Dealmarket Digest-12

DIGEST

12

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 12

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UK: Mid Market Dealmaking Increasing

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Pantheon in Large Secondary Deal

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Norway’s Huge Oil Fund May Target PE

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Why PE Needs to get on Brand Wagon

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PAI Partners’ Big SPIE Deal

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Quote of the Week

• Availability of debt and equity drive trend

• Return of capital provides impetus • Upwards of USD 500 million deal

• PE is a trend among wealth funds

• Improved image and value creation

European Wind Attracts Brand Name US Investors • KKR and Google Invest in Renewable Energy in EU

• Two billion dollar sale of engineering company to PE consortium

• PE fundraising hopes do not add up

June 24, 2011

MID MARKET M&A DEALS INCREASING With the availability of debt and equity and despite macro uncertainty, mid-market dealmkaing is growing rapidly in the UK. In a report that focuses mainly on the UK market, the FT reports a surge in medium sized M&A transactions. According to Dealogic, mid-market M&A is now at 24 percent of total global activity. This is a level not seen since 2004, says the report. Furthermore, this year looks set to break that six year record volume of USD675 billion, for deals between USD100m and USD 1bn. Already in 2011 half the volume of last year has been reached. An insider at Lazard said that one of the drivers is that many companies have been through a period of difficult cost-cutting and have been careful about their use of cash, and are now in a better position from an M&A financing perspective. Globally, the most busy sectors are oil and gas, property and healthcare. The US has seen the most activity, followed by China and the UK..

PANTHEON TO MAKE LARGE SECONDARY DEAL As has been predicted by industry insiders, secondaries transactions are increasing this year. Some large sized deals are in the works, the latest involving Pantheon, a listed UK secondaries investor. It is reportedly about to make its first investment since 2008, publishing an announcement that it will acquire a PE portfolio from a non-disclosed seller that contains 25 buyout funds with over 400 underlying companies, according to Financial News. Deal size is expected to be “one of this year’s majors, being upwards of USD500 million and substantial European presence. According to FN, the Panthoen fund ceased making new private equity commitments in 2008, waiting unit it started receiving distributions from its portfolio assets.

NORWAY’S OIL FUND MAY TARGET PE In a well researched article Bloomberg reports that Norway’s massive state-owned oil fund, assets of over USD500 billion, will likely begin allocations to PE, which would be good news for GPs in the coming years. The article says that fund is similar in size to Abu Dhabi’s Investment Authority. Other wealth funds such as Singapore’s Temasek Holdings Pte and Abu Dhabi are already investing in infrastructure and private equity..

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THE REWARDS AND CHALLENGES OF BRANDING IN PE A good brand in PE will attract talent, help to buy and sell assets in competitive bidding processes, and to raise capital from LPs. This is just one of the takeaways from this year’s 2011 Private Equity Findings Symposium, held earlier in June at the Coller Institute at the London School of Business. The conference served up a wealth of industry insights and know-how. We particularly liked an interview with Nader Tavasolli, a lecturer at LSB and industry expert on branding.

Published on YouTube, the interview reveals several reasons why private equity should be more aggressive on building brand names. Tavasolli says that private equity has a long way to go to improve its image away from that of a greedy, money hungry industry that acts like locusts. Tavasolli who is also an executive at Brand Inside, a consultancy firm whose clients have ranged from hightech start-ups to Global Fortune 500 companies, says that PE needs to adopt and acquire branding knowledge to not only add value to portfolio companies, but to use branding for the PE management company itself, regardless of fund size. He says branding know-how is not necessarily part of the dealmaker mentality that creates good returns in PE, and so it becomes a challenge for PE fund managers. It is an HR function requiring different skills and sensitivity to incentivizing and inspiring all members of the organization. The video is just one of several one on one interviews that were published by the LSB after the PE Symposium this month.

EURO WIND ATTRACTS BRAND NAME US INVESTORS Kohlberg Kravis Roberts, one of the world's biggest private equity groups, has made its first European renewable energy investment by teaming up with an Italian power company building wind farms in France, reports the FT and Recharge. It is not the only big brand name from the US to begin major investments in European renewable energy projects. Google’s investment arm has also been making similar forays into Europe, as reported elsewhere. The search engine’s investment in European renewable energy plants is in addition to a growing list of US power generation investments.

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TWO BILLION EURO DEAL FOR FRANCE’S PAI PARTNERS The biggest and most interesting PE deal of the week is in France where Clayton, Dubilier & Rice gained exclusivity, along with its consortium, to acquire engineering firm SPIE from PAI Partners, a French LBO firm and one of Europe’s largest in terms of assets. It is a USD 2.1 billion deal. The FT reports that PAI Partners owned SPIE for five years. Other big name firms Carlyle, Bain Capital, CVC and Goldman Sachs had been eyeing the deal. Under PAI’s stewardship SPIE did a large number of acquisitions, doubled its operational profit, and incentivized staff and management with stakes in the company. We would like to point out that this is PAI’s second transaction this year where it is selling an asset to a big name US-based PE investor.

QUOTE OF THE WEEK Quote of the week: ‘We can comfortably say that not everybody will get funded – it’s mathematically impossible.’

Who said it: Armando D’Amico, managing partner at private equity fund placement advisory firm Acanthus Advisers.

Context: We found the quote in an article entitled, The big squeeze, in M&Deals, published in the UK. The article discusses this year’s expected fundraising efforts by GPs. D’Amico is one of several industry insiders quoted in the article skeptical about a big consolidation among GPs. While it might be said that Mr D’Amico is stating the obvious in light of all the data from Preqin, he does it with diplomacy. The glacially slow consolidation is a hot topic for speculation in the industry press. D’Amico concludes that there will be a bottom tier of around 30 firms out of the 200 expected to come to market who are going to find it ‘very hard’ to raise new funds in the coming year or so.

Where we found it: M&A Deals

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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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