1. SEE WHATS NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 98
DIGEST105
August 23, 2013
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Global PE Volume Holds in July But
Value Decline
• Zephyr Research
J-curve Analysis Could Impact PE Industry
PE Returns Climb in 2013 Study
PE Appetite for Technology Deals Soars in
Second Quarter
European M&A Still Slow
Quote of the Week: Feeling Wealthy

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GLOBAL PE VOLUME HOLDS IN JULY
BUT VALUE DECLINE
According to the latest figures from Zephyr, the value of global private equity investment weakened
for the second consecutive month in July, falling back by more than a fifth over the four weeks to USD
16.5 billion, the lowest figure since September 2012 (USD 14.4 bn) worth of announced deals. Volume
remains steady, but the lack of blockbuster transactions means that PE transaction value totals are
down. The value is down 43 per cent compared to July 2012.
J-CURVE ANALYSIS COULD IMPACT
PE INDUSTRY
As most Digest readers well understand when
drawdowns and distributions are combined to show
the net cash flows to investors over time, this nor-
mally results in a “J-curve”, illustrated in the chart
above from VentureChoice. A new study about fund
performance and the J-curve by Cyril Demaria of
the University of Saint-Gallen in Switzerland is the
topic of an editorial in Private Equity International.
The theory put forward by Demaria is that because
these J-curves are quite distinctive in shape, it starts
to become clear from about the third year of a fund’s
life which performance category it is likely to end up
in.

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The editors assessed the study’s limitations and conclusions and agree with Demaria that the conse-
quences of such analysis could be significant for the PE Indusstry because it helps to overcome prob-
lems with the lack of transparency and liquidity in a portfolio of funds. “If an LP can get a decent sense
of how a fund is likely to perform after just a couple of years, it should allow them to address these
concerns and assess the level of risk in their portfolio more accurately. This could help inform new
investment decisions [by limited partners] and mitigate regulatory capital demands.” It also has impli-
cations for the secondary market, and helping to benchmark performance across the portfolio.
PE RETURNS CLIMB IN 2013 STUDY
It looks like private equity investments can
indeed provide decent returns to investors
in times of economic uncertainty. That is the
conclusion by Preqin in the Executive Summary
of its 2013 Preqin Private Equity Performance
Monitor published in its monthly spotlight news-
letter. Annualized returns for the ten year period
to December 2012 for all private equity stand at
17.9%. The best performing in this period are
buyout funds with an annualized IRR of 24.3%.
Returns between the different types of funds
vary significantly, with mezzanine funds report-
ing an annualized IRR of 10.6%, funds of funds
8.6% and venture capital funds 5.4%.2013.
PE APPETITE FOR TECHNOLOGY DEALS
SOARS IN SECOND QUARTER
PE dealmaking in the technology is soaring, according to EY’s global technology update for the second
quarter of 2013. Overall the report shows a mixed picture because corporate dealmaking continued a
three-quarter-long slide. Ac-
cording to EY’s Global technol-
ogy M&A update: April–June
2013, there will be gradual
growth for technology M&A
volume and value for the rest
of 2013 based on PE strength.
According to the report, technol-
ogy is slightly different than the
overall M&A trend for all indus-
tries which look to be undergo-
ing a fundamental reset to a
lower level of long-term activity.
PE’s strength appears to come from a combination of factors, says EY. Some technology targets’ valua-
tions have been weakened by slow innovation in products, enabling activist shareholders to take posi-
tions in the stock.

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Another factor is ease of financing at low interest rates; and the pursuit of value-creation opportunities
through operational improvements that may not be as attractive a rationale for corporate buyers PE
and non-technology buyers together accounted for 54% of Q213 quarterly aggregate value, dominating
every other sector but one into net seller positions.
EUROPEAN M&A STILL SLOW
European middle-market M&A activity decreased by 6.9% in Q2 2013, the fifth successive quarter of
contraction, according to the latest quarterly European M&A update from Harris Williams & Co. The
pace of the slowdown in activity may be decelerating. The biggest declines were noted in the Energy &
Power and Healthcare sectors. The use of leverage is on the upswing. The equity contribution in LBOs
averaged 47% in the first quarter of 2013, compared to 52% during the full year 2012, demonstrating
improved credit markets and lending appetite, says the report.
QUOTE OF THE WEEK: FEELING WEALTHY
A whopping 70% of those with at least USD 1 million in assets that are
invested or available to invest, excluding home values, don’t consider
themselves to be wealthy... Rather, it’s only when they hit the USD 5 million
mark that millionaires begin to feel ‘wealthy’.
Who said it: CNN Money

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Context: Most millionaires don’t feel
wealthy until they have more than five mil-
lion dollars in assets, according to a new
wealth survey by UBS. This was the fourth
edition of UBS Investor Watch, which que-
ried 4,450 US-based investors from June
23 to July 1, 2013. Slightly more than half
of the respondents were men. One of the
most surprising findings says the survey
author, is that four out of five investors are
providing financial support for adult children or aging parents. And one in five is sharing a home with
those adults. The top two personal concerns for investors are long-term care and the financial situa-
tion of children and grandchildren.
Where we found it: CNN Money

6. www.DealMarket.com/digest
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Editor: Valerie Thompson, Zurich
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