DealMarket Digest_Issue 69

DIGEST

69

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 69

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M&A Dealmaking Declined in Third Quarter

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US IPO Window Opens in October

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The Best and Worst Places in the World for Creating a High-tech Startup

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Quote of the Week: Corporate Venturing

• Thomson Reuters

• Preqin Research

Europe Home to the Week’s Largest Buyouts Ensuring M&A Success with Insurance Private Equity's Rush to China – Latest Trends

Goes Global

October 18, 2012

M&A DEALMAKING DECLINED IN THIRD QUARTER

Image source: Thomson Reuters Westlaw

Deal volumes for M&A activity declined globally in the third quarter, according to the latest M&A Trends & Insight for Lawyers, a report from Thomson Reuters Westlaw. Deal volumes fell to their lowest level since 2005, declining 8 percent as compared to Q2 2012, says the report (which can be downloaded here).

Deal values also declined, hitting their second-lowest level since the middle of 2010. In total, there were 8,618 transactions reported in the quarter, representing approximately USD 550 billion in value. The U.S. bucked the trend with a cumulative deal value that was up slightly from the second quarter to USD287 billion, while domestic deal volumes were up 3 percent. The largest deal of the quarter was CNOOC's agreement to acquire Nexen for USD 15.1 billion.

US IPO WINDOW OPENS IN OCTOBER Improved market conditions have led to a wave of IPOs in October 2012 and a host of new filings, according to the latest research from Preqin, particularly in the US where 31 companies backed by PE or VC investors have filed to raise capital. Bearish market condition elsewhere mean that only six European PE- and VC-backed companies have filed to list in the coming weeks, and a further five for Asia and Rest of World.

Preqin says that 19 companies backed by PE or VC funds have already completed IPOs in October (or follow-on share sales), raising USD 4 billion.

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The figures put the fourth quarter in a position to close ahead of the same period last year, as well as the previous quarter when USD 6 billion was raised, but quite a long way from the IPO activity of the post-Lehman height of Q2 2011, when 79 companies backed by PE and VC fund raised USD 33.8 billion, or the Facebook-led Q2 2012, when USD 27.6 billion was raised.

EUROPE HOME TO THE WEEK’S LARGEST BUYOUTS This week has two large buyouts as deals of the week, both are in Europe. Bain Capital is acquiring a call center unit of Telefonica in a USD 1.3 billion deal, reports Dealbook. The other is a larger transaction that sees Advent backing the Kreke family-owned German retailer Douglas in a USD 2 billion take-private deal, according to reports from Reuters. The takeover offer is being made by an investment vehicle of which Advent owns 80 percent and the Kreke family 20 percent. If the transaction is successful, it would be the second-largest private equity-backed deal in Germany this year, after bandages maker BSN Medical was bought by Sweden's EQT.

ENSURING M&A SUCCESS WITH INSURANCE The use of insurance to mitigate risk in M&A and PE transactions is on the increase, according to a long feature article in Financier.com. The use of M&A insurance has expanded “exponentially” over the past 10 years, says the report. It is estimated that more than USD 5 billion of policy limits for 2012 will be placed. The increase in this kind of insurance follows a desire to minimize risk, as well as an improvement in the quality of coverage provided; increased knowledge that the products exist and have performed as advertised. Decreasing cost combined with the increase in the speed of execution has also fired the market, as well as the reliability and ease of the underwriting process, which is not invasive or time consuming, says the industry expert quoted in the article.

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PRIVATE EQUITY'S RUSH TO CHINA – LATEST TRENDS The view on China’s private equity market at the moment is subdued, according to pionline. Citing Preqin data, the report says that competition and a depressed IPO market may dash expectations of healthy returns, and cause some fund managers to fail in their efforts. China-focused funds worth a total of USD 30.9 billion were raised in 2011, which is leading to greater competition for investing in new deals. There was a little over USD 6 billion in VC and PE-backed IPOs in China as of Oct. 9, according to Preqin, which is close to last year’s total, but it is a “steep drop” from private equity-backed IPOs worth USD 10 billion seen in 2010. The article concludes that the PE market in China is maturing and that the correction currently underway is a part of that process.

THE BEST AND WORST PLACES IN THE WORLD FOR CREATING A HIGH-TECH STARTUP Ever wonder where the best places are to set up high-tech companies?

This year it is Finland, Switzerland, and the US that came out on top.

Cientifica has come up with a methodology and published the results in its annual EmTech index (an excerpt is shown here), which highlights the best, and worst places to set up an emerging technology business based on data generated by the World Economic Forum’s annual Global Competitiveness Report.

Image source: Cientifica

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There were some changes in this year’s ranking compared to last year.

Israel and Japan are slipping slightly this year while Singapore is rising as a major hub of both technology and business. In the Middle East, Qatar, the UAE and Saudi Arabia have entered the top 30.

Cientifica points out that in 2006 the United States was clearly the best place in the world to start an emerging technology business, and many did. Good institutions, a history of collaborative research, plenty of venture capital and a huge domestic market made it the place to do business. The biggest decliner in recent times is India, dropping from 18th to 29th in contrast with the other Asian giant, China, which has moved from 29th to 24th. In Africa, South Africa and Kenya are the best choice, while Brazil and Chile lead in South America. In Europe Switzerland, Finland and Sweden are the best locations. The worst place in the world for emerging technology companies is Yemen, followed by Haiti and Sierra Leone, according to the ranking. In Asia it is Nepal, while the bottom ranking European country is Moldova.

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QUOTE OF THE WEEK: CORPORATE VENTURING GOES GLOBAL “Corporate venturing has been practiced for more than 40 years… [it has] historically accounted for 6% to 10% of all VC globally. During the dot-com peak of 1999–00, when corporate venturing was often more motivated by irrational exuberance than thoughtful strategy, its share of the VC pie grew. Since then, CVC has returned to its historic share…”

Who said it: Bryan Pearce, Americas Venture Capital Advisory E&Y, and Dr. Martin Haemmig, adjunct professor CETIM In Context: The latest E&Y study of VC investment globally focuses on the trends and hotspots, as well as globalization of venture capital. The above quote is in a sub-section on corporate venture capital investment. It is a small but interesting aspect of the VC market. For example, in the US corporate VC makes up nearly 3% of all capital being committed to US start-ups, and last year’s total was just under USD 1 billion. What is new is that corporate venturing In China and India is on the increase. It says big local corporations are beginning to challenge the local VCs and their foreign corporate venture capital rivals. Some of the major players are Baidu, Tencent, Alibaba, Huawei, ZTE, Tata, Wipro, Infosys, and Reliance.

Where we found it: E&Y Global venture capital insights and trends report 2011

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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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