According to Basich, it was sold for just USD 10 million a few years later. Another was Napster, which ended in bankruptcy, under a barrage of lawsuits by music companies. And there was Tribe.net, backed by prominent media investors such as the Washington Post Co. and KnightRidder, neither of which halted its demise and its technology assets being acquired by Cisco. These stories may serve as cautionary tales in the social media segment. An article in The Street suggests as much in a discussion and analysis this week of Facebook, Zynga, and Groupon’s stock market performance and earnings potential.

Where we found it: Five Social Media Companies That Went From Fabulous To Flameout

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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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