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Mid-Market Private Equity

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Mid-Market Private Equity Mid-Market Private Equity Date: Tuesday, April 30, 2013 Time: 2:30-3:30 PM Room: Wilshire Ballroom Sokoloff Dry powder in global buyout funds Dry powder, US$ billions 600 487 487 500 443 428 383 393 400 358 368 300 259 200 100 0 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013 Source: Preqin. Dry powder in U.S. buyout funds Dry powder, US$ billions 300 271 272 257 250 239 242 216 200 190 186 149 150 100 50 0 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013 Source: Preqin. Dry powder in global buyout funds by size Dry powder, percent 100% 90% 35% 80% 42% 42% 41% 38% 35% 36% 45% 43% $4,500M+ 70% 60% 50% 30% 27% 28% $1,500M- 25% 24% 26% 26% 40% 24% 27% $4,500M 30% $500M- 21% 22% 24% 23% 20% 20% 20% 20% 18% 20% $1,500M 10% 15% 13% 13% 12% 11% 13% 14% 14% 13% Under 0% $500M 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013 Source: Preqin. Private equity investment holding time – median holding period by exit year Median holding period by exit year 6 5.37 4.94 5 4.74 4.16 3.84 3.93 4 3.67 3.57 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 Source: Pitchbook. Secondary buyouts as a percentage of total buyouts Percent of total buyouts 20% 18% 17.4% 16% 14% 12% 10.9% 10% 9.0% 8.2% 10.8% 8% 6.5% 6% 7.7% 4% 4.1% 2% 0% 2005 2006 2007 2008 2009 2010 2011 2012 Source: Pitchbook. Median returns for public pension funds by asset class Median returns 14% 12% 10% 8% 6% 4% 2% 0% Private Equity Fixed Income Real Estate Listed Equity Total Portfolio Sources: Preqin, Bain & Company. Global buyout deal composition by year Buyout deal value, percent of global buyout value 100 90 80 70 60 $500M-$5B 50 =66% of 40 deal value 30 20 10 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 >10B 5B-10B 1B-5B 500M-1B 100M-500M <100M Sources: Preqin, Bain & Company. Leveraged finance volume Volume, US$ billions $850 $811 $750 $679 $465 $624 $650 $593 $535 $521 $550 $480 $375 $450 $389 $234 $350 $295 $226 $241 $250 $77 $150 $157 $287 $346 $218 $144 $144 $164 $50 $94 $69 -$50 2005 2006 2007 2008 2009 2010 2011 2012 Leveraged Loan High Yield Sources: S&P Capital IQ LCD. Average pro forma adjusted debt/EBITDA Average pro forma adjusted debt/EBITDA 7x 6.2x 6x 5.3x 5.4x 5.2x 5.3x 4.9x 5x 4.7x 4.0x 4x 3x 2x 1x 0x 2005 2006 2007 2008 2009 2010 2011 2012 Sources: S&P. Acquisition financings as a percent of total financings Percent of total financings 50% 45% 43.6% 40% 35% 33.2% 35.6% 30% 25% 20% 23.5% 15% 11.7% 10% 2009 2010 2011 2012 YTD 2013 Source: S&P LCD. Global private equity fundraising Fundraising, US$ billions Number of funds 300 300 243 250 243 229 250 198 200 225 243 200 234 150 128 150 117 119 117 145 100 100 109 50 77 79 91 32.1 50 35 0 0 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013 Source: Preqin. U.S. PE fundraising by fund size Fundraising by fund size 100% 0% 90% 22% 16% 31% 26% $5B+ 80% 46% 48% 44% 43% 70% $1B-$5B 60% 43% 52% 50% 44% 52% 40% 28% 32% 32% 39% $500M- 30% 15% $1B 18% 20% 13% 9% 10% 29% 11% Under 10% 20% 9% 12% 12% 10% 14% 11% $500mm 0% 8% 2005 2006 2007 2008 2009 2010 2011 2012 Source: Pitchbook. Volpert Purchase price multiples Average EBITDA purchase multiple 11.4 11.2x 11.2 11 10.8 10.6 10.4 10.2 10.0x 10 9.8 9.6 9.4 Mid cap LBOs Large cap LBOs Source: Capital IQ. Leverage multiples Total debt/LTM EBITDA at acquisition 5 4.5 4.3x 4 3.4x 3.5 3 2.5 2 1.5 1 0.5 0 Mid cap LBOs Large cap LBOs Source: Capital IQ. Fund performance Average fund multiple Average fund net IRR, percent 1.5 1.49x 12 11.8 11.5 1.45 11 1.4 1.39x 10.5 10.0 10 1.35 9.5 1.3 9 Middle market funds Large cap funds Middle market funds Large cap funds Source: Preqin. Fund performance End-to-end pooled return (net to LPs), percent 20% 15% 10% 5% 0% 10-Year 15-Year 20-Year 25-Year U.S. Buyout Funds <$350 million U.S. Buyout Funds$350 million - $1 billion U.S. Buyout Funds $1 billion - $3.5 billion U.S. Buyout Funds > $3.5 billion S&P 500 Source: Cambridge Associates. Carveouts were popular in the U.S. U.S. buyout deal value 100% 90% 80% Private 70% 60% Secondary 50% 40% Carve -out 30% 20% Public-to- private 10% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sources: Bain US LBO deal database, Bain & Company Global Private Equity Report 2013. Notes: Represents control buyout transactions by US-based firms; includes closed deals only; represents year deals were closed Boom-year vintage funds have yet to return significant capital to their LPs Proportion of distributed to paid-in capital (DPI by number of buyout funds 100% 100%+ DPI 90% 80% 80-<100% 70% DPI 60% 60-<80% 50% DPI 40-<60% 40% DPI 30% 20-<40% 20% DPI 10% 0-<20% 0% DPI 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sources: Preqin; Bain analysis. Notes: Includes all buyout funds globally of any size that have held a final close; excludes finds with insufficient data; based on most recent performance, primarily as of Q2 2012 PE funds continue to hold most portfolio assets at values below what they needed to earn carry Valuation of unrealized deals 100% 90% >3X 80% 2-3X 70% 60% 1.5-2X 50% 40% 1-1.5X 30% 0.5-1X 20% 10% 0-0.5X 0% Percent of deals (by count) Source: Bain analysis Notes: Fund vintages in sampe range from 2004-08; analysis includes unrealized investments and partially realized investments; valuation multiples are before payment of fees; PE firms have different policies regarding how they report the value of portfolio investments. Most of the capital committed to PE has come from traditional sources Percent of capital commited to PE funds, type 100% Other 90% Government Agencies 80% Corporate Investors 70% Endowement Plans Foundations 60% Family Offices 50% Banks & Investment Banks 40% High-Net-Worth Individuals 30% Insurance Companies 20% Private Sector Pension Funds 10% Fund of Fund Managers Public Pension Funds 0% 1 Sources: Bain & Company Global Private Equity Report 2013, Preqin 2012 Global Annual Report (FIG. 11.10) Note: Year of fund close 2009-2011. Sponsor-to-sponsor deals perform well compared with other deal types and are significantly less risky Deal rate of return (PERACS rate if return) Deal alpha (PERACS alpha) 45% 35% 40% 30% 35% 30% 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% Pre-2004 Since 2004 Pre-2004 Since 2004 Sponsor-to-sponsor Other Sponsor-to-sponsor Other Sources: Bain & Company Global Private Equity Report 2013, data from HEC Paris; analysis by PERACS PE Analysis and Track Record Certification analysis includes 101 sponsor-to-sponsor deals and 660 other deals, all fully realized. All funds generated both good deals and bad, but the top performers produced more winners and fewer losers Distribution of gross deal returns for sample of buyout funds by quartile 100% >10X 90% 80% 5-10X 70% 60% 2-5X 50% 1-2X 40% 30% At cost 20% 10% <1X 0% Top quartile 2nd Quartile 3rd quartile 4th quartile Data: Bain & Company Global Private Equity Report 2013, HEC Buyout Database. For public pension funds, PE has outperformed other asset classes over the long term Median returns for public pension funds 14% 12.5% 12% 10% 8% 7.1% 6.4% 6.4% 6.7% 6% 4% 2% 0% Listed Equity Fixed Income Private Equity Real Estate Total Investment Portfolio Source: Bain & Company Global Private Equity Report 2013, Preqin. Note: Data based on review of public pension funds in North America and Europe. Reynolds U.S. buyout deal value U.S. buyout deal value, US$ billions 600 1980-1989 1990-1999 2000-2007 500 Inefficiency of GDP growth and multiple Liquidity surge and conglomerates and expansion credit bubble 400 flourishing junk bond market 300 200 100 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 Source: Bain U.S. LBO database. U.S. buyout deal value: 2004-2012 US$ billions Public-to-Private Carve Out Sponsor-to-sponsor Private 600 500 400 300 200 100 0 Source: Bain U.S. LBO database. U.S. mid-market M&A deal overview Source: Thomson Financial. Despite a strong fourth quarter, mid-market M&A activity for Private equity continued to be active in the marketplace as the 2012 ended the year approximately flat in both value and volume and value of deals involving financial buyers increased volume compared to 2011 14.4% and 20.4% respectively in 2012 Middle market deal flow Capital invested, US$ billion Number of deals closed 140 800 120 700 600 100 500 80 400 60 300 40 200 20 100 0 0 2008 2009 2010 2011 2012 Investment by deal size Investments (count) by deal size Investments (amount) by deal size 100% 100% 90% 90% >$2.5B 80% 80% 70% 70% $1-2.5B 60% 60% $500M - 1B 50% 50% 40% 40% $100-500M 30% 30% $25-100M 20% 20% 10% 10% <$25M 0% 0% 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012 Middle Market deals represent more than 95% of total deals closed in 2012, accounting for Source: Pitchbook.
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