Private Equity KeyTrends
April 9, 2013
A concise fortnightly distillation of key private equity news, with links to noteworthy PE articles and studies, edited by Palico – The Online Marketplace for Private Equity LPs, GPs and Advisers
EUROPE’S “HIGH YIELD BOND MARKET IS ON TRACK FOR A RECORD-BREAKING YEAR thanks to a sensational start,” reports Forbes. The first three months of 2013 marked “the strongest ever quarter of issuance, as E21.4 billion of paper priced. As the high yield market blossoms, private equity firms are taking notice. Sponsor-backed issuance during the quarter was roughly half the amount seen during all of 2012.”
PROSPECTS FOR THE GLOBAL IPO MARKET ARE LOOKING INCREASINGLY BULLISH. Investors are “more comfortable today with leverage on initial public offerings,” Mary Ann Deingan, head of equity capital markets for the Americas at Bank of America Merrill Lynch, says in a Reuters story. Deignan notes that she and other bankers are telling private equity firms to go ahead with IPOs for companies “that we told them a year ago they couldn’t take public.” Although technology IPOs have been few and far between this year, Paul Deninger, a senior managing director at Evercore Partners, observes: “There are a ton of technology companies with revenue of about $75-$125 million that are growing at least 20 percent a year and which are profitable” that should seek IPOs this year. Meanwhile Bloomberg cites bankers saying IPOs “will gather pace in the second quarter as companies across more industries proceed with sales and more private equity firms seek to exit investments.” Even Asian IPOs, “which suffered the worst quarter in nearly four years,” are likely to pick up, according to Bloomberg’s sources.
PE “GLOBAL FUNDRAISING COULD INCREASE NEARLY A FIFTH IN 2013” to $318 billion, as “a record percentage” of an “unprecedented twelve-month dry powder bulge reaches term without being invested,” adding to limited partner liquidity, says private equity advisory firm Triago in its latest quarterly. Still, “with a record 2,000 PE funds currently looking to raise a total of $810 billion, many will miss targets or fail.” The 7-page overview of PE conditions includes an all-star roundtable on the private equity fund secondary market, forecasts for calls and distributions in 2013, and a range of items on everything from fundraising challenges for smaller general partners, to LP frustration with slow average drawdown rates.
GRANT THORNTON’S COMPREHENSIVE ANNUAL SURVEY OF GP ATTITUDES zeros in this year on the challenges of limited partner “churn” and what it takes for general partners to stand out during fundraising. The Global Private Equity Report’s 143 participants predict “that 40 percent of next funds will be majority funded by first time investors.”
WOMEN ARE “CHIPPING AWAY AT THE GLASS CEILING IN PRIVATE EQUITY,” albeit slowly, writes Will Alden in the New York Times DealBook. “In North America about 10 percent of the senior employees in private equity are women. By comparison, Wall Street has women in 19 percent of its leadership positions. By choice or circumstance private equity is starting to address the deficit through internal programs and recruitment efforts.”
“THE STRONGEST INCREASE IN PE TRANSACTIONS IN SOUTHEAST ASIA” should be in Thailand, Vietnam and the Philippines, private equity advisory firm Bain & Company tells Bloomberg. “A growing middle class will push up demand for consumer goods such as food, fashion and banking services in those countries, which have experienced fewer deals compared with Singapore and Indonesia. Buyout firms bought companies in Malaysia, Singapore and Indonesia valued at a $2.7 billion in the past year, more than 12 times the value of transactions with targets in Thailand, Vietnam and the Philippines.”
A NEW $12 BILLION FUND SHOULD INCREASE QATAR’S FIREPOWER AS AN INVESTOR. According to a Financial Times story, the Doha Global Investment Co fund will be listed on the Qatar Exchange in May, but will be effectively controlled by Qatar Holding, the country’s sovereign wealth fund, which will retain 50 percent of the new entity. In an earlier FT story, Hussain al-Abdulla, vice-chairman of Qatar Holding, noted that DGIC would invest across all asset classes. “You name it – shares, bonds, real estate, private equity – we will look at every sector in every country around the world.”
VIDEO – EFFECTIVE INVESTOR RELATIONS FOR GPS: “Are most general partners good communicators when it comes to track record and performance? No says Andrea Kramer,” a managing director on the investment committee of influential investment advisor Hamilton Lane. “It is amazing how many GPs don’t realize they are telling the same story as their competitors.” Kramer explains how critical it is for GPs to effectively differentiate themselves when fundraising: “GPs that hone that message and do it most effectively are going to win time and time again.”
DOS AND DON’TS FOR GENERAL PARTNERS, collected from PartnersConnect conference participants by peHub, include: keep your pitch book to no more than 15 pages, don’t stretch a meeting with a limited partner to longer than 90 minutes, don’t use superlatives in self descriptions, do be as transparent as possible about success and failure, and do talk to your LPs individually at least once a year after you’ve got funding. Brian Gallagher, co-founder of fund-of-funds firm Twin Bridge Capital Partners, laments that only 20 percent of the GPs his firm invests with bother to come by and “tell us what’s going on.”
WHAT DRIVES PRICING IN THE SECONDARY MARKET FOR PE FUNDS? This Palico blog item observes that pricing in the secondary marketplace for PE funds over the past two years has been remarkably stable versus secondary markets for other asset classes. The reason posited for this: “Buyers must share benefits in a way that is simply not necessary in asset classes where investment strategies incorporate arbitrage assumptions.”
VIDEO – “BING, POW, BOOM, BING!” With Italian mandolins playing in the background, Bloomberg’s Cristina Alesci indulges in light-hearted speculation about the motivations of the main players in the Dell deal, comparing Blackstone, Silver Lake, Michael Dell and Carl Icahn to Martin Scorsese’s “Goodfellas.” She concludes: “probably the only real connection between the Dell deal and Goodfellas is the number of F-bombs being dropped behind closed doors.”
— The Palico Team