SEE WHATS NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 114 - 25th October 2013: - IPO Markets Pop to Decade Highs - Dealmaking Up, But Value Down in Info Industry M&A - Buyout Fund Eyes British Security Service Company - PE versus VC: Who Pays C-Level Execs Best? - Quote of the Week: B-to-B Investment Returns Large for VC

1. DIGEST 114
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IPO Markets Pop to Decade Highs
Dealmaking Up, But Value Down in Info
Industry M&A
Buyout Fund British Security Service
Company
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PE versus VC: Who Pays C-Level Execs Best?
Base Case Scenarios : More Insight Into PE
Returns
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Quote of the Week: B-to-B Investment Returns Large for VC
October 25, 2013

2. IPO MARKETS POP TO DECADE HIGHS
INVESTORS
Global IPO activity is projected to reach nearly 200 deals in the third quarter with IPO proceeds of
around USD 24.4 billion, according to EY’s latest quarterly Global IPO Trends Report. For the first nine
months of 2013, around 566 IPOs are expected to raise USD 94.8b. But that statistic does not tell the
whole story, valuations for many of the IPOs have been robust, as has demand. In an article entitled,
Tech IPO Market Partying Like It’s (Almost) 1999, Yahoo Finance reports that the average one-month
share-price gain for 2013 technology company IPOs is up to 39%, based on data from Dealogic. It is the
highest since the year 2000 but still a way off from the bubble era average return rate of 71% in 2000
and 142% gains in 1999 gains. This year 26 out of 145 IPOs have been technology companies, which is
on par with the pace of the past few years, says Yahoo Finance. (Image source: E&Y IPO Global Watch)
DEALMAKING UP, BUT VALUE DOWN IN
INFO INDUSTRY M&A
According to the latest research from Berkery Noyes, an independent mid-market investment bank, the number of private equity
acquisitions in the Information Industry increased 18 percent in the
third quarter of this year. This reversed a downward trend in volume over the past four quarters. However, there was a 52 percent
decline in overall value between second and third quarter 2013,
from USD 20.0 billion to USD 9.7 billion. The peak for financially
sponsored deal value during the last 21 months occurred in second
quarter 2013, which was attributable in part to the acquisition of
BMC Software by a private investor group – led by Bain Capital and
Golden Gate Capital – for USD 6.8 billion. The peak for financially
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3. The largest transaction in Q3 2013 was Thoma Bravo’s acquisition of Intuit Financial Services for USD
1.0 billion. Thoma Bravo had nine Information Industry transactions year-to-date, four of which occurred in Q3 2013.
The number of deals between private equity firms rebounded sharply in third quarter 2013. After falling 50 percent between first and second quarter 2013, secondary buyout volume improved almost
fourfold over the past three months. Secondary buyouts as a percentage of the industry’s aggregate
volume also saw an uptick of six percent thus far in 2013 relative to the corresponding timeframe in
2012. Meanwhile, private equity firms as sellers represented 45 percent of transaction volume during
the quarter, an increase of 10 percent when compared to the industry’s historical average since 2012.
(Image source: BN)
BUYOUT FUND BRITISH SECURITY
SERVICE COMPANY
This week’s deal of the week is a rumored buyout by Charterhouse Capital Partners of London of a
unit of G4S for GBP 1 billion-pound (USD 1.6 billion), according to Bloomberg as reported by BW. G4S
is a large security services and outsourcing company. The unit in question is a cash-solutions business
that includes ATM banking machines. According to the report, G4S, based in Crawley, England, has
not entered formal discussions with Charterhouse or mandated an external adviser for the unit. Other
PE firms are also said to be circling the deal.
This week’s deal of the week is a rumored buyout by Charterhouse Capital Partners of London of a
unit of G4S for GBP 1 billion-pound (USD 1.6 billion), according to Bloomberg as reported by BW. G4S
is a large security services and outsourcing company.
The unit in question is a cash-solutions business that includes ATM banking machines. According to
the report, G4S, based in Crawley, England, has not entered formal discussions with Charterhouse or
mandated an external adviser for the unit. Other PE firms are also said to be circling the deal. (Image
source: wikipedia)
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4. PE VERSUS VC: WHO PAYS C-LEVEL
EXECS BEST?
When it comes to incentivizing C-Level executives venture-backed firms come out on top, while PEbacked firms are not as competitive, and are more likely to underpay the best performing C-level
executives, and overpay average performing managers, even falling behind publicly traded companies, says new research conducted by Chief Executive Group. While base salaries, bonuses and equity
incentives are competitive for median CEO and CFO positions, top quartile venture capital portfolio
executives are better compensated than PE backed executives. And when it comes to technology positions like the head of R&D and CIOs, the gap between venture capital and private equity backed firms
get even larger.
According to Wayne Cooper, co-author of the 2013-2014 CEO & Senior Executive Compensation Report
for Private Companies, “While the median private equity portfolio CEO is better compensated than
CEOs of other private owners, the top performers are underpaid on average, suggesting that many
PE firms are overpaying average performers and underpaying outstanding performers.” He added,
“Senior executive compensation and incentive plans are key to attracting, retaining and motivating top
talent, yet few private equity firms are properly aligning their portfolio company’s CEO and executive
compensation programs effectively. There’s a lot of leverage in getting this right and applying competitive best practices.”
BASE CASE SCENARIOS: MORE INSIGHT
INTO PE RETURNS
Preqin says it has come up with a new
product to benchmark private equity
performance, which gives better insights
than typical metrics such as the IRR and
multiples. The PrEQIn Private Equity
Quarterly Index captures the returns
earned by investors on average in their
private equity portfolios based on the
actual amount of money invested in private equity partnerships. An example of
the number crunching potential is shown
here in the two well-labelled graphics in
from Preqin.
The PrEQIn Index data shows that with
2000 as the base year, mega cap buyout
funds had outperformed the smaller buy-
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5. out fund size strategies, before experiencing a large drop in returns in late 2008.
But the picture looks slightly different if
the index is rebased to 2008. In that case,
mid-market and small buyout sized funds
have generated superior returns, possibly
because the mega funds were impacted
the hardest due to their leveraging and the
liquidity crunch, says Preqin. During this
period the best returns were generated by
the Mid-market buyout funds whereas the
Mega buyouts were at the bottom of the
heap. Mega buyout funds have since returned to being the top performer between
Q2 2010 and Q1 2013.
QUOTE OF THE WEEK – B-TO-B INVESTMENT RETURNS FOR LARGE VC
“When we invest in health technology, we are really looking
for business-centric digital health technology companies. We
see opportunities in Healthcare, connecting things that are
happening in the consumer world back to the business constituents on the health plan, medical providers’ side…”
Who said it: Kevin Spain, General Partner, Emergence
Capital Partners
Context: We’re quoting Kevin Spain this week on where the
next big thing will be in healthcare technology. Why? As
mentioned above IPO markets have been good for exiting PE
industry investors this year. One of the most outstanding we came across this week was achieved by
his early stage venture capital fund at Emergence Capital. BW reports that the IPO of its portfolio company Veeva, will potentially return the firm 300 times its investment and that the cash returned could
end up being more than six times its USD 200 million fund it raised in 2007, if the post-IPO stock price
holds or gains until lockups end in six months. The fund’s LPs include California Public Employees’
Retirement System and the University of Michigan, according to Tech Deals blog, published by Bloomberg. Emergence was an early investor in cloud computing and enterprise software as a service segments. While other VCs were investing consumer Internet in the latter part of the last decade, Emergence stuck to BtoB. Its approach is now paying off. Now it is looking at verticals, such as healthcare.
Where we found it: TechCrunch
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Editor: Valerie Thompson, Zurich
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