DIGEST 95 SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 95

May 17, 2013

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IPO Pipeline Pops in Q12013 Water Utility Buyout Attracts Bids The Buyout Bubble’s Exit Bottleneck: Preqin LPs Spend on PE Funds Targeting Oil, Gas, and Natural Resources; Preqin Families Vie With PE in Consumer Deals Quote of the Week: Hitting a BRIC Wall

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IPO PIPELINE POPS IN Q2013 US companies are raising the largest amount of money through IPOs since before the financial crisis, reports The Deal Pipeline. A greater willingness for risk among investors is pushing the US stock market to new highs. Activity has picked up recently as investors search for higher-yielding assets. But the trend has mainly benefited dividend-paying companies such as real estate investment trusts. The article says that smaller growth-industry companies are less attractive

Image source: PWC IPO Watch 2013

WATER UTILITY BUYOUT ATTRACTS BIDS

This week’s deal of the week is a potential USD 8.11 million takeover bid by a consortium of funds for Severn Trent, a UK water utility. The WSJ says the deal is potentially the largest takeover of a UK-based water company since the industry was privatized in 1989. The utility said it had received bids from institutional investors including Borealis, which invests on behalf of, the Ontario Municipal Employees Retirement System. Other bidders are Kuwait Investment Office and Universities Superannuation Scheme. These are typically the kind of investors that invest in GP funds but as has been reported in earlier newsletters, they are doing more direct deals these days.

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THE BUYOUT BUBBLE’S EXIT BOTTLENECK: PREQUIN Fund managers are struggling to realize investments made in the Buyout Boom, according to Preqin. They are finding the exit but it takes longer than it used to. The average holding for PE portfolio companies that were sold in 2012 reached five years, years, compared to 3.9 years in 2008. Megadeals (over USD 1bn) exited so far in 2013 had an average holding period of 6.2 years, up from just 2.1 years in 2008. Other findings • A significant 63% of portfolio companies purchased in 2006 and 73% purchased in 2007 have yet to

be sold, as fund managers have struggled to exit companies purchased during the buyout boom. • The average holding period for deals exited so far in 2013 has dropped slightly to 4.9 years. • European portfolio companies have the longest average holding period at 5.2 years for deals exited

so far in 2013, compared to 4.8 years for North American portfolio companies. • The aggregate value of exits dropped to just $5.2bn in Q1 2009, but has been on an upward trend

since, reaching a high of $126bn in Q2 2011. • Investors continue to favor buyout funds. 51% of LPs looking to make new commitments in 2013

plan to target small to mid-market buyout funds and 23% expect to commit to large or mega buyout vehicles.

The first quarter of 2013 saw an aggregate USD 9.7 billion raised by six natural resources funds, according to Preqin. It was the highest quarterly amount since the peak of USD 16.6 billion seen in Q2 2009. Last year was a particularly successful fundraising year for natural resources funds as 22 natural resources funds secured an about USD 22.5bn, which is similar to the peak levels of capital funds that closed in 2006 and 2009, raised USD 24.0bn and USD 23.6bn respectively.

Image source: PEI

LPS SPEND ON PE FUNDS TARGETING OIL, GAS, AND NATURAL RESOURCES; PREQUIN

North America-based GPs led the fundraising trail for this type of investment last year, due to a favorable regulatory environment for oil and gas investments.

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All six natural resources funds that held a final close in Q1 2013 met or exceeded their target size, said Preqin. Currently, 30 natural resources funds are currently in market, seeking to raise USD 26.8bn.

FAMILIES VIE WITH PE IN CONSUMER DEALS Reuters is reporting that family-run investment firms are making waves in the consumer deals market, squeezing out private-equity players. It is believed that families are willing to wait longer for returns, giving them the edge over private-equity funds looking for a quick turnaround. One of the reasons PE firms are not competing head on with family funds is that multiples on some valuations are too high to make the returns work. Family-funded investments in the sector are expected to grow. Food and beverage continues to be a very attractive industry.

QUOTE OF THE WEEK: HITTING A BRIC WALL

“Korea is a remarkable economic success story along with Taiwan. It's the only economy in the world to have grown at 5 percent or more for five decades in a row… The other countries where I think that expectations can be surpassed versus what the consensus are Indonesia, Turkey, Philippines. I think even Thailand has a chance of doing so. Then a bunch of frontier markets such as Nigeria, Sri Lanka. I think all these countries have a chance of surpassing expectations.”

Who said it: Ruchir Sharma, Morgan Stanley, Head of Emerging Markets In Context: In an interview with an editor of Harvard Business Review, Marc Andreessen talks about the complex challenges in current technology investments, the hazards of missing a good investment, and how large tech companies sometimes initiate takeover talks just to “screw up” the business of a startup company for 18 months. The tech entrepreneur turned venture capitalist at Andreessen Horowitz, a Menlo Park venture capital fund, has lots more to say on preparing for IPOs, handling compliance, lean startups, cloud computing, and how software is changing almost industries far beyond what was foreseen as recently as a decade ago. (Image Source: Forbes Video Wochit Tech) Where we found it: CNN Transcripts

Image source: Foreign Affairs Focus on Youtube

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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