DealMarket Digest_Issue 84

DIGEST

84

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 84

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Remarkable ‐ PE Performance during the Financial Crisis IPO Positive: Institutional Investors

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Canada's Blowout Year for PE Heinz Buyout is a PE Mega‐deal Is the Mega Buyout Back?

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Quote of the Week: PE’s Reputation Risk

February 21, 2013

REMARKABLE – PE PERFORMANCE DURING THE FINANCIAL CRISIS PE performance stands out from the equities crowd. Contrary to a commonly held assumption that private equity investments performed badly during the financial crisis in comparison with other asset classes, a study released this week by Golding Capital and performed by HEC revealed it is in fact performing rather well. Claiming to be the first empirical analysis of the relative performance of private equity during the financial crisis, the study reports that transactions closed in the years 2006 to 2008 achieved an “exceptionally positive alpha” of 20.5 %. It says that even measured in absolute returns, these private equity deals were positive at 2.7 % and 5.1 % respectively.

Comparable stock market returns were negative at ‐2.4 % and ‐15.4 %. Private equity's long‐term average alpha is 9.7 %. This average value is calculated on the basis of more than 5,200 relevant transactions completed between 1977 and 2011. Founded in 1999, Golding Capital is a PE advisory firm guiding about EUR 2.5 billion in assets. It clients include German insurance companies, pension funds and banks, particularly savings banks and cooperatives.

IPO POSITIVE: INSTITUTIONAL INVESTORS A new Ernst & Young global survey of 300 institutional investors shows that this group is increasingly positive about the IPO market this year.

A vast majority ‐ 82% ‐ have invested in pre‐IPO and IPO stocks in 2012 compared to only 18% in either 2010 or 2011. Going forward investors cite the prospect of a brighter corporate earnings outlook, an improving macro‐economic environment and more stable equity markets as the key drivers of sustained positive market sentiment through 2013.

The E&Y info graphic does an excellent job at explaining the sentiment on IPOs.

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CANADA'S BLOWOUT YEAR FOR PE Canada set records for activ‐ity and high investment levels with CDN 11.6 billion of new investments via 313 transactions buyout PE deals in 2012, according to a statistical report from CVCA‐ Canada's Venture Capital & Private Equity Association and research partner Thomson Reuters.

The figures signal a rebound in activity post‐ financial crisis, says CVCA. Mega‐deals (those greater than one billion CDN dollars) drove the increase, including the Apax take private of Montréal's Garda World Security Corp., and BCE‐led buyout of Toronto's Q9 Networks Inc., but mid‐market deals actually played the “vital role”, according to the report. Canadian buyout‐PE funds were also more active deal‐makers on an international basis in 2012.

Image source: CVCA

HEINZ BUYOUT IS A PE MEGA‐DEAL Warren Buffett's Berkshire Hathaway and the private equity firm 3G Capital are set to buy ketchup giant H.J. Heinz for a USD 23.2 billion, according to Reuters. That makes it the deal of the week by a long shot.

The news came out on Thursday. This is not the first time 3G Capital has been in the news in the past year. We noted their involvement in a Burger King buyout, and Reuters has several other deals the firm was involved in, including some background on the principle partners in 3G.

IS THE MEGA BUYOUT BACK? Preqin’s latest analysis of deal activity says that there is scope for more mega‐sized buyout deals in the coming months. It points to activity so far in 2013, which saw the two largest PE‐backed public‐ to‐private transactions announced since the buyout boom period of 2006‐2007. mega buyout.

The two deals are: the USD24.4bn Silver Lake ‐ backed privatization of Dell Inc. and the Berkshire Hathaway and 3G Capital‐ backed buyout of H.J. Heinz Company.

Image source: prequin

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QUOTE OF THE WEEK: PE’S REPUTATION RISK “Unfortunately, for those GPs doing things right, these scandals continue to taint the public image of private equity, making it difficult to convince the public and investors that the private equity model can be good for business.”

Who said it: unquote, a PE industry trade publication

Image source: unquote

In Context: unquote researched and described PE’s most embarrassing moments in recent years, an effort sparked by the recent horse meat debacle (horse meat made its way into European‐branded frozen lasagna in addition to the beef that was supposed to be in it). The company in question was backed by PE. Here is its summary of PE’s recent embarrassing moments • Lion Capital‐backed Findus and Comigel, which is backed by Céréa Capital • CVC‐backed Formula One corruption case • PE‐backed care home patient neglect ‐ KKR, Triton, and Blackstone • Habbo Hotel fails on child protection – online kids network was backed by 3i and Balderton The article and quote above picked up on the public relations aspect, pointing out an opportunity for PE players.

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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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