DealMarket Digest_Issue 75

DIGEST

75

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 75

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Global M&A Down in November: Energy and Publishing Activity Robust

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PE’s Growing Sustainability Focus

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VC Trends: Farming Innovations and Renewed Interest in Renewables

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Post Arab Spring Dealmaking in Egypt

• New Study

Apax Tops Website Ranking, JC Flowers Flops Large Buyout for Springer Science in the Works?

Quote of the Week: Sector Specialization in PE

November 30, 2012

GLOBAL M&A DOWN IN NOVEMBER: ENERGY AND PUBLISHING ACTIVITY ROBUST

Image source: Merrill DataSite

M&A activity is trending downwards this month, according to the latest Mergermarket Monthly M&A Insider from Merrill DataSite. What is more, the year is likely to end with lower global volumes than last year, as the above graphic shows. Deal volume in 2012 is down by 29.7% to 3,853 deals, compared to 2011’s total of 5,480 deals.

There are two sectors that have been driving activity of late. One is the energy and utility sectors where the main driver is disposal of non-core assets by companies like Royal Dutch Shell, and Siemens.

The other sector highlighted is publishing, where M&A has also been steadier and more robust than other industries, driven by the massive consumer shift to eBooks.

Key findings for Europe • The deal volume was down for M&A in Europe, compared to last November. There was a slight increase in deal size to EUR 95.7 million on average, which is 1.1% higher than 2011’s EUR 94.7 million average • The decline is believed to be largely caused by “apprehensive investors sitting on cash reserves, while avoiding risky or hasty deals” • 254 European deals, worth EUR 18.6 billion, representing 5.1% of overall M&A activity for the year to-date of EUR 368.7 billion

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PE’S GROWING SUSTAINABILITY FOCUS The view on sustainability among PE industry players is increasingly positive with 92% of GPs expected to focus more effort on social, environmental and governance (ESG) issues in the next 3 to 5 years, while 54% of GPs are already leveraging ESG management, according to a new survey by Malk Sustainability Partners (MSP) and Environmental Defense Fund. An important driver is LPs and investors, with 69% of fund managers noting that they have observed increasing concern about ESG issues from their investors during the past 3 to 5 years. What is really interesting about the report is that ESG has gained some very practical adoption drivers, such as cost savings, and a great potential to reduce risk management costs.

APAX TOPS WEBSITE RANKING, JC FLOWERS FLOPS Dow Jones editors ranked more than 20 private equity firms on their website quality and public relations. A decent website shows that the GPs understand that there is a greater constituency than the LP community to serve. Examples given include journalists, politicians, union officials, members of the public or even potential investors, who seek websites with more than minimal information on them. Too little disclosure feeds the notion that PE has something to hide, said the article. The editors were looking for information about returns, investment techniques, senior management, portfolio companies, funds raised, limited partners, individual contact details, office contact details and news releases.

Only US and European GPs were researched. The editors found a “wide divergence” in the quality of website information. Apax Partners had the most complete disclosure, followed closely by TA Associates and Bridgepoint. At the bottom came TPG, Hellman & Friedman and J.C. Flowers. Only Apax and Permira published returns data and TA was the only firm to publish a full set of its investors. Several other firms published summary information on the type or location of investors, without individual names.

The top seven and the bottom three are listed below: Apax Partners — 15 TA Associates — 14 Bridgepoint — 14

Advent Permira EQT Angelo Gordon

— 12 — 12 — 12 — 12

TPG — 6 Hellman & Friedman — 5 JC Flowers — 2

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LARGE BUYOUT FOR SPRINGER SCIENCE IN THE WORKS? The rumor has it that there is a USD 3.5 billion sale of Springer Science in the works, which is attracting bids from big name buyout firms such as KKR, Carlyle, and Providence, as well as strategic buyers, according to Bloomberg. The size of the transaction makes this secondary deal (EQT Partners is one of the sellers), our pick for deal of the week. The article says that an IPO is also being mulled.

VC TRENDS: FARMING INNOVATIONS AND RENEWED INTEREST IN RENEWABLES A couple of items in the past week highlighted the latest trends in venture capital investments. One article showcased several startups backed by big name VCs with an in-depth profile of several including AeroFarms, which won a show of hands poll at the showcase event. The startup’s technology utilizes something called aeroponics: an approach similar to hydroponics, but which employs vertical growing equipment. The article said that unlike some other greenhouse/hydroponic models, AeroFarms’ system requires no transplanting: seeds are planted, germinated, and grow to full-size in one place. It says it uses about 90% less water than conventional farming and 30% less than typical greenhouse operations. Productivity per square foot claims are even more impressive: 30 times that of conventional farming (typical greenhouse production is approximately 5X greater production than conventional farming).

Another trend is renewable energy investment, actually it is a resurgence, according to Frost & Sullivan, with a lot more deals getting done than prior years. The actual deal sizes are shrinking, indicative of newer less capital intensive technologies, rather than things like biofuels and solar cell manufacturing which drove activity in the years 2006 to 2008. The market research firm estimates VC funding for renewable energy will triple by 2020 due to positive regulatory policies, environmental support for lower carbon footprint, and innovation. Europe and North America have been the hub of much deal activity, "2011 was a stellar year for renewables deal-making with the number of deals rising by twothirds year-on-year, although total deal value went down by one-third," said Frost & Sullivan Financial Analyst Vinod Cartic. He says Europe, in particular, followed by the Asia-Pacific region, led this trend towards more but smaller deals.

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POST ARAB SPRING DEALMAKING IN EGYPT Egypt is in private equity news this week as a Cairo-based PE firm Citadel Capital teams up with Qatarbased investors in a bid to supply ten percent of the domestic Egyptian market., according to Arabian Business news. Citadel announced that the joint venture will be 51 percent owned by Qatari investors and investment bank QInvest. It would build and own facilities needed for a floating gas storage and regasification unit to deliver natural gas to high-volume end-users from the middle of next year. It is Citadel’s second deal of this kind in Egypt as the country’s new government reforms its gas and energy policies.

QUOTE OF THE WEEK: SECTOR SPECIALIZATION IN PE “…there are good times to invest in financial institutions and there are bad times to invest in financial institutions. And if that's our mission for our firm, we're going to find ourselves looking for the best deal in a bad market. The best deal in financial institutions at some point in time might be not nearly as good as a mediocre deal in media, for example.”

Who said it: Doug Londal, Managing Director, New Mountain Capital In Context: In a round table interview on Privcap, Londal explains how his firm selects hot sectors and markets to invest in. It is mainly about the how sectors are selected, rather than which sectors or industries are considered desirable these days. Londal says it begins with a decision to back high cash flow businesses, high growth businesses, and noncyclical businesses. Then the teams drill down into sectors and sub-sectors. There is a huge trend towards specialization in recent years, but the expert warns of tunnel vision and getting stuck being specialized when that type of company (his random example was financial institutions) is out of favor, or the industry lacks momentum, or is in a phase of consolidation rather than growth, which negatively affects valuations, markets, and M&A potential, and that is the context of the above quote.

Where we found it: Privcap

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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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