DIGEST 113

October 18, 2013

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PE Attracts American Family Office Investors How to Work with a Private Equiteer

Warburg Pincus’ Smart Money Flows to Energy Deals Last Modified Drilling for Returns in Mining Sector

PE Outbid in Auto Parts Buyout

Quote of the Week: HNWIs Step up the VC Game

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PE ATTRACTS AMERICAN FAMILY OFFICE One of the most interesting trends that DealMarket Digest sees in the private equity industry is the higher profile of family offices as they make inroads into the venture and PE markets (Click “family office” to see all our articles on the topic). The latest example of the trend emerged this week when Mergermarket reporter Marlene Givant Star filed a report from the sidelines of an Association for Cor-porate Growth lunch-panel conference in New York.She writes that family offices are increasingly focusing on private equity, investing in deals directly, rather than through limited partnership funds. She says that the reason they do it to avoid the “hefty fees” charged by private equity funds, plus wealthy families come with their own networks of contacts and industry expertise (see our quote of the week to understand why someone might say that about FOs). Some families team to make direct investments. Three family offices that do direct deals were mentioned, including City Light Capital, which invests on behalf of a family that made its fortune from manufacturing, T5 Equity Partners, which manages money for Canada’s Ghermezian family that owns the Mall of America, and Constellation Wealth Advisors.

HOW TO WORK WITH A PRIVATE EQUITEER The way to work with VCs and PE investors is not common wisdom, yet. So this week we decided to highlight an article by US-based entrepre-neur, Nick Mehta, the CEO of startup company Gainsight who wrote an article for VCJ describing things that CEOs should know about VCs.Mehta suggests that entrepreneurs keep the following points in mind, which your DealMarket Digest editor selectively summarized.Mehta suggests that entrepreneurs keep the following points in mind, which your DealMarket Digest editor summarized.

1. Keep Investors Excited. Send updates about customer wins and prod-uct updates as they happen. Invest time in energizing your investors.

2. No Surprises. Notify the board of bad news before board meetings.

“When you get tough news, digest it and give your board members a call – talk them through it and share your game plan.”

3. Take Feedback. You want your board to give honest feedback? Then take it. Be mature – the investor might not always be right, but listen and incorporate what makes sense.

4. Give It Back. Tell your investors what you want. Do you want input after each board meeting? Tell the board members if you need them to play a specific role, such as help with people issues. “Help them get better, just like you help your team.”

5. Focus Them. Ask for input only when help is needed. “Begin every board interaction with a list of the key areas where you need assistance and guidance. Keep the content focused on those areas.”

6. You’re Not Their Only Investment. While you might have one company to deal with, they have many.

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WARBURG PINCUS’ SMART MONEY FLOWS TO ENERGY DEALS LAST MODIFIED

Keep investors up to speed when you see them, rather than jumping into details right away.

7. Understand The PE or VC Business Model. Do you know what it means when a VC talks about man-aging a portfolio, optimizing for returns, and homeruns? For example, if their model depends on single and doubles, don’t expect them help you become a homerun startup with a billion dollar valuation. If you disagree on the play, call the issue out rather than letting it fester.

8. Don’t Stereotype. It does not make sense to put VC in a category. Some are good – some aren’t. Some are risk takers and some are lemmings. Some might think your vision is too broad, others might say it’s too narrow. If you’re looking for everyone to agree with you, you’re in the wrong business.

9. Make Them A Lot of Money. This one from Mehta does not need to be explained.

10. They Envy You. Many VCs would like to be entrepreneurs. You are lucky to be. Appreciate it. (Image source: Gainsight website)

It is always good to know where the “smart money” is going. So when we read Bloomberg’s exclusive report on Warburg Pincus’ new fund targeting global energy deals, we paid attention. The article says that the new fund will take the same approach as the firm’s global private-equity pools, investing in oil and gas exploration and production, midstream, power generation, oilfield technology and related services, as well as alternative energy development. Warburg expects to split energy deals evenly be-tween the new fund and its main offering, says Bloomberg. Why does your Digest editor think that Warburg represents “smart money”? It raised USD11.2 billion this year, which is “among the largest pools raised following the financial crisis”, according to Bloom-berg. Warburg also typically finishes well in many of the industry rankings published by PE media companies. Apparently, Warburg is not alone in targeting energy deals. Both Blackstone and Apollo raised billion dollar natural-resources vehicles of late and Carlyle is seeking to raised USD 1.5 billion for an energy fund that will make investments outside the US.

DRILLING FOR RETURNS IN MINING Canada’s Financial Post published a report with the surprising news that private equity investors are growing into key players in the mining industry. Typically, min-ing is a niche market for PE, but brand-name US firms, such as Blackstone Group, Carlyle Group and Apollo Global Management, have established mining practices, according to the article. In Canada, PE firms targeting the mining sector are Brookfield and Resource Capital Funds. The role of PE is likely to grow as mining valua-tions fall, and equity financing remains tight, creating a “financial buyer’s market”. An exec from Baker & McK

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Reuters is reporting that Advance Auto Parts will acquire General Parts International for USD 2 billion. This is another deal of the week that could have been a PE win but was not. The PE angle was reported by several media sources, including bizjournals, last year. The deal will make Advance Auto Parts Inc. into one of North America’s largest aftermarket auto-parts providers. There is reportedly a surge of retail M&A. According to the reports USD 28.2 billion of US retail merger deals have been done this year, which is double the USD 12.8 billion total in the same period last year and the largest year-to-date tally since 2006, based on data from Dealogic.

PE OUTBID IN AUTO PARTS BUYOUT

QUOTE OF THE WEEK – HNWIS STEP UP THE VC GAME““We are seeing great later-stage opportunities that need additional capital and can benefit from the guidance of our venture partners such as the former CEOs of Walmart.com, Sonic Solutions and NDS.”

Who said it: J.B. Pritzker, co-founder and managing partner of Pritzker Group

Context: The quote is from a press release issued by Pritzker Group, a US based private equity and VC investment fund. The name Pritzker may not be familiar to readers outside of the US, but the businesses that built the founders’ wealth is, that is, Hyatt Regency hotels and the Marmon conglomerate. Upstart Journal says that the Pritzker brothers are tied as the 166th wealthi-est Americans in the Forbes wealth rankings, with net worth of USD 3 billion each. Their fortunes each grew USD 500 million in the last year when they sold shares of Marmon Group, another company started by the family. Nine other Pritzkers made the Forbes list this year too. The press release was announcing that the firm is moving a significant amount of capital into late stage investment. Pritzker Group’s venture arm had been making early-stage investment in technology and related ventures but now it’s going national and moving firmly into growth capital too. Its web-site says it has had “numerous successes”, including Fleetmatics (IPO), SinglePlatform (acquired by Constant Contact), Chegg (IPO filed), Awesomeness TV (acquired by Dreamworks), Playdom (acquired by Disney), LeftHand Networks (acquired by Hewlett-Packard) and TicketsNow (acquired by Ticket-master). It is yet another example of how high net worth individuals are stepping up their dedication to venture capital and PE (Click “family office” to see all our articles on the topic). The quote above shows just how well networked some of these wealthy family fund investors can be, which is no doubt a ben-efit to portfolio companies. (Image source Pritzker Group)

Where we found it: Pritzker Group

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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 notewor-thy news items, scoping trends and currents events in the global private eq-uity 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:  Pro-fessional, 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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