DealMarket Digest 28

DIGEST

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SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 28

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IPO On-Ramp Needs Rebuilding, Says Task Force

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More PE Funds Targeting Technology Buyouts Electric car battery-station company raises USD200 mn M&A Dealmaking Stalled Cleantech Fundraising Trend • Larger number of funds in market

Fundraising Universe : Shrinking or Growing?

• Preqin data shows slowing of growth trend

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Quote of the Week • Business Owners Choose PE Over IPO

November 17, 2011

LONG-TERM IPO TREND DISTRESSING The number of IPOs is down by 75% since 1990, according to a recent presentation for the US treasury, by a task force of PE and VC industry professionals, as well as academics and legal advisors. The task force crunched the numbers and has made a series of recommendations to improve access to public markets for highgrowth companies. The aim of the study is to enable US job creation and drive overall economic growth. The figures are worrying showing a decline in IPO activities in both the US and Europe.

The task force puts some of the blame for this trend on and changes in the capital markets and investment banks, which are not incentivized to have analysts cover small-sized companies, according to the Loot blog on Portfolio. The article says that the task force drew the conclusion that when smaller companies go public, the lack of analyst coverage means they have a hard time sparking a lot of interest from buyers and sellers, which means traders at i-banks won't make as much money on them as they would with larger companies. Image source. Rebuilding the IPO OnRamp on slideshare presentation.

MORE PE FUNDS TARGETING TECHNOLOGY BUYOUTS Silver Lake Partners, which is one of the technology-focused buyout funds in the world, is about to start raising its next fund, according to BusinessWeek. It has more competition for LP commitments since the last time Silver Lake raised a fund, back in 2007. A growing number of PE firms are now targeting tech buyouts. Even Warren Buffet made a rare tech investment this week. The others that have entered tech include KKR, which is also raising a fund and has invested about USD 9 billion in tech companies since 1995, and Warburg Pincus. Both have added headcount to their technology teams to support dealmaking, as has Providence Equity Partners. Dealmarket Digest scanned recent deals announced in the press and it is clear that Warburg Pincus, KKR, as well as Providence, have coinvested with Silver Lake in the recent past. It seems that in private equity a competitor for LP dollars also becomes an important partner when it comes to enabling large-sized buyouts.

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ELECTRIC CAR BATTERY-STATION COMPANY RAISES USD200 MN

A USD 200 million venture capital investment was announced this week by an up and coming cleantech company called Better Place. The company’s bland name doesn’t do justice to its ambition, which is building several national networks of electric car battery-exchange stations, beginning in Israel and Denmark. The deal gives the company a valuation USD 2.25 billion. Since its founding in 2007, Better Place has raised more than USD750 million of equity financing. The company is working on deploying projects in Northern California, Southern China, Japan, Ontario, Canada, and Hawaii. There is some debate about its electrical vehicle battery recharging model, according to Greentech Media. Better Place sees batteries being swapped out on the road for the recharging, which puts a certain demand on the local power grid (as shown in the graphic here), while others say the recharging at home or office model is the way to go. Image source: TUM Research Report FNL on betterplace.com

M&A DEALMAKING FIZZLES The valuation gap between what acquirers and targets consider fair value have slowed mergers and acquisitions activity since the summer break writes FN, which has had a profound impact on buyout fund managers. The volatile debt markets underlie the trend. Nevertheless, the will to do deals remains with business executives expecting a 22 percent increase in global M&A in 2012, according to a recent survey by Thomson Reuters. Deal activity in EMEA region fell by 31% to USD 177.4 billion, the slowest three-month period since the second quarter of 2010, says FN.

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CLEANTECH EXTENDS SHARE OF PE MARKET Clean technologies and renewable energy continues to expand its share of the PE and VC markets.

Some 276 funds out of the 1800 funds in the market today are cleantech funds, according to Preqin’s Funds in Market product. A good 27 percent are pure cleantech funds which invest solely in environmental services, renewable energy and other clean technology opportunities only. The group of funds is targeting about USD 16.3 billion in capital commitments. At least one interim closing has been announced for 37, raising a total of USD 2.5 billion. Preqin’s database reveals that 28% of the cleantech funds in market are focused on European investments, with a further 41% on North America, and the remaining 31% focused on Asia and Rest of World. The largest cleantech fund in market is the Silver Lake Kraftwerk fund, managed by Silver Lake. The growth fund is targeting USD 1 billion for investments in companies that leverage business model innovation to improve energy efficiency, reduce waste and harmful emissions, harness renewable energy and the more efficient use of natural resources. It has no specific target geography and is willing to invest anywhere in the world. Image source: Dealmarket Digest based on Preqin data.

FUNDRAISING UNIVERSE : SHRINKING OR GROWING? Several articles this week describe how larger LPs, such as Texas Teachers fund, are taking large and long term bets on one-stop shop companies like KKR. It is just one trend, another being the prolonged economic uncertainty in various world-economies, that is affecting the growth of the PE industry, not necessarily in a positive way.

Preqin’s latest private equity industry figures for fundraising confirm the lack of growth.

Fundraising has been on a downward curve since the peak years of 2007 and 2008, as the top graphic shows. The final figure for 2011 looks likely to be similar to the USD300 billion raised in the two previous years. And the number of firms raising a fund for the first time has also fallen significantly, with only around 150 new firms in 2011. Image Source: Preqin

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QUOTE OF THE WEEK

“In the next five to 10 years, many Baby Boomer owners of private companies are going to be retiring. These aren’t all just smaller to medium companies. Some of them are companies of a significant size. Today, private equity firms are becoming the first choice for these owners.”

Who said it: Miriam Varadi a former investment advisor for Bank of Montreal, where she was ranked one of the largest asset-managers in the bank’s private client division. She recently published a popular business book titled, Merchants of Enterprise: Private Equity in Canada, the Colour and Controversy.

Context: Varadi made the statement in a recent interview with a Canadian business dailly. She said that In the past, when owners of successful companies were looking to sell their businesses in the face of personal retirement, they typically took the company public because there are were few that had the funds necessary to buy them out. But that has changed with large-sized PE firms stepping into the breach for succession deals. Image source: PERevealed on Youtube.

Where we found it: Financial Post

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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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