– Acquisition Multiples Weaken, at Least in Europe
– Quarterly Fundraising Hits a New High
– Mary Meeker’s Internet Trends Report is Out
– Goldman Sachs to Buy Stakes in PE Managers
– Henry Kravis Reflects on Change and PE’s Future
– PE KeyTrends Quick Question Results
PRICES FOR MID-MARKET PE ACQUISITIONS DROP IN EUROPE for the first time in years, reports Real Deals. In what could be a harbinger of what’s to come in North America and other regions, valuations fell 6.6 percent to an average of 8.5 times cash flow for European acquisitions of €500 million or less in the first quarter. China’s slowdown, weak commodity prices, concerns about higher U.S. interest rates and slower North American growth, capped off by “fears around Brexit,” led to a 14 percent decline in European mid-market mergers and acquisitions value and a 4 percent fall in deal numbers in the first three months of 2016 versus 2015’s final quarter. While trade buyers continued to pay an unchanged 9.1 times corporate cash flow quarter-on-quarter, more price conscious PE funds leveraged growing economic concerns to pay an average multiple of just 8.2 in the first quarter, nearly a full turn less than in the previous three months. Time will tell whether falling prices are just a European blip, or a more generalized trend.
GLOBAL PE FUNDRAISING HITS A POST-FINANCIAL CRISIS HIGH in the first quarter, notes the Triago Quarterly. Private Equity International’s coverage of the quarterly notes that “private equity investors are committing more capital to the asset class even as they receive less cash back from their general partners.” After falling for three quarters in a row through end-of-March 2016, distributions from realized investments will decline further in the coming half-decade, as lean fundraising and slow investment following the financial crisis translate into fewer sales of PE-owned assets. Yet steadily increasing allocations to PE and the circumstances fostering that expansion – slow growth and the likelihood of a sustained period of low global interest rates – make further fundraising highs probable. Triago says “an unprecedented number” of investors are currently increasing their allocation to PE relative to other assets.
MARY MEEKER’S ANNUAL INTERNET TRENDS REPORT IS HERE. Internet growth measured by numbers of global users dipped below double-digits in 2014 for the first time in years and was flat in 2015, rising just 9 percent, notes a Fortune story on the Kleiner Perkins Caufield & Byers partner’s widely anticipated report. Still, there are plenty of internet technologies where growth is accelerating. Meeker’s data rich compendium of 213 slides notes that promising areas of development include voice search technologies, with 65 percent of smartphone users employing voice assistants in 2015 compared to 56 percent in 2014; transport, where the development of smart and driverless cars has put the industry on the edge of momentous change; and internet services in China, where 668 million people currently spend an average of over 3 hours per day each on mobile phones.
BELLWETHER GOLDMAN SACHS PLANS TO BUY STAKES IN PE FIRMS. “Competition for acquiring direct stakes in private equity firms just got hotter,” as WSJ Pro Private Equity puts it. “Goldman Sachs “has jumped into the business of buying minority interests in PE firms, joining other players in the fray,” including Neuberger Berman’s Dyal Capital Partners. Using a $1.5 billion commingled fund, Petershill II, Goldman Sachs “aims to build a diversified portfolio of managers across sectors, strategies and geographies,” buying both mid-market and larger vehicles. Owning minority stakes in PE funds can give asset managers an inside edge when it comes to providing their own clients – particularly high net worth individuals – access to those funds. Taking minority stakes in fund groups also dovetails with a small but growing trend of more mergers and acquisitions occurring between fund managers as they struggle with higher costs and competition from larger fund groups that increasingly offer investors one-stop-shopping.
ONE OF PE’S MOST EXPERIENCED PRACTITIONERS REFLECTS ON CHANGE and the future. In a nearly 5,000 word Q&A with Bloomberg, Henry Kravis, Co-CEO and founder of KKR, talks about his fifty-one years as a private equity investor and the competition that he thinks is transforming investment. Given that “there’s almost no institution in the world – whether it’s a sovereign fund, a foundation, an insurance company, banks, pension funds – that doesn’t do something in the private equity sector,” KKR and others find themselves focused more than ever on what they need to do to remain competitive, Kravis notes. The result, according to Kravis, is that KKR today is “much more of a solutions provider that can invest up and down the capital structure as opposed to a pure PE investor.” That means “we never have a conversation that begins and ends with, ‘The company’s not for sale.’ Now we start off with, ‘What do you need that you’re not getting?’ ” With KKR celebrating its 40th anniversary, Bloomberg asks what the next 40 years will look like. Kravis’ not surprising answer: “more competitive than the last 40, there’s no question about that.”