Read DealMarket's weekly PE news

1. DIGEST135
April 04, 2014
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Natural Gas Property in Wyoming Sold to PE
M&A Data Confirms Fierce Competition in
Europe for PE Players
UK Leads in Adoption of Crowdfunding
Study Finds Co-Investment Risky for LPs
SWFs Dominate Top Ten Public Investor 100
Global Ranking
Quote of the Week: Questioning PE’s Role in
Mining and Energy4

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NATURAL GAS PROPERTY IN WYOMING
SOLD TO PRIVATE EQUITY
This week’s deal of the week is a USD 1.8 billion dollar buyout of an asset that belonged to Canada’s
Encana Corp, a leading natural gas producer. According to BW, Encana sold its Jonah field opera-
tions in Wyoming to private-equity fund TPG Capital. The website of TPG says that it typically invests
in financial services, travel and entertainment, technology, consumer, retail, media, and healthcare
sectors, however Bloomberg recently reported that it was raising USD 1.25 billion for its first dedicated
energy fund.
M&A DATA CONFIRMS FIERCE COMPETI-
TION IN EUROPE FOR PE PLAYERS
Private equity-backed mergers and acquisi-
tions (M&A) in Europe fell by almost a third to
USD 55.2 billion from a year ago, according to
Thomson Reuters. PE firms accounted for only
8 percent of M&A deals year to date, compared
to 10 percent. Drivers of the shrinking of PE’s
share of the market, include fierce competition
from the public markets, and competition for as-
sets, which leads to higher valuations and unat-
tractive multiples. In addition to expensive as-
sets, funds are also facing competition strategic
investors, said the Reuters report. The European
trend contrasts with Asia Pacific M&A, where
PE firms had a stellar first quarter, according to
Dealogic.

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UK LEADS IN ADOPTION OF CROWD-
FUNDING
Crowdfunding is on the rise with an estimated 50,000 business angels registered on equity financing
sites such as AngelList, CircleUp, Seedrs, and Crowdcube. About ten percent of those registered have
actually taken the plunge and completed transactions, says a new report from OurCrowd. OurCrowd,
which authored and researched the report, claims to be one of the market leaders in this emerging
segment.
The analysis shows that equity crowdfunding platforms used by individuals to become equity stake-
holders in early stage companies have grown in order to meet the needs of startups and small inves-
tors who can now participate in a more liberated market in the US. It is worth noting that the UK is
home to twice as many platforms as the US, despite its smaller population and GDP. One reason the
UK may be ahead of the US is that its regulatory body has been quick to create a policy and an ap-
proval process for innovative financial technologies, including peer to peer lending and various types of
crowdfinancing. Seedrs and Crowdcube, which figure prominently in the report, both have FCA certifi-
cation.
Elsewhere, Crowdfundinsider considered other reasons why Great Britain leads the way, noting that
leading UK platforms are actively involved in ensuring quality and safer investing support and the fact
that secondary deals, as well as fund pools are also possible on the platforms. The UK’s FCA defines
crowdfunding as an online platform where consumers can buy investments, such as equity or debt
securities that are not listed or traded on a recognized exchange, or units in an unregulated collective
investment scheme. (Image source: OurCrowd)

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SWFS DOMINATE TOP TEN PUBLIC
INVESTOR 100 GLOBAL RANKING
Recently Carlyle Group’s prominent CEO David
Rubenstein reportedly said that Sovereign Wealth
Funds (SWF) may become the largest source of PE
capital in the coming years, replacing other types of
public investors, such as US pension funds as the
dominant players. Whether he is right about the
prediction or not, both pension funds and SWFs are
important to the PE ecosystem. They provide capital
to LPs and they have also been increasingly mak-
ing large direct PE investments, such as deals done
recently by Canada’s Public Sector Pension Invest-
ment Board (CPPIB) and Abu Dhabi Investment
Authority.
For these reasons, the latest rankings from
Sovereign Wealth Fund called Public Investor 100 is
of interest. It is worth noting that six out of the top
ten are SWFs. Number one this year is Abu Dhabi
STUDY FINDS CO-INVESTMENT RISKY
FOR LPS
The debate about returns in private equity
continues unabated this week. Under the mi-
croscope this time, is co-investment returns
achieved by limited partners. A new data-driven
study from Altus Associates, which manages
and advises USD 26.7 billion for institutional
investors, claims to “expose the shortcomings”
of co-investment portfolios. Using a sample of
886 realized US buyout and growth investments
ranging from 1979 to 2010 and a co-investment
portfolio comprising 10 assets, the study found
that “there is a substantial probability that the
entire portfolio would generate an IRR below 0%”. The authors added that even with 20 company co-
investment portfolios, “It is still possible to lose significant capital as measured by either IRR or mul-
tiples”. Altius, which is also a fund of fund manager, warned that the “dispersion of returns indicates
that there is a probability that the returns could be poor, even across an entire portfolio”. The weak-
nesses of the co-investment model include adverse selection and portfolio concentration, according to
Altius Associates. (Image source: Altius)

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Investment Authority, a SWF that has been in the news quite a bit of late due to the amount it has
invested in the past year. But the size of the assets under management and activity levels are not the
only criteria, says the ranking’s creator, influence and trendsetting ability were also considered. Num-
ber three and four are also SWFs. Other SWFs that made it in the top ten are Temasek, NBIM, Qatar
Investment Authority, China investment Corp. (Image source: SWF Institute)
QUOTE OF THE WEEK - QUESTIONING PE’S
ROLE IN MINING AND ENERGY
“The problem with the commodities space if you have a high gearing is that you are not running Boots
pharmaceutical where you have a pretty constant earnings base... you just don’t know your earning
base. When you hit bad times, like we did recently, it goes down (quickly). How are you going to feed
your debt?”
Who said it: Ivan Glasenberg Chief Executive Officer, Glencore Xstrata
In Context: Private equity players are creating more specialized and sec-
tor specific funds, targeting non-traditional sectors and emerging markets,
in their efforts to raise funds in a highly competitive global marketplace that
makes it more difficult to attract LP money and find reasonably priced deals.
(See Natural Gas buyout below). One of those sectors they are expanding into
is the extraction or mining industry (including gas and oil companies) but min-
ing industry insiders are not exactly optimistic about PE’s role in their industry.
And this trend is what Glasenberg is commenting on in the quote above. He
says that PE’s business model, which typically relies on steady cash flows to
finance debt, does not fit with mining’s need for patience and deep pockets to make large investments
for exploration and lumpy revenue flows. Volatility in the price of commodities is another issue, as is
dealflow.
Mining industry executives quoted in the article said they are willing to sell non-core assets but they
are not about to sell them at valuations that fit PE’s model. His views are complemented by opinions
expressed elsewhere in an article in The Financial Post, which adds the time horizon for generating
returns in PE being shorter than that of the mining sector, and the need for specialized technical know-
how, as two more challenges facing PE investors. That said, the same article described one PE fund
manager that has been successful, namely Waterton, which has made returns by limiting its geograph-
ical scope, and the range of commodities sought by its portfolio companies. (Image source: Reuters)
Where we found it: Reuters

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