Kuwait Financial Centre “Markaz” P R I V A T E E Q U I T Y U P D A T E Private Equity Month End February, 2008 Market Trends Private Equity update: Compiled from various public - The Private Equity market in 2008 has started off slow, with no sources expectation to pick up quickly. The sluggish start was expected for 2008, so this doesn’t come as a surprise to investors. Total leveraged buy-out volume so far in 2008 is down to $34 billion, two-thirds of the volume at this time the previous year. A single mega-deal from 2007 eclipses the total buy-out volume for 2008. While the level of activity has been slow-moving, the industry is still sitting on $820 billion of uncalled capital from investors. The average size of buy-outs this year, $120 million, is the lowest since 2001. - For the average private equity firm, about 38 individuals are employed for every $1 billion of assets under management, and this number decreases to 15 or less at many of the larger firms. With this type of a work force, it will prove influential since $10 billion buy-outs occur daily. However, if the investors deploy the funds across an array of smaller deals, it will result in longer waiting periods, as well as smaller returns. - Investors in the real estate market in 2008 are the most optimistic, due to predictions of higher or the same returns for this year. Investors intend on using the same type of strategy for deals in 2008. More than 50% of investors plan to maintain the same level of exposure in private equity real estate. PE News - ADS files suit to force Blackstone buyout. The Blackstone Group has become the latest private equity shop to be sued after indicating it would abandon a deal agreed prior to credit market volatility and slowing economic indicators. Lone Star Funds, JC Flowers and Cerberus Capital Management are among the firms that have recently been taken to court for scrapping deals, most having claimed a material adverse change in the target’s business had occurred. But in Blackstone’s case, Authors it’s faulting a regulator that intervened. Adel Nuseibeh - UPDATED Blackstone lawsuit news. The Blackstone Group is +965 224 8000 ext. 1309 “gratified” that Alliance Data has discontinued legal action it [email protected] commenced late last month to force the $7.8 billion leveraged buyout it agreed in June 2007. The Texas-based provider of transaction, credit, Khalid Al-Abduljalil and marketing services said it dismissed the lawsuit “with prejudice”, +965 224 8000 ext. 1310 meaning it is not prevented from filing the same claims in a new [email protected] lawsuit, because Blackstone court filings and correspondence with regulators indicated it was still committed to closing the deal. - Three US pensions approve nearly $2bn in commitments. Despite the Kuwait Financial Centre slowed LBO market, US pension funds’ private equity appetites are as “Markaz” voracious as ever. Megafunds, mid-market specialists, distressed vehicles, and European and Asia-focused funds are among the latest Private Equity Department recipients of fund commitments. Address: P.O.Box 23444, Safat - KKR and Pessina take Boots into China. Kohlberg Kravis Roberts 13095, Kuwait portfolio company Alliance Boots has invested in a £41 million ($81.5 Tel: +965 224 8000 Ext: 1401 million; €55.1 million) joint venture in China with Guangzhou Fax: +965 242 5828 Pharmaceuticals Company, taking a 50 percent stake each in the newly [email protected] www.markaz.com P R I V A T E E Q U I T Y U P D A T E formed company. Boots’ partner is the fourth largest pharmaceutical business in China with a circa 3 percent market share and it also has a 16 percent market share in its native Guangdong province. - Korea finds Lone Star guilty of stock price manipulation. The South Korean Central District Court has found US firm Lone Star Funds guilty of manipulating the stock price of the credit card division of the Korea Exchange Bank, in order to acquire the division on the cheap shortly after paying $1.2 billion for a 51 percent stake in the bank in 2003. Lone Star and the Korean Exchange Bank were fined $26 million each. Lone Star’s South Korea country head, Paul Yoo, was sentenced to five years in prison. Lone Star said in a statement that there is “no credible evidence to support the court’s findings”, and that it intends to appeal the decision. - 3i purchases pharmaceutical company for $395m. The global investment firm has bought Nordic company Active Pharmaceutical Ingredients, which may be signaling a possible increase in buyouts in the traditionally big pharmaceutical-dominated medical device sector. The Norwegian business provides ingredients for a number of injectable antibiotic products including Vancomycin, Bacitracin and Polymyxin. It had revenues of $138.7 million in the first nine months of 2007. - Navigation with LP Goldman invest $20m in subprime auto loans. US private equity firm Navigation Capital Partners has invested $20 million (€13 million) in Exeter Finance, a Dallas-based company that buys and services subprime auto loans. Navigation committed $10 million in equity, and Navigation limited partner Goldman Sachs Vintage Fund co- invested $10 million. The deal also included a $20 million credit facility provided by ReMark Capital Group in New York. - West LB syndicates £225m of Islamic Aston Martin debt. The largest Islamic funded leveraged buyout debt in the UK has been syndicated by German bank West LB to investors in the Middle East, some of whom do not participate in Western market debt syndication for religious reasons. The debt backing the £522 million buyout by two Kuwaiti firms Adeem Investment and Investment Dar was bought by investors from both the Gulf Co-operation Council and the UK familiar with Islamic finance. - Canaan closes $650m venture fund. The US firm’s eighth fund will continue its 20-year investment strategy, targeting early-stage tech and healthcare companies, with an increased focus on Israeli and Indian deals. - Baring Asia invests in Chinese medical device manufacturer. Baring Private Equity Asia has bought a significant minority stake in Amsino Medical Group for an undisclosed sum, according to a statement. Amsino provides medical devices such as blood collection and transfusion devices as well as anesthetic and surgical products. The medical device sector is a rich source of deals. In the US alone venture and growth capital deals in the medical device sector rose 40 percent in 2007 to $3.9 billion across 385 deals, according to a report by the US industry body National Venture Capital Association. - Merrill Lynch wins dentist auction in UK. Merrill Lynch Private Equity has bought Integrated Dental Holdings from UK mid-market buyout firm LGV Capital, according to a statement. Terms were undisclosed but the firm paid around $583.6 million, according to someone close to the deal. The US bank managed to trump bids from Duke Street Capital- owned dentist chain Oasis Healthcare, US buyout firm The Blackstone Group and European buyout firm Bridgepoint, according to media reports. - Riverside-backed Sage seals $180m communications merger. Sage Holdings was set up in June 2007, with backing from The Riverside Kuwait Financial Centre “Markaz” 2 P R I V A T E E Q U I T Y U P D A T E Company, to consolidate the communications industry with approximately $200 million to invest. Communications and D.F. King will be the cornerstones of Sage, the company’s chief executive Oliver Niedermaier said. - BC club wins battle for Turkish retailer. The BC Partners-led consortium has pulled off its YTL3.9 billion bid for Migros Türk in the face of strong competition including The Blackstone Group and Kohlberg Kravis Roberts. It is Europe’s largest deal since credit markets seized up. - Growth equity deals strengthen global venture markets. Record growth in European and US venture capital markets last year was fueled by increased investment in growth-stage companies, providing further evidence that the lines between the private equity and venture capital asset classes continue to blur. Later stage VC deals increased substantially in the US from 2006 to 2007, both in terms of total capital invested and quantity of deals, according to data released by the National Venture Capital Association. Investors placed $12.2 billion into 1,168 deals last year, a 24 percent increase from the 9.8 billion placed into 1,006 deals in 2006. Later-stage companies also accounted for an increasing share of deal flow, representing 31 percent of all 2007 deals, a 3 percent year over year increase. - Close Brothers to open in Manchester. The UK bank is putting its recent takeover trials behind it to expand its UK operations into the regions and capture some of the healthy dealflow around the North West of England. - Buy and builds peak in 2007. In 2007 there was a record number of buy and build acquisitions with 385 bolt-ons carried out by European private equity-backed companies, according to research by mid-market firm PPM Capital. The strategy has boomed alongside the advance of the industry since the turn of the millennium. Since 2000 the number of bolt-on deals has increased more than tenfold. The strategy has been on a continuous growth path since 2002 and in 2004, portfolio companies carried out more than 100 bolt-ons for the first time. - KKR targets $30bn for buyouts globally. Kohlberg Kravis Roberts is the standard of mega firm fundraising remaining feverish despite the lack of liquidity in the market and quasi-cessation of megadeals.