SEE WHATS NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 137 - April 17th, 2014: - Cravings for Direct Co-Investment Still Strong - Narrow Niches and Big Returns - Australian PE Backed IPOs Outperform - The Traits of Family Wealth Managers That Make Money…. and Lose it - CEOs Get M&A Fever Again - Quote of the Week: Betting on Justice

1. DIGEST137
April 17, 2014
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Cravings for Direct Co-Investment Still
Strong
Narrow Niches and Big Returns
Australian PE Backed IPOs Outperform
The Traits of Family Wealth Managers That
Make Money…. and Lose it
CEOs Get M&A Fever Again
Quote of the Week: Betting on Justice
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CRAVINGS FOR DIRECT CO-INVESTMENT
STILL STRONG
HarbourVest announced closing its latest co-in-
vestment vehicle at USD 1 billion, which is about
260 million dollars more than it had committed
to its last such vehicle, raided in 2007 Direct, a
USD 734 million fund. The news shows that cor-
porate pensions, public pensions, endowments,
and foundations from around the globe have a
strong appetite for the co-investment strategy.
Elsewhere, FN says that aggregate global pri-
vate equity co-investment fundraising reached
USD 6.2 billion across 26 funds last year, cit-
ing Preqin. “This was a huge jump from the 12
funds that raised USD 2.7 billion in 2012 and the
highest year since 2007, when 28 funds raised
USD 10.9 billion,” said FN. (Image source. Har-
bourvest)
NARROW NICHES AND BIG RETURNS
One of the top performing PE funds in the
world today is Vista Equity Partners, ac-
cording to Preqin data. Its founder Robert
F. Smith is featured in the
NY Times this week. What makes Vista
special and apparently very successful (it
has delivered a 31 percent average annu-
al rate of return since 2000- even during
the downturn) is its focus on enterprise
software, a uniform transforming ap-
proach to creating growth and quality
products in the companies it acquires,
and a novel hiring methodology.
Some of the other top-performers,
according to Preqin data (which we
reported here), are Veritas Capital, a firm
which specializes in defiance industry investments, Wynnchurch Capital, specialized in growing niche
manufacturing, industrial services, and supply chain ventures, and Inflexion, a UK fund that in its own
words specializes in potentially high-growth niche businesses. Long ago, before Carlyle became a gi-
ant alternative investments company, it established its reputation as a specialized buyout fund, target-
ing highly regulated aerospace, healthcare, telecommunications and defense industry companies and
spinoffs. It looks like the smart money is on sector

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AUSTRALIAN PE BACKED IPOS OUT-
PERFORM
specialization and narrow niches pursued over a long period of time (at least two or more cycles).
Yale Alumni recently heard this same view at a recent event and Finnish academics heard it here.
The performance of these PE funds confirms the attraction o f the mid-market for PE and suggests a
greater role for PE in a wide range of industries and service companies, one niche at a time. It could
mean lot more success stories, like what happened with a tiny mid-west manufacturer of sports
mouth-guards doing less than USD 10 million in sales once two sets of private equity investors got
their hands on it, according to the Star Tribune. They grew it to almost USD 100 million in turnover a
year. Now, a third PE fund owns, Shock Doctor, and it plans to take it to the next milestone: a billion in
turnover. That’s not the financial engineering that PE may be known for. It sounds like hard work, hu-
man and operational excellence, along with a good deal of enterprising activity. (Image source: Oregon
State website )
At DealMarket Digest, we like to highlight news that goes against conventional thinking about PE (both
negative and positive perspectives). Today under the heading of myth-busting, we picked up on the
news about an Australian study that shows that “contrary to market perceptions”, initial public offer-
ings that are backed by private equity firms have outperformed other floats in the market. It said that
PE-backed floats listed between 2003 and February 2014 posted an average return of 95 per cent since
listing, compared with a 2.2 per cent decline for floats that were not backed by private equity. There
has traditionally been skepticism about PE-backed floats, as we have reported here.
The study was undertaken by AVCAL an Australian buyout industry lobby group, said the report. The
journalist did not seek commentary from less involved capital market analysts for the article. The
AVCAL study is available here. It used a number of time periods for its analysis, weighted returns and
absolute return scenarios were part of the analysis. (Image source: AVCAL)

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CEOS GET M&A FEVER AGAIN
TRAITS OF FAMILY WEALTH MANAGERS
THAT MAKE MONEY… AND LOSE IT
Todd Ganos, founder of Integrated Wealth Coun-
sel, has published in Forbes a four part series of
articles on family office wealth management. We
digested the articles here and included a graphic
from SEI Investments Management Corporation
that shows a Diversified Portfolio in light green
compared to large cap basket in dark green and
other index-based investment pools in orange.
• Make Money by keeping assets intact and
pooling family capital
• Lose Money by investing only in public equities
and stock picking
• Make Money by disciplined portfolio manage-
ment by diversifying and understanding asset
allocation strategies (what percentage of
investments goes into equities, real estate,
commodities, hedge funds, and bonds)
• Lose Money by taking the short term-view
and being impatient. Money is lost when man-
agers forget that diversification is a long-term
investment strategy that should not be judged
by short-term metrics.
• Global M&A activities grew in the first three
months of the year by 23% compared to the same
period last year, up to USD 804.5bn compared to
USD 655.8bn. The Dealogic data show that the
size of individual M&A deals is expanding, while
total number transactions are on the decline. It
looks like CEOs are spending larger, and more
willing than they have been to do giant-sized
deals.
• According to The Deal Pipeline, Comcast Corp.’s USD 67 billion bid for Time Warner Cable puts
into the shadow last year’s “blockbuster” take over of HJ Heinz (at USD28 billion).

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• Strategic buyers have led the way in the first quarter this year, outspending private equity players, it
said. There are fewer PE deals in the first quarter and they are smaller, too. A desire to boost market
share and margins in the face of stalling organic growth is causing some strategics to pay a higher
premium for a fast-growing company that will give them an edge on competition, as was the case
with Facebook’s WhatsApp acquisition, say analysts quoted in the article.
• As for PE, there are “plenty of potential targets”, especially in rivals’ portfolios. According to the re
search from Preqin, cited in the article, there are more than 4,000 in the US alone, companies ac
quired between 2006 and 2011 that may be ready to exit
• One last data point from the latest summary is that this past quarter was the “highest quarter on
record” for the Telecoms sector. It is not clear to us if Dealogic’s records extend back in time to M&A
frenzy that took place globally during the tech bubble days of ’99. (Image source: Dealogic)
QUOTE OF THE WEEK - BETTING ON
JUSTICE
“This emerging finance sector will experience significant growth. From an asset class development
perspective, litigation finance today is where private equity was in the early 1980s… Few, if any, litiga-
tion finance firms have the combination of litigation, business, and finance talent that Longford Capital
offers.”
Who said it: William H. Strong, chairman of Longford Capital and former
co-CEO Morgan Stanley Asia Pacific Region
In Context: Bill Strong is quoted here talking about Longford Capital, a com-
pany he just joined this month. Longford is a trailblazer in the US for a new
type private equity investment segment, which backs promising lawsuits,
accompanying claims to conclusion, staking its fund’s millions on a favorable
outcome. In its own words Longford Capital says it makes equity investments
in meritorious, business-to-business legal claims with USD 25 million to more
than USD 1 billion in controversy. Typically, it funds attorneys’ fees and other
costs necessary to pursue claims in return for a share of a favorable settlement or award. It can invest
in business-to-business contract claims, antitrust and trade regulation claims, intellectual property
claims (including patent, trademark, copyright, and trade secret), fiduciary duty claims, fraud claims,
claims in bankruptcy and liquidation, domestic and international arbitrations, and a variety of others.
It’s one of PE’s new areas of specialization, and niches are seen as a success factor these days, as this
Forbes article makes clear. The demand for litigation finance is growing and is already established in
the UK and Australia. The US market for this type of finance began less than five years ago, according
to Longford. (Image source: National University of Singapore)
Where we found it: Longford Press Release

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