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DIGEST 153
September 12, 2014
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VC’s App-etite Leaves Silicon Innovators Scrabbling for Cash
Family Office Invests in Harvard’s School of Public Health
Record-Breaking Selling: US PE
Billion Euro Reha Clinic Buyout
China’s Largest PE Deal in a Resurging
Market
Quote of the Week: Angels are Everywhere
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VC’S APP-ETITE LEAVES SILICON INNOVATORS SCRABBLING FOR CASH
Investors are looking to tap into the sentiment that drives Facebook’s current market cap to more than USD 200 billion and that means less interest and less VC money flowing to hardware startups. Hard to believe but Facebook is valued by the stock market more highly than Intel. It is not that surprising say VC insiders in a report published by SEMI. An App can generate a Euro per download, but the same kind of pricing for chips is not on.
The manufacturers of computing and mobilephone electronics keep creating faster, cooler, and more powerful products but they cannot command similar prices and margins, it seems. Chipmakers invest tens of billions of dollars in R&D and capital equipment but prices and margins keep shrinking anyway. In general, semiconductor investments are seen as very risky by VCs who now believe that silicon technology is maturing, creating fewer opportunities for innovation, let alone disruption.
Fewer hardware investments are being made by VCs, although crowdfunding sites are helping somewhat to keep the money flowing, according to TechCrunch. For investors able and willing to invest contrarian, there are plenty of opportunities, says SEMI, which hosts giant tradeshows around the world focused on chip manufacturing. What SEMI sees as hot are areas such as plastic electronics, energy- sipping power electronics, imaging systems (like the kinds used cameraphones), medical diagnostic tools, energy-harvesting systems, wearable computing (see graphic of Apple iWatch), and improved input tech (touch screens and gesture recognition). (Image source: Apple.com)
FAMILY OFFICE INVESTS IN HARVARD’S SCHOOL OF PUBLIC HEALTH
A Hong Kong family office has just made a philanthropic move to help address pandemics, like Ebola virus. Morningside Group is a family office that invests in private equity and venture capital funds, as well as direct investments, such as UC Web which was recently acquired by Alibaba at a total valuation of USD 3.8 billion. It has donated USD 350 million to the Harvard School of Public Health. The donation is the largest single gift in the Ivy League institution’s history, according to Campden FB. The infusion “changes the entire financial position” of the school. The school will now be called the Harvard T H Chan School of Public Health in honor of the founder of the family businesses that provided the capital for the foundation of the 25 year old Morningside Group.

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RECORD-BREAKING SELLING: US PE
BILLION EURO REHA CLINIC BUYOUT
As if we needed any further confirmation that PE houses are doing more selling than buying this year, dealogic spells it out again this week, announcing a record breaking year for Private Equity related M&A in the US market. Exit deals in the United States are now USD 118.8 bn. Current PE investment activity volume is USD 75.6bn. The spread between buying and selling is the widest ever at USD 43.2 bn. Your DealMarket Digest editor notes that it might be less than exits, but 75 billion is still a lot of activity and represents more than 540 deals for PE.
Both trade sales and secondary transactions contribute to the high numbers this years. Technology is the top sector by volume USD 12.4bn investment, while Healthcare stands as the top sector by volume for exits. (Image source: dealogic)
Chains of healthcare service providers and luxury hotel properties are popular targets for certain PE investors and a deal this week falls somewhere in between.
Reuters is reporting that PE funds are competing to acquire Median Kliniken, Germany’s largest private sector chain of health rehabilitation clinics.
There has been a low but steady level of activity in consolidation of hospital chains and clinics in both Switzerland and Germany in recent years.
The buyout houses interested include PAI Partners and Waterland. The deal could be valued at roughly US 1 billion.

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CHINA’S LARGEST PE DEAL IN A RESURGING MARKET
QUOTE OF THE WEEK: ANGELS ARE EVERYWHERE
“Angels are everywhere in the business landscape nowadays. They invest, individually or by groups, in startups and in small and medium enterprises (SMEs). Angels are searching for new innovative companies that bloom faster both in sales and value, aside from creating new jobs.”
Who said it: David Drake, Chairman of LDJ Capital, a NYC-based family office & The Soho Loft Media Group
In context: Drake describes the latest trends in angel investing in a fact filled piece for the HuffPost. Angel investment activity has been growing quickly since 2010, he says, both in terms of dollars and number of investments. Angels invested a total of USD 24.8 billion in 2013, showing an increase of 8.3 percent over the 2012 figure (USD22.9 billion). Investments were made in 70,730 enterprises, up from 67,000 small businesses. (The source of the data is the University of New Hampshire’s Center for Venture Research.) Angel-backed businesses include Amazon, Costco, Facebook, Google, Paypal, Starbucks and Yahoo.
Where we found it: Huffington Post
Chinese deals continue to make the news. Warburg Pincus, along with a syndicate of institutional investors, has acquired a stake in China Huarong Asset Management, a soon to float financial sector company, according to Bloomberg. The report says that this deal contributes to the USD 10.9 billion of total acquisitions reported in China this year, which is more eight times the amount for the year-ago period. It did not state the data source, except that it was data compiled by Bloomberg. The report says the second largest China deal was a USD 410 million stake in China Pacific Insurance Group Co. back in 2005, which apparently gave rival Carlyle one of its biggest returns on investment ever.
It backed China Pacific Insurance in 2005 and 2007, earning five times money on a 17 percent stake, according to several published sources. Compared to other regions the size of the Chinese PE deals cited are relatively small, perhaps reflecting the relative immaturity of private equity in China. But outsized returns are expected. Eyes are on the Alibaba IPO for tech sector investing.

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www.DealMarket.com/digest
The DealMarket Digest empowers members of DealMarket by providing up-to-date and high-quality content. Each week our in-house editor sifts through scores of industry and academic sources to find the most noteworthy news items, scoping trends and currents events in the global private equity sector. The links to the sources are provided, as well as an editorialized abstract that discusses the significance of the articles selected. It is a free service that embodies the values of the Dealmarket platform delivers: Professional, Accessible, Transparent, Simple, Efficient, Effective, and Global.
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Editor: Valerie Thompson, Zurich
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