Our weekly pick of Private Equity and Corporate Finance News

1. DIGEST 122
1
Glut of Capital Has PE Scouring the Globe for
Deals
M&A Take Private Predictions for 2014 -US
Market
2
PE Boosts Stellar Returns at World’s 2nd
Largest Medical Charity
Private Equity’s Report Card for US M&A
3
Global M&A Rainmakers of 2013
4
Quote of the Week: Equities and PE on the
High Net Worth Radar
December 20, 2013

2. GLUT OF CAPITAL HAS PE SCOURING THE
GLOBE FOR DEALS
The FT has a feature this week about where private equity funds may be deploying capital in the
next year. It highlights the fact that PE funds are
still sitting on large amounts of capital but the
pace of investment has been slow. Fundraising
has also been brisk this year, much higher than
previous few years. So where will the money
go, asks the FT. The answer it came up with is
Southeast Asia and other emerging markets,
such as Brazil. The pros and cons of both regions are weighed.
Looking still further, the FT says that “traditional
markets” in Europe and North America “will
continue to attract investment despite the financial crisis and growing regulatory regimes” with Asia-based investors attracted to European investments. The report was not bullish on European venture capital.
M&A TAKE PRIVATE PREDICTIONS FOR
2014 -US MARKET
The Deal Pipeline came out with its predictions
for take privates in 2014. Since PE was involved
in some of the largest take privates of 2013 (see
PE Report Card above), we highlight here some
of the companies it for M&A and LBO activities.
The Deal says two American apparel retailers
Abercrombie & Fitch Co and American Eagle
Outfitters, which both have low attractive share
prices (see graphic from MSN Money), could
come into play in 2014, as might Internet hosting company Rackspace Hosting. It has a low
valuation which makes it a target and it may at tract mainstream PE firms after the success PE had
with GoDaddy (Internet technologies). The magazine also sees potential for carve outs and divestments of underperforming divisions at technology giants such as Yahoo!, eBay and HP. The last one
on its shortlist is Pep Boys an auto parts and aftermarket retailer whose sales and profit margins are
disappointment the public market
2
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3. PE BOOSTS STELLAR RETURNS AT 2ND
LARGEST MEDICAL CHARITY
The DealMarket Digest keeps a watch out for smart money moves in the LP universe. This week we
spotted signs of success at The Wellcome Trust. The world’s second-biggest medical charity achieved
returns of 18 percent this year, about GBP 2.6 billion. The trust provided some insight into its portfolio
management strategy in its Annual Report, attributing it to steady investments in public and private
equity since 2008. The Annual Report said that at Wellcome Trust, “market timing is an important
tool”. It reduced exposure to public and private equity from 80% of the portfolio in 2005 to 58% in 2008,
and then used the period between 2008 and 2011, “when most investors were highly risk averse”, to
restore it to 69%. It is now 74% of the portfolio. The trust says it has been “rewarded for this initially
counter -cyclical action as returns have exceeded £7 billion (57%) since the beginning of the Global
Financial Crisis in September 2008, with five consecutive years of positive performance.” Its Annual
Report is here. Among medical research charities, the trust’s endowment is exceeded only by that of
the Bill & Melinda Gates Foundation in Seattle, reports Bloomberg. (Image source: Wellcome Trust Annual Report)
PRIVATE EQUITY’S REPORT CARD FOR US
M&A
This week Dealbook posted a list of notable US regional M&A transactions. Several of them were PE
deals. Some received an A and some received an F. One of the deals highlighted was Thoma Bravo’s
sale of Digital Insight to NCR for USD 1.65 billion, which it bought just 124 days earlier for USD 1.025
billion. It got an A. The venture capitalists that backed Twitter received an A for running a clear and
3
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4. transparent IPO. Dealbook says it was the antiFacebook IPO because Twitter did not get “tricky
with pricing or numbers or try to push boundaries. Twitter simply sold shares to the public with
great success.” This was another A.
European PE firm, Apax got not quite an F for
doing something that is not yet clear will benefit
its LPs. Apax bought Rue21, the fashion retailer,
giving an exit to an earlier Apax fund. When
Rue21 announced a sharp downturn in sales, the
transaction was called into question. “The deal
highlighted the conflicts when a private equity
firm buys a company that it already holds shares
in. It’s a warning for future private equity deals, says Dealbook. Hight marks went to the founder of
Dell for navigating a tough road to take his company private, but and MBO by the management at Dole
received a low mark due to its pricing and legal controversies. (Image Source: Twitter)
GLOBAL M&A RAINMAKERS OF 2013
It is that time of the year when the PE and financial media publish yearly highlights. Institutional Investor published is top ten Deals of
the Year, ranked by total advisory fees (based
on estimates by investment consulting firm
Freeman Consulting Services and Thomson
Reuters).
The focus is on the ten investment banks that
played key roles in a wide range of “remarkable” pending and closed transactions. Barclay’s was number one because it raised USD
9.1 billion, the “biggest capital raising” by a
British bank since 2009.
Telecom giant Verizon Communications came
in second with its USD 130 billion acquisition
of U.K. rival Vodafone Group’s US unit. Number three was the largest tie-up of the past
decade as Shuanghui International Holdings acquired American company Smithfield
foods for USD 7 billion. Two of the ten largest
included PE funds, specifically number 4 and
number 2. (See the graphic from II for all
ten top deals). The magazine says that dealmakers will “face a test” in 2014 as differing monetary policies play out. Higher interest rates in the US may affect debt markets while the European Central Bank
and the Bank of Japan are both expected to keep them interest rates low.
4
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5. QUOTE OF THE WEEK - EQUITIES AND PE
ON THE HIGH NET WORTH RADAR
“Over the longer term however, UHNWs and advisers clearly anticipate that equities will provide superior returns, led by emerging market stocks…followed by developed world equities, agricultural land,
and private equity.”
Who said it: Ian Marsh, CEO Asset Management,
Fleming Family & Partners
In Context: In an executive summary of a new report on
where wealthy families are investing and why over the
next 30 years, Ian Marsh of FF&P made this statement
above. Later on the exact figures are presented with
emerging market equity coming out on top with 24% and
private equity coming in fourth
at 16% (see graphic).
The report is entitled The World
in 2043. Investing with a 30 year
horizon may seem hard to grasp
but FF&P is specialized in that
kind of investment activity, which it calls “the management of long-term family
wealth”. It is also an active PE investor with several new investments this year
and some stellar exits, according to its website.
The report is based on a survey and interviews with ninety Ultra High Net
Worths (UHNW) and advisers, collectively representing over GBP 100 billion of
net assets. The key takeaways were that 71% of identified “real capital preservation” as the greatest challenge and were quite consistent in their view of
what threatened that goal, namely lack of strategic planning, fragmentation on
inheritance, excessive risk taking, dispute and family breakdown, and Inflation/
Taxation. Other findings: the super-wealthy like real estate as an investment; the majority believe that
the US Dollar will remain the global reserve currency in 30 years, notwithstanding the US’s anticipated
loss of economic pre-eminence to China. And London is expected to remain a leading financial centre
for wealthy families, with 93% of the sample believing that it will continue to be one of the top three
globally in 2043. (Images Source: FF&P)
Where we found it: FF&P Publications
5
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6. 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
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