Preqin Special Report: Private Equity Buyout Investments

Content Includes: Preqin Special Report: Private Equity Buyout Investments

April 2014 Buyout Fund Manager Survey

We analyze the results of our recent survey of over 150 buyout fund managers and assess their views on the current private equity market, and in particular deal activity.

Private Equity-Backed Buyout Investments

We take a look at private equity-backed buyout deal activity in recent years, including breakdowns by region, industry and type.

Private Equity-Backed Exits

We examine private equity- backed exits, including a look at activity by type and region in recent years, as well as secondary buyout deals and notable exits in 2013/2014 YTD.

alternative assets. intelligent data. Click here to download the data pack. Preqin Special Report: Private Equity Buyout Investments Survey of Private Equity Buyout Fund Managers

In 2013, buyout fi rms raised $495bn from institutional investors, Fig. 1: Private Equity Funds Managers’ Views on the Cause and while raising capital has become a more labour intensive of High Price Multiples process, the next stage of the process, investing institutional capital, is just as challenging if not more. Preqin tracks over 2,400 60% 57% private equity buyout fund managers, profi ling their fundraising, 51% 50% investments and performance. We recently conducted a survey 39% of over 150 buyout fund managers across the globe to gain direct 40% 37% insight into their thoughts on the private equity industry, and gauge what challenges they face and the issues that affect them when 30% 26% investing institutional capital. 20% 14% Pricing 10% Proportion of Respondents We asked private equity fi rms their views on the current prices 0% of assets. Sixty-six percent of respondents stated that they felt that purchase price multiples are high, with a further 31% saying Other that purchase price multiples are just right, and 3% saying that Market Competition Pressure to Soaring Stock Quality Assets Low Supply of price multiples are low. We asked private equity fi rms what they Expectations Deploy Capital thought were the main causes of this. Most frequently cited was Unrealistic Price competition between private equity fi rms, with 57% of respondents Source: Preqin Buyout Fund Manager Interviews, March 2014 indicating this (Fig. 1). With record amounts of private equity external factors. We must note, however, that it is the improving capital being raised, the fl ipside of this is that there is an extensive macroeconomic factors that are causing the record amounts of amount of capital chasing deals, so the majority of private equity capital being raised in the private equity market. Thirty-nine percent fund managers feel that it is this competition and the likelihood of fund managers felt that the recent bull market was a factor and of getting into a bidding war with other private equity fi rms that is that a soaring stock market is pushing up price multiples. Thirty- driving pricing multiples up. seven percent of fund managers indicated that unrealistic price expectations of the sellers were a factor and with rising stock Another big factor for private equity fund managers is the pressure markets, owners are naturally going to expect the highest prices to deploy capital, with 51% of respondents indicating that this was for their assets (Fig. 1). Twenty-six percent of private equity fund a factor. Private equity fund managers have a fi nite time to deploy managers indicated that a low supply of quality assets was a the capital that they have raised, which can put pressure on fund factor. Many respondents indicated that the availability of cheap managers to rush into deals and potentially over-pay for assets. debt was also a cause in driving prices up, with the availability of We can class these as internal factors, factors that the industry cheap debt allowing fund managers to generate a decent return has created. We could argue that the industry has almost been a with a higher ratio of debt to equity, meaning that bidding between victim of its own success; more capital means that there are more fi rms can keep going on. private equity fi rms competing for assets, and that there is also pressure to ensure that this capital is deployed in a timely manner. Competition

The other groups of factors are the macroeconomic factors We wanted to ﬁ nd out more about private equity ﬁ rms’ opinions that affect the economy as a whole; we can class these as on the competitive nature of the market. We asked them whether

Fig. 2: Private Equity Fund Managers’ Views on Whether Fig. 3: Private Equity Fund Managers’ Views on the Biggest the Market is Competitive for Investing Capital Challenges When Investing Capital

60% 57%

50% 46% 12% 40% 34% 30% 30% Yes, There Is Strong Competition 20% 16% 9% 10%

Proportion of Respondents 0% No, There Is Not Strong Competition Competition Deals Expectations

88% Expectations Unrealistic Price Unrealistic Seller Labour Intensive Sourcing Proprietary Lack of Opportunities Source: Preqin Buyout Fund Manager Interviews, March 2014 Source: Preqin Buyout Fund Manager Interviews, March 2014

they felt that there was strong competition among private equity The dynamic of investing has changed, with the sellers in the fi rms for deals, with 88% beliving there was (Fig. 2), suggesting driver’s seat due to the competitive nature of the market. One US- that not only do fund managers face internal pressure to deploy based mid-cap buyout fund manager felt that the “fi nancial crisis capital, but they also need to consider the actions of other private has created a valuation gap which causes a pricing disconnect equity fund managers when bidding on potential assets. One between would-be sellers and private equity fi rms. This leads to South Korea-based buyout fi rm reinforced this point by indicating a longer period to close deals and many rounds of negotiations.” that “competing with other investors” is their main concern, as well as recognizing the importance of having proprietary deal fl ow in Proprietary Deal Flow order to control value. This theme of competition was apparent in several responses, with one particular fund manager that We also asked fund managers if they felt that proprietary deal specialized in lower middle market investments suggesting that fl ow still exists and 91% indicated that they felt this was still there are “larger funds moving down the market seeking deals” available (Fig. 4). However, many fund managers had comments and “too much money chasing quality deals.” to make on the diffi culties in obtaining this. One US-based buyout fund manager had the following comment to make on how the Fund managers were also asked about the most important factors increasing availability of data has changed the private equity that affect the investment decision-making process. For the investment landscape: “Almost every seller knows there is a liquid majority of fund managers, the quality of the management team market for their fi rms, and there is more information to allow them was a specifi c factor that was highlighted, exemplifying the value to evaluate the validity of the proposed purchase price. Even if you that private equity fund managers place on the ability to partner have a proprietary deal the seller is comparing you against market with what they perceive to be the right management team and metrics which are pretty accurate.” business owners. Growth potential and the quality of the business and product are other important considerations. Fund managers There seems to be a focus on the lower end of the market, with will also consider the exit strategy in advance, contemplating how proprietary deal fl ow available in the small cap segment. One can they exit a business most profi tably and generate the best respondent stated that there were “signifi cant proprietary deals in returns for their investors. mid to small cap; investment banks do not look too extensively at such smaller deals and there is less competition.” A small buyout Challenges fund manager, which operates at the lower end of the market, said that there was proprietary deal fl ow in the lower end as We asked fund managers about the biggest challenges that they “relationships still matter.” A Dutch fund manager told us that they faced when looking to invest capital (Fig. 3). Fifty-seven percent of use other means to source proprietary deal fl ow such as their LPs. fund managers surveyed stated that sourcing proprietary deal fl ow was one of the biggest challenges they faced. Forty-six percent Resource Intensity of fund managers stated again that unrealistic price expectations were an issue and 34% stated that unrealistic seller expectations For private equity fi rms, the process of due diligence on potential were the biggest challenge that they faced. One fund manager investments and portfolio companies is extensive and time said that “family-owned fi rms often have a ‘sticker’ number in mind consuming. We asked private equity fund managers how many for what their fi rm is worth regardless of fi nancials, and too many opportunities they review for every investment that they make, fi rms are trying to sell on forward earnings and not last twelve and the results show the immense scale. Almost a third (32%) of months.” We asked fund managers for the greatest concerns that fund managers said that they will look at 80 or more opportunities, they have about sourcing deals. One fund manager said that the with 18% indicating that they look at 50-79 and 20% indicating lack of opportunities was its biggest concern, while another lower that they look at 30-49 opportunities before making an investment. middle market-focused fund manager said that it has noticed “large But are fund managers altering their investment behaviour? We funds moving down market seeking deals” and that there is “too asked fund managers if they were considering more or fewer deal much money chasing too few ‘quality’ deals.” The fact that larger opportunities for every investment they actually ended up making. fund managers are looking at the lower middle market, highlights Forty-one percent of fund managers said that they are considering the increasingly competitive nature of market. more deal opportunities, with 56% considering the same and 3% looking at less.

Fig. 4: Private Equity Fund Managers’ Views on Whether Fig. 5: Number of Opportunities Private Equity Fund Proprietary Deal Flow Still Exits Managers Review for Each Investment They Make

9% 11%

Proprietary Deal Flow Still Exists 32% 1 to 10 17% 10 to 30

30 to 50

Proprietary Deal Flow 50 to 80 Does Not Still Exist 80+

20% 20% 91%

Source: Preqin Buyout Fund Manager Interviews, March 2014 Source: Preqin Buyout Fund Manager Interviews, March 2014

alternative assets. intelligent data. Over $399bn in buyout dry powder is ready to be invested. Preqin can help you access it.

Preqin’s expert knowledge and understanding of the private equity industry allows you to gain insight into private equity fund managers and their investment activity. Use our Private Equity Online services to:

• View in-depth proﬁ les for over 2,400 private equity buyout fund managers, including key contacts, investment strategies, recent investment activity, and more.

• Analyze buyout deal activity and exits, and see proﬁ les of deals, including buyers, sellers, debt ﬁ nancing providers, exit details and more.

• Track private equity dry powder levels by fund type and regional focus.

Backed by over 10 years of experience, Preqin’s Private Equity Online services are a vital tool for understanding the industry. To ﬁ nd out more, please visit:

www.preqin.com/privateequity

New York London Singapore San Francisco +1 212 350 0100 +44 (0)20 7645 8888 +65 6305 2200 +1 415 635 3580 Click here to download the data pack. Preqin Special Report: Private Equity Buyout Investments Private Equity-Backed Buyout Investments

Key Facts is the proportion of private-equity backed buyout 3,006 is the number of private equity-backed buyout 23% deals accounted for by the industrials sector, the deals in 2013. most prominent industry for deals by number in 2013.

is the proportion of the aggregate value of all is the aggregate value (in $bn) of private equity- 299.5 29% private equity-backed buyout deals in 2013 made backed buyout deals in 2013. up by public-to-private deals.

Fig. 6: Number of Private Equity-Backed Buyout Deals by Fig. 7: Aggregate Value of Private Equity-Backed Buyout Region, 2006 - 2014 YTD Deals by Region, 2006 - 2014 YTD

1,800 1,771 1,700 1,792 500 1,602 1,600 1,536 450 1,383 1,400 1,321 400 1,240 350 1,200 1,132 1,070 1,114 1,047 300 1,000 973 963 935 250 800 596 200

No. of Deals 600 462 150 400 318 312 322 258 287 243 100 185 195 227 180 186 213 182 200 219 168 150 64 ($bn) Aggregate Deal Value 50 137 51 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013 (15 Apr) (15 Apr) 2014 YTD 2014 YTD North America Europe Asia Rest of World North America Europe Asia Rest of World

Source: Preqin Buyout Deals Analyst Source: Preqin Buyout Deals Analyst Fig. 8: Breakdown of Number of Private Equity-Backed Fig. 9: Breakdown of Number and Aggregate Value of Buyout Deals by Industry, 2006 - 2014 YTD Private Equity-Backed Buyout Deals by Type, 2012 - 2014 YTD

100% 100% 2% 2% 2% 4% 4% 5% 6% 5% 5% 6% 5% 6% 4% 4% 3% 8% 4% 5% 5% 5% 5% 12% 2% 90% 5% 5% 5% 7% 8% 90% 4% 3% 5% 5% 6% 6% 6% 5% 5% 4% 29% 16% 0% 6% 6% 5% 6% 7% 15% 4% 18% 80% 6% 6% 5% 6% 6% 80% 5% 8% 8% 7% 8% 8% 11% 9% 13% 70% 6% 70% 12% 14% 24% 9% 9% 10% 13% 14% 0% 11% 12% 11% 60% 33% 6% 37% 60% 12% 12% 34% 14% 14% 12% 11% 50% 15% 50% 16% 15% 14% 16% 18% 13% 14% 40% 40% 17% 16% 16% 15% 15% 30% 58% 57% 30% 15% 14% 14% Proportion of Total 20% 42% 39% 43% 40% 20% 33% 31% 31% 26% 26% 26% 10% Proportion of No. Deals 10% 23% 23% 21% 0% 0% No. of Aggregate No. of Aggregate No. of Aggregate Deals Deal Value Deals Deal Value Deals Deal Value 2006 2007 2008 2009 2010 2011 2012 2013 2012 2013 2014 YTD (15 Apr)

2014 YTD (15 Apr) Industrials Consumer & Retail Business Services Healthcare Information Technology Telecoms & Media LBO Add-on Growth Capital Food & Agriculture Energy & Utilities Other Recapitalization PIPE Public To Private Source: Preqin Buyout Deals Analyst Source: Preqin Buyout Deals Analyst

Data Source:

Preqin’s Buyout Deals Analyst is the most extensive, detailed source of information on private equity-backed buyout deals in the world, containing in-depth data for over 35,000 buyout deals worldwide, including information on deal value, buyers, sellers, debt ﬁ nancing providers, ﬁ nancial and legal advisors, exit details and much more.

For more information, or to arrange a demonstration, please visit:

www.preqin.com/buyoutdeals

Fig. 10: Private Equity-Backed Exits by Type, H1 2006 - H1 Fig. 11: Aggregate Value of Private Equity-Backed Exits by 2014 TD Region, Q1 2008 - Q2 2014 TD

100% 90 90% 80 80% 70 51% 51%49% 47%51% 51% 51% 70% 53% 53%53% 54% 54% 54%56%54% 53% 60% 60 60% 50 50% 16% 40 40% 16% 27% 23% 28% 22% 30% 29%31%31%33% 30% 30%26%31% 30%30% 30 28% 14% 22% 5% 5% 20 20% 1% 1% 7% 4% 3% 1% 1% 4% 4% 3% 2% Proportion of No. Exits 10% 17%17%15% 5% 10% 21%16%21%17% 22%15%16% 10 13% 7% 11% 12%14%13% ($bn) Aggregate Exit Value 0% 5% 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 TD (15 Apr) Q2 TD (15 Apr) Q2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014 IPO Restructuring Sale to GP Trade Sale North America Europe Asia Rest of World Source: Preqin Buyout Deals Analyst Source: Preqin Buyout Deals Analyst

Fig. 12: Number and Aggregate Value of Secondary Buyout Deals Globally, 2006 - 2014 YTD Data Source:

450 120 Preqin’s Buyout Deals Analyst provides detailed data on Aggregate Deal Value ($bn) 400 over 6,500 potential forthcoming exits. 100 350 300 80 Search for possible upcoming exits speciﬁ cally by industry, location, entry deal size, and entry investment type and view 250 60 which sectors may present more exit ﬂ ow in the coming 200 months.

No. of Deals 150 40 100 For more information, or to arrange a demonstration, please 20 50 visit: 0 0 www.preqin.com/buyoutdeals 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD No. of Deals Aggregate Deal Value ($bn) Source: Preqin Buyout Deals Analyst

Fig. 13: Notable Private Equity-Backed Exits in 2013/2014 YTD

Entry Entry Exit Investment Exit Exit Primary Firm Investment Deal Size Investors (Entry) Value Acquiror (Exit) Location Date Date Type Industry Type (mn) (mn) Arle Capital Partners, JPMorgan Grupo Partners, Providence Equity Trade 7,200 Corporativo Jun-05 Buyout - Mar-14 Vodafone UK Telecoms Spain Partners, Quadrangle Group, Sale EUR Ono Thomas H Lee Partners Bausch & Public To 4,580 Warburg Pincus, Welsh, Carson, Trade 8,700 Valeant May-07 May-13 Healthcare US Lomb Private USD Anderson & Stowe Sale USD Pharmaceuticals Bain Capital, CCMP Capital Warner 3,100 Advisors, GCM Customized Fund Trade 8,500 Jan-05 Buyout May-13 Actavis Group Pharmaceuticals US Chilcott USD Investment Group, JPMorgan Sale USD Partners, Thomas H Lee Partners US 7,100 Clayton Dubilier & Rice, Kohlberg Trade 8,200 Sysco Foodservice Nov-06 Buyout Dec-13 Food US USD Kravis Roberts Sale USD Corporation Inc.* Ares Neiman Public To 5,100 Sale to 6,375 Management, May-05 TPG, Warburg Pincus Sep-13 Retail US Marcus Inc. Private USD GP USD CPP Investment Board * Denotes a partial exit Source: Preqin Buyout Deals Analyst

April 2014

Preqin Private Equity Online

With global coverage and detailed information on all aspects of the private equity asset class, If you want any further Preqin’s industry-leading Private Equity Online services keep you up to date on all the latest information, or would like to developments in the private equity universe. request a demo of our products, please contact us: Source new investors for funds and co-investments New York: Find the most relevant investors, with access to detailed proﬁ les for over 5,200 institutional investors actively investing in private equity, including future fund searches and mandates, One Grand Central Place direct contact information and sample investments. 60 E 42nd Street Suite 630 New York Identify potential investment opportunities NY 10165

View in-depth profi les for over 2,100 unlisted private equity funds currently in the market, Tel: +1 212 350 0100 including information on investment strategy, geographic focus, key fundraising data, service Fax: +1 440 445 9595 providers used and sample investors. London: Find active fund managers in private equity Equitable House Search for fi rms actively targeting private equity investments. View information on key contacts, 47 King William Street fi rm fundraising and performance history, and applied strategies of the fi rm when investing in London portfolio companies and assets. EC4R 9AF Tel: +44 (0)20 7645 8888 Analyze the latest private equity fundraising activity Fax: +44 (0)87 0330 5892

See which fi rms are currently on the road raising a private equity fund and which will be coming Singapore: to market soon. Analyze fundraising over time by fund strategy and location. One Finlayson Green See the latest buyout and venture capital deals and exits #11-02 Singapore 049246 View details of more than 95,000 buyout and venture capital deals, including deal value, buyers, sellers, debt fi nancing providers, fi nancial and legal advisors, exit details and more. Tel: +65 6305 2200 Identify forthcoming exits and expected IPOs. Fax: +65 6491 5365

Benchmark performance San Francisco: 580 California Street Identify which fund managers have the best track records, with performance benchmarks for Suite 1638 private equity funds and performance details for over 6,600 individual named funds. San Francisco CA 94104 Examine fund terms Tel: +1 415 635 3580 See the typical terms offered by funds of particular types, strategies and geographical foci, and Fax: +1 440 445 9595 assess the implications of making changes to different fees.

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