DIGEST
05
SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 05
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Upswing in PE Activity in Germany
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Increase in VC investing
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More Technology Bubble Backchat
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Listed PE In Demand
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• Large-sized transactions signal PE rebound
• Dealmaking up by 35 percent • More corporates take part in large deals
• Media interest continues • Debating the quality and impact of a tech bubble
• Two LPE funds acquired by big name buyers • Potential for more of the same, says PEN
VC and Big Pharma Draw Nearer • Joining forces to tackle market realities
Champagne, Gold and Other Bubbles • China’s new wealth drives up prices
April 29, 2011
UPSWING IN PE ACTIVITY IN GERMANY Several large-sized transactions in Germany has given Carlyle and other PE insiders cause for enthusiasm about dealmaking in the German economy this year. Or to put it in the words of Handelsblatt, PE experts are forecasting a “golden future”. While other regions around the world have already seen an upswing in PE activity, Germany has been slow to catch on, recording only smaller transactions, but that has changed in recent weeks, reports Handelsblatt. The article quotes industry professionals and their predictions that the volume of activity will return to the level it reached in the years before the 2008 financial crisis. A couple of large-sized transactions give impetus to the forecasts.
One of them is the sale by EQT of Germany’s third largest cable concern, Kabel BadenWürttemberg to Liberty for EUR 3 billion is one of the large sized deals that is inspiring talk of a rebound. Other large-sized transactions include Carlyle’s acquisition of ADA, a hotel concern, from Halder Private Equity, and Rhone Capital’s purchase of Evonik’s Carbon Black division for EUR 900 million. In the pipeline is the sale of deep freeze company Eismann by Intermediate Capital Group targeting EUR 300 to 400 million, as well as several others upcoming deals. It concludes that dealmaking will pick up this year as PE groups look to exit and reap returns after a good two to three years of little activity.
VC DEALMAKING UP 35 PERCENT There were at least 40 articles published in the past week about the jump in venture capital investments in the first quarter of this year. According to DowJones Venture Source, investors put USD6.4 billion into 661 venture companies during the first quarter of 2011, which is a 35 percent increase in investment and 5 percent increase in deals from the same period last year. -
Healthcare and IT attract largest amounts of capital at USD1.6 billion Software dominates IT Consumer Services (Web 2.0 and social network) attract USD 1.2 billion Business and Financial Services companies raised USD 935 million Renewable energy deals attracted USD 671 million
1 www.DealMarket.com
MORE TECH BUBBLE BACKCHAT News about increased VC spending is adding more heat to the debate about a new technology bubble. Discussions about inflated valuations were already making their way through industry media outlets last month, which we covered in an earlier edition of Dealmarket Digest. Is it a bubble? One of the classic ways that reporters can check the heat of the technology sector is to take a look at real estate prices and vacancy rates in Silicon Valley, and sure enough a reporter at the WSJ did so last week. In a feature article, entitled Silicon Valley Office Market Booms, WSJ writes that the surge of demand has “transformed the Silicon Valley office market into one of the few showing signs of prosperity” as the economy slowly recovers. As in New York and Washington, developers in Silicon Valley are dusting off plans for new projects, and the prices paid for office properties are reach tech boomera levels. There are also naysayers, such as Citywire in the UK, which offers five reasons why “we're not in a tech bubble”. Meanwhile, other articles debate the quality of the technology that is getting the higher valuations today. They see not much at all to be excited about in this new tech bubble, if it exists. Adweek asks “Is the Second Tech Bubble Burst Nigh?”. It says that “tech bubbles happen, but we usually gain from the innovation left behind”. But social networking companies lack real technological advancement, says Bloomberg Businessweek, says an article titled This Tech Bubble Is Different. The article posits that some tech bubbles “actually do some good”, even if they don't end happily, explaining that in the 1980s, the rise of Microsoft, Compaq and Intel pushed personal computers into millions of businesses and homes and the stocks of those companies soared.
It goes on to say that “tech stumbled in the late 1980s, and the Valley was left with lots of cheap microprocessors and theories on what to do with them.” The dot-com boom was about anything Web-related. “Then the correction began in early 2000, eventually vaporizing about $6 trillion in shareholder value. But that cycle, too, left behind an Internet infrastructure that has come to benefit businesses and consumers,” writes BW. The article is a long one and worthwhile reading if technology is of interest to you. The reporter actually tried to find some deep technology companies amidst the seeming low-tech Facebook and Twitters of the tech world, even managing to find one tech-oriented ventures within social networking, a data analysis company, called Cloudera.
2 www.DealMarket.com
LISTED PE ATTRACTS BUYERS Two listed private equity (LPE) funds were acquired this week, prompting PEN to predict a consolidation trend that would see more smaller listed PE funds being acquired by larger rivals. HarbourVest Partners is offering USD752 million cash for Absolute Private Equity AG and Eurazeo has made a deal to acquire OFI Private Equity, a fund manager focused on small and medium-sized businesses, for EUR132 million. The former will be closed down in a potentially profitable way, while the latter is meant to boost Eurazeo’s mid market PE activities. According to PEN, there is a real pressure from shareholders to do something about the low stock price of LPE. While other parts of the PE market have seen valuations climb, listed funds that have not managed to get the share price closer to net asset value and are therefore ripe for acquisition, concludes the PEN article.
VC AND BIG PHARMA JOIN FORCES Venture groups and large life sciences companies are putting their heads together to improve their fortunes, reports industry newsletter Fierce Biotech. A high-profile example of this trend, Eli Lilly is investing USD150 million in three external venture funds, naming only CMEA Capital of San Francisco as a recipient of its capital. Fierce says the plan is that Lilly would have a first option to buy experimental drugs developed by ventures funded by VC funds in which it is an LP. Another example provided in the article is Atlas Venture’s contract with Monsanto to collaborate on finding new earlystage life sciences investments. Atlas also has one other unnamed large biotech that invested in its latest fund. Such collaborations have become a trend,says Fierce Biotech, driven by large life sciences corporations’ deep pockets and their insatiable need for new products. And venture funds are more willing due to the lower appetite for risk amongst traditional LP investors. The article points out that Big Pharma is no stranger to the venture capital game and investing in biotechs. GlaxoSmithKline and Novartis, among others, have established venture funds of their own. What is changing, says the article, is the frequency of and strategies behind partnerships between drug companies and VCs.
CHAMPAGNE AND OTHER BUBBLES
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An amusing article in BusinessWeek says there are other bubbles besides the much-hyped technology one. Most of them inflating due to prosperity in China. For example, the price of cemetery spaces in China with good feng shui is up by 200% in the past decade. The cause, population and wealth are growing. Land isn't. And then there is the rare wine bubble. BW says that the Liv-ex Fine Wine 100 Index is up by 261 percent over the past five years. Prices are supported by seemingly “insatiable demand” from China, it says, while gold is up 464% since 2001. The SPDR Gold Trust, which a gold price speculation vehicle, now holds more of it than the Swiss central bank, says BW, adding the somewhat cavalierly : “Gold will look cheap at these prices if Fed Chairman Ben Bernanke lets inflation get out of control.”
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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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