Private Equity and Venture Capital assets kpmg

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Published by,Financier Worldwide,23rd Floor Alpha Tower. Suffolk Street Queensway,Birmingham B1 1TT,United Kingdom. Telephone 44 0 845 345 0456,Fax 44 0 121 600 5911,Email info nancierworldwide com. www nancierworldwide com,Copyright 2014 Financier Worldwide. All rights reserved,Annual Review December 2014,Private Equity Venture Capital.
No part of this publication may be copied reproduced transmitted or held in a. retrievable system without the written permission of the publishers. Whilst every effort is made to ensure the accuracy of all material published in. Financier Worldwide the publishers accept no responsibility for any errors or. omissions nor for any claims made as a result of such errors or omissions. Views expressed by contributors are not necessarily those of the publisher. Any statements expressed by professionals in this publication are understood to. be general opinions and should not be relied upon as legal or nancial advice. Opinions expressed herein do not necessarily represent the views of the author s. rm or clients or of any organisations of which the author is a member. Private Equity Venture Capital,DECEMBER 2014 ANNUAL REVIEW. F i n a n c i e r Wo r l d w i d e c a n v a s s e s t h e o p i n i o n s o f l e a d i n g. professionals around the world on the latest trends in. private equity venture capital,UNITED STATES 06 LUXEMBOURG 30. Jeremy Dickens Philippe Neefs,SHEARMAN STERLING LLP KPMG LUXEMBOURG. CANADA 10 AUSTRALIA 34,Benjie Thomas Quentin Olde,KPMG FTI CONSULTING. BRAZIL 14 NEW ZEALAND 38,Jo o Busin Josh Blackmore.
A N N U A L R E V I E W P R I VAT E E Q U I T Y V E N T U R E C A P I TA L 2 0 1 4. 2014 was a notable year for the private equity industry. INTRODUCTION with buyout activity increasing considerably over the last. Softening debt markets and dry powder reserves will be. an issue for many rms in the months ahead Estimates. suggest that the level of dry power within the PE industry. has now topped 1 6 trillion Should quality assets prove. hard to source during 2015 as they did at times during. 2014 it will be tough for PE rms to put their existing. funds to work, In terms of exits IPOs have become more prevalent in. recent years partly due to PE rms pursuing dual track. exits from their investments That said trade deals and. secondary buyouts are still the most popular forms of. The fundraising outlook generally remained positive. throughout the year and this trend is likely to continue into. 2015 An increase in new private equity funds emerging. from China as well as increased commitments from, major pension and sovereign wealth funds were notable. developments in 2014 In Australia for example sovereign. wealth funds emerged as the largest source of new, commitments last year For investors looking to allocate. capital the quality of fund managers remains paramount. Investors are seeking general partners with a proven track. record demonstrating stability in the long run, A N N U A L R E V I E W P R I VAT E E Q U I T Y V E N T U R E C A P I TA L. UNITED STATES,JEREMY DICKENS,SHEARMAN STERLING LLP.
DICKENS On a global basis we have seen increasing activity across. Q HOW WOULD YOU almost all geographies with particular activity in the United States Europe. CHARACTERISE PRIVATE and the Middle East Transaction values vary depending on the type of. EQUITY DEALMAKING IN THE transaction and by region with smaller transactions those under 250m. US OVER THE LAST 12 18 being more typical in markets such as the Middle East and Asia In the US. MONTHS WHAT KINDS OF and Europe the most consistent level of activity has been in the middle. TRANSACTION VALUES ARE market with transaction values between 250m 1bn although there. APPARENT AND IS THERE are of course a handful of larger transactions. STRONG COMPETITION FOR, DICKENS There is no doubt that bank capital is less available for larger. Q TO WHAT EXTENT ARE private equity transactions than had been the case before the banking. BANKS EAGER TO PROVIDE regulators in the United States began imposing signi cant leverage limits. FINANCING FOR LEVERAGED on commercial lenders While the impact of these regulatory changes tends. BUYOUTS ARE NON to affect only larger transactions where the buyers seek total leverage. TRADITIONAL LENDERS ALSO greater than 6x EBITDA we have seen a number of alternative lenders. VISIBLE IN THE MARKET beginning to compete aggressively to provide capital in lieu of commercial. institutions We believe that alternative lenders will only become more. active in the debt markets, DICKENS In general there are few if any legal and regulatory developments. Q COULD YOU OUTLINE affecting private equity rms directly in the way in which they are. THE MOST SIGNIFICANT executing transactions Private equity transactions generally involve tried. LEGAL AND REGULATORY and true acquisition and nancing techniques To the extent regulatory. DEVELOPMENTS FACING THE pressures on commercial banks reduce the availability of bank capital. PRIVATE EQUITY INDUSTRY the private equity industry will adapt and work with alternative debt. IN YOUR OPINION HOW providers Similarly the expensive settlement of the collusion lawsuits. WILL THEY SHAPE THE ASSET arising out of some of the very large club transactions of the 2004 07 era. CLASS IN THE LONG TERM has made it more dif cult but not impossible for rms to join forces to. 6 F I N A N C I E R WORLD WIDE DECEMBER 2014 www financierworldwide com. A N N U A L R E V I E W P R I VAT E E Q U I T Y V E N T U R E C A P I TA L. UNITED STATES JEREMY DICKENS SHEARMAN STERLING LLP. bid for assets Private equity rms are simply more conscious of the need. for transparency and upfront consultation with sellers and their advisers. concerning their willingness to participate in particular transactions only. if they are able to partner with other nancial investors Indeed with the. increasing level of direct investment activity by sovereign wealth funds. large pension plans and large family of ces private equity rms no longer. have to rely solely on other private equity rms to provide a portion of the. capital necessary to fund acquisitions I suppose one might say that the. private equity industry simply continues to showcase its ability to adapt. as necessary in order to continue investing, DICKENS The fundraising environment for private equity continues to. Q HOW ARE PRIVATE EQUITY be challenging with an ever increasing number of LPs choosing to make. FIRMS ACTIVELY REDUCING more concentrated investments with a smaller number of GPs Naturally. RISK AND IMPROVING this puts pressure on private equity rms to work as hard as possible to. RETURNS ACROSS THEIR demonstrate attractive investment returns One of the ways in which GPs. PORTFOLIO reduce the risk in their portfolios is by being more selective about the. transactions they pursue In that regard we have noticed an increased. emphasis on upfront business and legal due diligence on potential targets. and a greater willingness on the part of sponsors to walk away from. marginal transactions We also see sponsors devoting signi cant resources. to monitoring their portfolio investments and a greater willingness to. intervene when actual results deviate from expected results. DICKENS Whether exits tend toward IPOs secondary buyouts or trade. Q HOW ARE PRIVATE EQUITY sales is more a function of relative opportunities than a desire by a. EXITS PLAYING OUT IN THE sponsor for a particular form of exit According to conventional wisdom. US IS THERE AN EMPHASIS a sponsor realises the highest theoretical value by selling a portfolio. TOWARD TRADE SALES IPOS company to a trade buyer largely because trade buyers can pay more. w w w fi n ancierworldwide com DECEMBER 2014 FINANCIER WORLD WID E 7 8. A N N U A L R E V I E W P R I VAT E E Q U I T Y V E N T U R E C A P I TA L. UNITED STATES JEREMY DICKENS SHEARMAN STERLING LLP. We expect to see more LPs develop direct investing programs. in addition to seeking co investment rights, OR SECONDARY BUYOUTS due to inherent operating synergies and a longer investment horizon than. FOR EXAMPLE sponsors But that requires trade buyers to actively look for acquisitions. As between an IPO and a secondary buyout we tend to see sponsors being. somewhat indifferent From a sponsor s perspective exiting via an IPO is. more risky than a secondary buyout because a sponsor almost never is. able to liquidate its entire investment at the time of the IPO Instead. it typically takes a sponsor another 12 30 months to sell its remaining. position which means that the value of the remaining stake uctuates. with the markets and the company s performance A secondary buyout. offers an opportunity to sell all or substantially all of a sponsor s stake. in one transaction It simply comes down to which transaction on a risk. adjusted basis is likely to produce a better outcome for the sponsor We. are currently seeing an increasing number of exits via trade sales although. there are still a number of exits via IPO or by secondary buyout. DICKENS The relationship between GPs and LPs is evolving with a number. Q COULD YOU PROVIDE of larger LPs such as sovereign wealth funds pension plans and large family. AN INSIGHT INTO THE of ces increasingly interested in co investing with their existing GPs or. MAJOR ISSUES SHAPING THE engaging in direct investing activities where opportunities come to them. RELATIONSHIP BETWEEN from other sources including via internal efforts to seek out opportunities. GENERAL PARTNERS GPS In years past sponsors offered co investment opportunities to their LPs. AND LIMITED PARTNERS LPS typically because they could not fund an acquisition without additional. capital due to concentration limits in their underlying fund documents. that is no more than X percent of committed capital may be invested in. a particular portfolio company or in a particular geography or particular. industry As time has progressed many large LPs have insisted on co. investment rights because of the opportunity to deploy greater capital in. a particular transaction and at an overall lower cost An increasing number. of large LPs however taking the knowledge gained through co investing. have developed large and capable direct investment programs led by. internal investment professionals who seek out investment opportunities. We expect to see more LPs develop direct investing programs in addition. to seeking co investment rights While many of these LPs will continue to. 8 F I N A N C I E R WORLD WIDE DECEMBER 2014 www financierworldwide com. A N N U A L R E V I E W P R I VAT E E Q U I T Y V E N T U R E C A P I TA L. UNITED STATES JEREMY DICKENS SHEARMAN STERLING LLP. be major investors in private equity funds some of them will also compete. directly with funds for investment opportunities, DICKENS We continue to be optimistic about the overall amount of.
Q LOOKING AHEAD WHAT capital available to private equity sponsors However we expect the trend. ARE YOUR PREDICTIONS to continue toward larger LP commitments and fewer GPs As a result we. FOR PRIVATE EQUITY believe rst time funds will continue to experience signi cant dif culty. FUNDRAISING IN THE raising capital and established but smaller funds in the sub 5bn range. COMING MONTHS without clearly differentiated investment strategies will have a harder. time raising capital even if past investment performance has been better. than benchmarks Of course funds with poor investment performance will. nd it dif cult to raise capital unless there is a convincing reason behind. the lagging performance Put another way available capital is likely to ow. most easily to the very largest funds many of which now offer multi asset. classes under one umbrella organisation or to larger funds with clearly. differentiated strategies,Jeremy Dickens,Shearman Sterling LLP. T 1 212 848 4504,E jeremy dickens shearman com, Jeremy Dickens co head of Shearman Sterling s Private Equity Group has represented private equity sponsors. including Apax Blackstone Capital Z Partners Hicks Muse Tate Furst Providence Equity Partners Roundtable. Investment Partners The Olayan Group Emirates International Investment Company KIPCO and Texas Paci c Group. as well as their portfolio companies Before joining the rm Mr Dickens practiced 18 years at another international. law rm where he was a member of the private equity practice and co founder and co head of its global capital. markets practice He also spent nearly six years as a corporate executive entrepreneur and board member. w w w fi n ancierworldwide com DECEMBER 2014 FINANCIER WORLD WID E 9. A N N U A L R E V I E W P R I VAT E E Q U I T Y V E N T U R E C A P I TA L. BENJIE THOMAS, THOMAS After seeing modest growth in 2013 the Canadian private. Q HOW WOULD YOU equity market PE really picked up in 2014 By the end of the third. CHARACTERISE PRIVATE quarter last year the total number of buyout PE deals was almost 40. EQUITY DEALMAKING IN percent higher than the same period in 2013 Deal values were also. annual review private equity amp venture capital 2014 annual review private equity amp venture capital 6 financier worldwide december 2014 www financierworldwide com united states q how would you characterise private equity dealmaking in the us over the last 12 18 months what kinds of transaction values are apparent and is there strong competition for deals q to what extent are

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