DealMarket Digest_Issue 62

DIGEST

62

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 62

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Billion Dollar Buyouts • Deltek and David’s Bridal

US Buyouts Crawling Back • Dealogic research via WSJ

Are new SEC Financing Rules a Threat to VC Business Model?

Healthcare VC Falls Off a Cliff in Q3 • Preqin

Technology M&A in Doldrums Corporate Debt Issuance Booms in August Quote of the Week: Veteran VC Downloads into Rock’n’Roll Hall of Fame

August 31, 2012

BILLION DOLLAR BUYOUTS Amid media speculation about a PE-backed buyout of Best Buy, a take private deal for the US-based retailer that could be in USD 10 billion range, no single buyout stands out as deal of the week. But there have been a couple of billion dollar deals announced. One is the buyout of enterprise software maker Deltek Inc by Thoma Bravo LLC in an all-cash deal valued at USD 1.1 billion. The other is Clayton, Dubilier & Rice agreeing to acquire the special occasion clothing retailer, David’s Bridal, in a deal valuing it at USD 1.05 billion, according to Dealbook . It is the fourth time that the retailer has been acquired in the past 12 years by a PE firm, according to the WSJ. There has been more than USD 24 billion in secondary buyouts of this type this year, which is double the USD 10.5 billion for all of 2011 and the highest total since 2007, according to WSJ citing data provider Dealogic.

Retailers are hot in the US. PE investors have invested in 191 U.S. companies involved in the Specialty Retail industry since the beginning of 2007, according to the PitchBook Platform newsletter this week.

That trend is cross-country with the West Coast, Midwest and Northeast home to about 20% of the deals since 2007, and the South with a 17% share.

US BUYOUTS CRAWLING BACK A slowly improving debt market is helping buyouts climb up from low bottom, reports the WSJ. Private-equity firms have acquired about USD 64.7 billion worth of US companies since January, the highest amount year-to-date since 2007, according to data provider Dealogic cited in the WSJ article.

It is not clear how long the trend will continue say the experts in the text. They suggest most upcoming deals will be sub-5 billion dollar transactions.

Image source: WSJ

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ARE NEW SEC FINANCING RULES A THREAT TO VC BUSINESS MODEL? As was widely reported the SEC in the US took another step this week towards lifting the ban on private stock offers (see Reuters). As the new regulations get closer to reality some people are speculating that crowd funding and other methods of raising private capital could be a threat to the VC business model, according to Wired magazine. Over at BusinessFinance, a reporter asks if the new regulations are a threat or a boon to jobs in the US. And elsewhere OpenMarket.com said the new regulation is a “victory” for free speech for VCs and hedge funds, pointing out that over the decades, the SEC rules had come to broadly define just about any type of communication with the general public as an illegal stock offering to investors not wealthy enough to qualify to invest in hedge funds and venture capital. No doubt this new ruling is proving to be a controversial one.

HEALTHCARE VC FALLS OFF A CLIFF IN Q3

Image source: Preqin

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Earlier this summer Preqin reported 16% increase in both the number and value of VC deals in comparison to Q1 2012, and the largest amount of aggregate capital committed in a quarter by VC firms since Q3 2011. In the meantime, its Monthly Spotlight shows a falloff in Healthcare investment, with a major decrease in both volume and amount invested. The data provider did not offer an explanation in the short summary in the Spotlight but several other specialist publications offer some clues. Healthcare Finance said that VC financing of healthcare companies is declining due to the “long” time it takes in this sector to achieve a liquidity event. It also said regulatory challenges and the large amount of capital often needed to fund life science companies likely contributed to the decline during the past four quarters. Other factors include the uncertainty of macro-economic conditions such as M&A and IPO markets and the fact that strategic buyers and partners often want more clinical data and less risk as a condition to an acquisition or investment. New US taxes may also be curtailing investments in sub-sectors of healthcare like medical devices, says Healthtechzone.

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TECHNOLOGY M&A IN DOLDRUMS A veteran PE Hub reporter says that there tech M&A is in the doldrums. There has been just one newly-announced acquisition of a venture-backed Internet or tech company in August with a disclosed value of more than USD 100 million, she writes, citing Thomson Reuters data. It was the acquisition of VC-backed Bleacher Report, by Turner Broadcasting for USD 175 million. She said the next biggest was possibly Venmo, a provider of mobile payment services, which sold to Braintree Payment Solutions for a reported USD 26 million. (She writes “possibly” because some August deals had undisclosed amounts). The low activity is not terribly worrisome because it usually slows in the school holidayseason. It would be more significant if that trend continues into September.

CORPORATE DEBT ISSUANCE BOOMS IN AUGUST The FT reports that this August was a busy month for global corporate bond issuance. This is good news for companies looking to invest in growth, develop their business, and do acquisitions. It was the highest August figure since Dealogic began to track such data in 1995, and more than double the USD 58 billion average. The uptick is a result of strong investor demand for debt offering higher yields than government bonds, says the report. Corporate treasurers have nearly USD 120 billion in debt in August, according to data provider Dealogic cited in the report. The figure jumped even in Europe, and in Asia too, while the biggest surge was in the US, where investor demand has enabled high-yield bond issuance to rise from an August average of USD 7 billion to USD27 billion. The article also said that the Markit Europe iTraxx index shows that the cost of insuring against default on Europe’s 125 most liquid investment-grade bonds fell nearly 20 per cent in the first three weeks of the month.

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QUOTE OF THE WEEK: VETERAN VC DOWNLOADS INTO ROCK’N’ROLL HALL OF FAME

“It's been a long, strange trip from the capital region to the Rock and Roll Hall of Fame for Roger McNamee”.

Image source: Moonalice.com

Who said it: Journalist, Paul Gondahl In Context: Times Union newspaper via Bloomberg Brief: Private Equity.

Where we found it: Roger McNamee is a veteran venture capital investor (late stage) who co-founded Elevation Partners and earlier in his career high profile tech investor Silver Lake Partners. He also sings and plays bass for Moonalice, a rock band that recently donated its digital records to the Rock and Roll Hall of Fame in Cleveland. The records are “important”, says the report because Moonalice has achieved two million direct downloads of one of its songs and claims to be the first track to go multiplatinum purely based on direct downloads from a band's website. A band press release says that the band developed the software that enables independent vendors to provide song downloads and other video, webcast and sound features effectively competing with the likes of iTunes and Amazon.

Dealmarket Digest notes that McNamee is on the boards of National Geographic Ventures, the aforementioned Rock ‘n’ Roll Hall of Fame Museum, and the Rex Foundation.

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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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