Read what's new and noteworthy in Private Equity this week.

1. DIGEST150
July 18, 2014
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M&A Frenzy Continues with Blockbuster To-
bacco Deal
Culture Clash : PE and Family Businesses
Optimism for MENA Region Dealmaking
Vintage 2014 and Beyond: EY PE Trendspot-
ting
Cinven Passes Portfolio Company to Hony
Quote of the Week: Growing Alternatives
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M&A FRENZY CONTINUES WITH BLOCK-
BUSTER TOBACCO DEAL
The rejuvenation of an M&A frenzy is still going strong with a USD 25 billion tobacco giant deal an-
nounced this week. Reynolds American is poised to buy rival tobacco company Lorillard Inc. It is the
latest of a growing number of M&A deals above ten billion dollars. Such deals are at their highest level
since 2007, according to Dealogic. Elsewhere Bloomberg picked up on the fact that this is also the
largest M&A deal led by a female CEO. Susan Cameron, a tobacco industry veteran, is the company’s
current CEO. She had also held the position for seven years between 2004 and 2011. Bloomberg says
that women are often brought to the top chief’s position when a turnaround or fresh approach is re-
quired, either to deal with a flagging company or flagging industry in which the company operates. The
practice is sometimes referred to as the “Glass Cliff” for women, implying that it is a career make or
break kind of thing.
CULTURE CLASH: PRIVATE EQUITY AND
FAMILY BUSINESSES
When it comes to financing their family businesses, unless it is a high tech high growth business, the
thought of private equity doesn’t come first to mind as a source of capital due its reputation for having
a shorter term approach. Family businesses are famous for their conservative financial priorities, says
Guido Corbetta, Prof. Strategic Management & Family Business, Bocconi University in a Family Busi-
ness Blog article, explaining they prefer to use retained earnings for growth investments. And when
they can’t, they borrow money from a bank with whom they have built a long relationship. Typically,
family businesses don’t want to give up equity but if they do make that decision can help to profes-
sionalize family business, making it less susceptible to nepotism & more open to outsiders with wider
experience on the board and/or in senior management roles. The need for a change in culture is not
all one-sided; PE firms have to start to show that they understand the concept of “patient capital”, that
they’ll not sell their stake too readily, at least doubling their normal investment periods, says Corbetta.

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OPTIMISM FOR MENA REGION DEALMAK-
ING
A healthier level of PE activity in the Middle East
and North Africa region is expected in 2014 as
more new PE funds are closed and exits were
realized in the first half of 2014 compared to
last year. Although research by KPMG and
Zawya Thomson Reuters found that 2013 was a
“challenging” and “flat” year for the PE and VC
industries in the region, the medium to long-
term outlook for the PE and VC industries in the
region is “positive”, particularly compared with
more mature markets in the West. Signals are
getting stronger that the MENA region will pres-
ent opportunities as its strong macro-funda-
mentals continue to drive the region’s economic
recovery, barring any unexpected changes in the
forecasts. (Image Source: MENA PE Association
Annual Report)
CINVEN PASSES PORTFOLIO COMPANY TO
HONY
The latest billion dollar buyout, our deal of the week, illustrates how globalization is changing PE’s
ability to grow businesses. European private equity powerhouse Cinven is selling its holdings in the
U.K. restaurant chain PizzaExpress Ltd to Hony Capital for about USD 1.54 billion. Bloomberg reports
that PizzaExpress operates in 13 international markets, including China and Hong Kong where it owns
22 sites. It has a total of 504 restaurants, of which 436 are in the U.K. Hony Capital’s plan is to grow the
asset in the Chinese market, as well as to continue to drive its business forward in the UK.

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VINTAGE 2014 AND BEYOND: EY PE
TRENDSPOTTING
The open window for exits via IPO was the dominant trend in PE in 2013, according to a study by EY. PE
firms took 187 companies public, last year raising USD 58.5bn, up 70% by volume and 166% by value
versus 2012. Finding the exit was easier than the continuing challenge of fundraising and finding deals
that will generate solid returns, it said. PE firms raised a collective USD 401bn in new commitments,
well above the USD 341bn they raised in 2012. Fundraising was driven by the larger funds returning to
the market.
As for the rest of this year, the IPO market should continue to be a source of liquidity (see the graphic
above showing 1Q2014 activity). It is hoped that M&A will improve because there is a significant back-
log of PE. It is one of the most pressing issues that PE firms face in 2014, said EY. (Image source: EY)
QUOTE OF THE WEEK: GROWING ALTERNA-
TIVES
“Alternatives represent 18% of pension funds holdings now. When we started this survey 11 years ago
alt assets represented 5% of pension funds’ assets.””
Who said it: Luba Nikulina Global Head of Private Markets, Towers Watson
In context: WListening to Towers Watson’s Nikulina speak in a recent video for the
press, it sounds like the future of PE will be a good bit different compared to the
past. First of all, it will be even bigger than today’s USD 5.7 trillion global alterna-
tive assets under management, which is already a staggering figure. In private eq-
uity, there will be a continued downward pressure on GP’s management fees over
the long term as LPs gain experience, power, and scale, according to the latest
research by Towers Watson/Financial Times, published in The Global Alternative

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Survey. There will be more tailored separate accounts as investors seek to reduce the amount of fees
they are paying to invest in PE. TW also expects the secondary market to mature and grow in promi-
nence, increasing the liquidity of the asset class. Within five years, a fundamental shift in the nature of
the manager/ investor relationship is expected. Primary fund investing will become just one tool that
large sophisticated investors use to get their private equity exposure, and it will be supplemented with
increased co-investing, secondary activity and strategic partnerships.
Real estate managers have the largest share of assets in the top 100 alt asset manager ranking (31%
and over USD 1trillion). Second place is held by private equity fund managers (23% and USD 753 bil-
lion), followed by hedge funds (22% and USD 724 billion), private equity funds of funds (10% and USD
322 billion).
Where we found it: TW Video

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