DealMarket Digest - Issue 92

DIGEST

92

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 92

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Buyout of China’s Focus Media Close to Closure Mobile Location-Based Advertising will be worth € 6.5 billion in 2017

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First Quarter Global M&A Down : Mergermarket

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GPs Advised to Examine Past Wins For Success Tips; Bain & Co. Researcher Spot Oversubscribed PE Fundraising Trend in Q1 Quote of the Week: Relationship Advice for Entrepreneurs

April 26, 2013

BUYOUT OF CHINA’S FOCUS MEDIA CLOSE TO CLOSURE This week’s deal of the week is the USD 3.8 billion buyout of China's digital advertiser Focus Media Holding Ltd. by management and a Carlyle Group-led private equity consortium, which should close next week following shareholder approval, according to a report in The Deal. There were few other mega buyouts in the market this week, neither reported nor rumored.

MOBILE LOCATION-BASED ADVERTISING WILL BE WORTH €6.5 BILLION IN 2017

Image source: K-mobile

Good news about growth opportunities for web companies such as Yelp, Verve, Placecast, Foursquare and more is to be found in a new research report from the analyst firm Berg Insight. Berg forecasts the total value of the global real-time mobile location-based advertising and marketing (LBA) market to grow from EUR 526 million in 2012 to EUR 6.5 billion in 2017. This will then correspond to 32.8 percent of all mobile advertising and marketing. The ability to precisely target prospective customers using real-time location is currently one of the most promising additions to the advertising toolbox.

Key drivers for LBA include the growing adoption of both outdoor and indoor location technologies, as well as the increasing consumer acceptance of location-based services in general. Major brands are so far the main spenders.

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FIRST QUARTER GLOBAL M&A DOWN: MERGERMARKET The latest report from mergermarket on M&A trends reveals that despite sever mega-deals around the world at the end of the last quarter, the totals for Q1 2013 were down compared to Q1 2012 by a little over 10%. The most active adviser was JPMorgan, which leads the global league table by deal value with USD 124.2bn-worth of deals, including four of the top ten deals.

Image source: Mergermarket Other Findings on Global M&A • The first quarter of this year was the slowest opening quarter in ten years (Q1 2003, USD 232.9bn) • After the highest quarterly value in five years (Q4 2012, USD 737.1bn, 3,559 deals), Q1 2013 saw a decrease in total M&A value of 44.9%. It is the seventh year in a row to see lower totals in Q1 than in the preceding Q4 • The year has already seen four mega-deals adding up to USD 87.7bn. Last year’s mega-deals in the same period totaled USD 70.7bn • Only the US and Africa & Middle East saw higher totals in Q1 2013 than in the same period in 2012, with increases in deal value of 33.6% and 101.4% respectively

GPS ADVISED TO EXAMINE PAST WINS FOR SUCCESS TIPS; BAIN & CO New research conducted by Bain & Company was described in its latest PE Outlook report. The globally focused report said that Bain, along with Oliver Gottschalg, a professor at the École des Hautes Études Commerciales in Paris, and PERACS, a provider of quantitative analytics for the PE industry, found that most buyout funds, including the top-quartile performers, produce a mix of big winners and losers.

Examining the successful deals closely can be useful way to find reliable information on which to base future success.

Bain said that in order to mobilize the right resources and processes to ensure that a higher proportion of their investments will become run-away winners, some leading firms are subjecting their past deals to a detailed forensic examination. A forensic investigation can serve a multitude of purposes. It can help lay a strong foundation for the launch of a new fund or set the right course for investing an immature fund.

Such a probing dissection of nearly 100 of its past deals helped one major global PE firm define its deal “sweet spot” and mobilize its resources and processes around factors that make a deal successful.

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The report says that examining “the scores of variables that influenced each deal, it is possible to find real measures that influence returns, such as leverage, multiple expansion, revenue growth and margins”. The PE industry’s strongest funds got there not because of the specific size and types of deals they target, rather than success is driven by the “alpha-generating capabilities of the GPs that manage them”. Further details on forensic examination were not provided in the report. It is to be assumed that Bain provides this kind of consulting for PE funds interested in examining their past data for future success.

RESEARCHER SPOT OVERSUBSCRIBED PE FUNDRAISING TREND IN Q1 Private Equity International’s latest quarterly report on global PE fundraising found that the amount raised is stable compared to last year. The estimated sum of USD 69.3 billion was raised globally, by 130 funds, across all private equity strategies in the first quarter of 2013, according to a release that was published on PE Hub. Last year an average of USD 73.7 billion was raised in each quarter of the year. Of note, is that several firms raised surplus amounts on their fund targets. The oversubscribed funds trend reinforces the belief that for managers with strong track records and a good story to tell, there’s ample opportunity to attract capital. It is the flight to quality trend that is often evident in PE. Other findings • Funds with a focus on investment in North America proved the most popular, securing USD 23.3 billion • The single largest fund close in the quarter was that of Cinven at USD 6.5 billion for pan-European investment.

• Buyout funds are still the most popular, accounting for USD 28.5 billion in the quarter.

• Venture capital and growth equity funds also demonstrated a strong quarter, collecting USD 17.9 billion.

• Both distressed and secondary funds showed a marked decline relative to fundraising appeal 2012.

• Funds aiming to invest in Asia-Pacific are notable for their growing confidence.

QUOTE OF THE WEEK: RELATIONSHIP ADVICE FOR ENTREPRENEURS “Entrepreneurs who successfully navigate the complex process and emotional whirlwind associated with private equity investment are the ones who take the time to evaluate all of the pros and cons, and ultimately make a pragmatically informed decision with their eyes wide open. Rather than denying the mental and emotional issues that come with a decision of this magnitude, they embrace all of its ramifications and choose to frame the decision — the “win” — on their”

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Who said it: newly appointed CEO of Martin Jetpack In context: In an article written by Kadlic, entrepreneurs are given some advice on the benefits of accepting private equity investment. The PE expert suggests that owning a small business is a whiteknuckled affair, where mission-critical events can threaten a company's very survival on a daily basis.

Aside from launching the company and terminating the company, perhaps the next most important decision for a business owner is agreeing to accept outside investment from a private equity firm, the article posits. It is about giving up some control, but also about gaining support to grow the company and perhaps even gain more free time. The article is unusual in that it has a strong emotional component and psychological perspective for a transaction that is normally described in terms of material and financial pros and cons.

Where we found it: Crains Cleveland

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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.

To receive the weekly digest by email register on www.dealmarket.com.

Editor: Valerie Thompson, Zurich

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