SEE WHATS NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 115 - 1st November 2013: - LPs Seek New Approaches to Achieving Returns in PE - M&A Shunned in Favor of IPO in Tech Sector - M&A Momentum Gaining Globally - Frontier Growth Attracts Family Offices - Rumored PE Interest Mega Deal for Grocery Stores

1. DIGEST 115
1
M&A Shunned in Favor of IPO in Tech Sector
2
M&A Momentum Gaining Globally
3
Rumored PE Interest Mega Deal for
Grocery Stores
4
Quote of the Week
LPs Seek New Approaches to Achieving
Returns in PE
Frontier Growth Attracts Family Offices
November 01, 2013

2. M&A SHUNNED IN FAVOR OF IPO IN TECH
SECTOR
Higher valuations and the chance to retain control are two reasons why some tech CEO and founders are shunning acquisition billion dollar offers from larger tech companies, IBM, Citrix, and Cisco in
favor of going public. Reuters is reporting that several tech startups, including cybersecurity company
FireEye Inc, big data company Cloudera and cloud storage firm Box (whose CEO Aaron Levie is depicted in the photo above, rejected buyout bids in favor of initial public offerings in the future. The trend
is not all-encompassing, however. Some companies are content to be sold. Security software company
Sourcefire and data storage firm Whiptail agreed to be bought by Cisco. IBM bought Softlayer and
Trusteer earlier this year, says Reuters. (Image source: box.com blog)
LPS SEEK NEW APPROACHES TO ACHIEVING RETURNS IN PE
Returns offered by private equity are attractive to pension funds, but many have been hit by the poor
fund performance of some private equity funds, says efinancialnews. It has led to several new trends
in PE investment as institutional investors seek less traditional approaches for achieving returns in
PE. For example, they are showing appetite to diversify fund types. They are switching from large
buyout funds to specialist funds run by managers that can pick and navigate deals on a specific theme.
Other pension funds could also diversify away from typical European buyout funds towards emerging
markets and venture funds to generate returns, according to the report. “Buyout funds raised during the boom era have suffered from underperformance and, in some cases, firms have lost control of
some of their portfolio companies,” says the report. The secondaries market is also a growing favorite
of pension funds, particularly those seeking to sell certain investments and free up capital to reinvest
elsewhere
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3. M&A MOMENTUM GAINING GLOBALLY
Ernst & Young came out with an upbeat view on
global M&A this week, reporting that corporate
executives are about to resuscitate the flatlining M&A market, as more than a third look
to do deals. According to EY’s ninth bi-annual
Capital Confidence Barometer, a survey of
1,600 senior executives in more than 70 countries, revealed that strength in core fundamentals is leading over a third (35%) of companies
to pursue acquisitions in the next 12 months
compared to 25% a year ago.
The same sentiment was echoed earlier this
month from another source that said that
growing confidence amongst European companies will likely boost M&A in the coming
months. At the recent Bloomberg Dealmakers
Summit in London panelists said that the recent stability in the European economy should
spur companies to acquire and sell assets
in 2014. The pace of European transactions
spurred by private-equity firms is also set to
accelerate.
The volume of M&A in the third quarter
climbed 42 percent this year to USD 674 billion
this year, according to Bloomberg. The figures
were boosted by a mega-deal between Vodafone Group and Verizon Wireless for USD 130 billion, giving M&A totals in the telecommunications and
technology industries a nudge upwards.
The IPO and equities markets, which are hot, feed the M&A market with further confidence, said the
report. The IPO market has raised USD 17 billion so far this year, compared to USD 10 billion in the
same period last year. The stock market trend that began in the US is moving toward Europe and barring no major geopolitical issue arising, the momentum will continue.
FRONTIER GROWTH ATTRACTS FAMILY
OFFICES
Frontier markets are the place to be, according to a family office fund manager quoted by Reuters. He
said that valuations are like those for the BRIC (Brazil, Russia, India, China) countries 10 to 20 years
ago. It is among private high-net-worth investors that frontier markets are gaining ground. “With both
the capital and appetite for new ventures, along with the skill to create and quickly exploit opportunities, wealthy investors who have come through the financial crisis seem ready to explore new alternatives,” says ftse global markets.com . Reuters reports that the value of private equity deals completed i
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4. n sub-Saharan
Africa rose
nearly 10 percent
in 2012 to USD
1.16 billion, according to the
Emerging Markets
Private Equity
Association (EMPEA), similar to
the amount completed in Russia. This year the
investments are
already at USD 850
million, according EMPEA said.
African private
equity funds
outperformed
US venture capital over the 10
years to September 2012, says
Reuters, posting
an 11.2 percent
annualised return, citing a study by Cambridge Associates and the African Venture Capital Association.
Frontier markets in Asia are Sri Lanka and Pakistan, while Argentina is the target in Latin America.
In Africa, investors are looking at Ghana, Tanzania, and Kenya. And in Europe, there is nascent investment activity in tiny states like Macedonia, Bosnia, Belarus, and Armenia, according to ftse globlal
markets. Family offices named in the article include One Thousand & One Voices, based in South Africa, Fleming Family & Partners, and France’s Wendel family office. (Image Source: Pyramid Research)
RUMORED PE INTEREST MEGA DEAL FOR
GROCERY STORES
A Reuters report sparked the rumor that grocery retail chain, Safeway, may be the target of PE buyout
funds. In an exclusive report it cited undisclosed sources who said that a “handful” of buyout firms,
including Cerberus Capital Management, are exploring a deal for all or part of supermarket chain. If
it goes through the deal could shape up to be one of the largest leveraged buyouts since the financial
crisis, according to Reuters, explaining that Safeway is the second-largest grocery store operator in
the US and its market cap is USD 8 billion. The only PE fund mentioned by name in the report was
Cerberus Capital. Safeway is undergoing some restructuring. It announced last week that Canada’s
Competition Bureau has entered into a consent agreement with Sobeys, a major Canadian retailer, to
sell the net assets of Canada Safeway.
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5. QUOTE OF THE WEEK – FROM PE PARTNER TO WINEMAKING ENTREPRENEUR
“There’s a great joy in creating a product outdoors in one
of the most beautiful places in the world... This morning
I was out walking through a vineyard to see if we were
ready to pick, and the fog was burning off and the sun
was coming up and the birds were chirping. Pretty great
way to spend your workday”
Who said it: William “Bill” Price III
Context: The quote is from former TPG private equity
partner Bill Price who now spends part of his time
investing in and building a thriving California wine business, according to a feature article in Forbes where we
found the quote. His California grown wines are highend and high-margin, which no doubt has established
winemaking labels standing up and taking notice. He is a
co-founder and a partner emeritus of TPG Capital, which
he left in 2006 for personal pursuits.
He controls seven wine brands and five vineyards, including Classic Wines, and Price Family Vineyards,
Durell Vineyard and Gap’s Crown Vineyard, to name a
few. Classic Wines has ownership interests in Kistler,
Buccella, Three Sticks and LUTUM. Price is chairman of
Kosta Browne Winery and Gary Farrell Winery, according
to Lutum’s website. Price was involved with all of TPG’s
investments, most notably Beringer, Continental Airlines, Petco, Ducati and Grohe,
according to Wikipedia. (Image source:
Lutum)
Where we found it: Forbes
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Editor: Valerie Thompson, Zurich
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