July 2018 Private Equity Capital Briefing Quarterly insights and intelligence on PE trends PE turns to deployment PE deal activity sees its busiest first half in more than a decade The Private Equity Capital Briefing has been designed to help you remain current on capital market trends. It captures key insights from subject-matter professionals across EY and distills this intelligence into a succinct and user-friendly publication. Private Equity Capital Briefing provides perspectives on both recent developments and the longer-term outlook for private equity (PE) fundraising, acquisitions and exits, as well as trends in global M&A, cross- border deal flows, IPOs and the debt and bond markets. Please feel free to reach out to any of the subject-matter contacts listed on the back page of this document if you wish to discuss any of the topics covered. Contents Section 1 Private equity: fundraising 4 Private equity: acquisitions 5 Private equity: exits 7 Section 2 Infrastructure 8 Section 3 Private credit 9 Section 4 M&A 10 Section 5 IPOs 12 Section 6 Loans 13 Section 7 Bonds 14 Appendices Appendix A PE activity by geography 16 Appendix B M&A activity monthly flash 25 Appendix C M&A multiples and bid premium 26 1.i. Private equity: fundraising Executive summary • Fundraising activity remained strong in 1H18, albeit off last year’s record levels. PE firms have closed 376 funds so far this year with aggregate commitments of US$267.8b. • Activity was driven by closings from a number of large funds. The average size of PE funds closed in 1H18 increased by 27% versus a year ago. • Buyout funds remain the most active strategy, accounting for 36% of funds raised in 1H18, followed by real estate (20%) and infrastructure (13%). Current state PE fundraising by half year (US$b) Source: Preqin. Investor confidence remained intact as PE fundraising continued its momentum into 1H18 amid a highly competitive environment. $400 800 • Fundraising activity remained robust in 1H18, albeit off last year’s $350 700 record levels. PE firms raised US$267.8b, down 29% from a year $300 600 ago. Activity was driven by closings from a number of large $250 500 vehicles; the average size of PE funds closed in 1H18 increased $200 400 27% versus a year ago, a trend expected to prevail throughout this $150 300 year and next. $100 200 • Dry powder is currently growing at a three-year compounded $50 100 growth rate of 9%, significantly lower than the 36% rate at which $0 0 dry powder grew between 2005-2007, when the industry experienced its fastest growth spurt. PE fundraising by region Commitments Number of funds closed Source: Preqin. Top funds raised so far this year Source: Preqin. Americas: Asia-Pacific: 1H17 – US$55b 1H17 – US$215b Value 1H18 – US$36b Fund Type 1H18 – US$139b (US$b) EQT VIII Buyout $13.2 EMEA: BC European Cap X Buyout $8.5 1H17 – US$97b 1H18 – US$92b Starwood Global Opportunity Fund XI Real estate $7.6 GSO Capital Solutions Fund III Distressed debt $7.4 Source: Exclusive of diversified multi-regional funds. American Securities Partners VIII Buyout $7.0 Blackstone Real Estate Partners Asia II Real estate $7.0 Environment and horizon Carlyle Asia Growth Partners V Buyout $6.6 Outlook to remain strong in light of PE’s tailwinds. ISQ Global Infrastructure Fund II Infrastructure $6,5 • Fundraising is expected to remain strong through the rest of 2018, PAI Europe VII Buyout $6.7 driven by a number of strong tailwinds, including new investors in Bain Capital Europe V Buyout $5.1 the asset class, increased allocations from large LPs and a 10% uptick in exit activity last year that is poised to be reallocated to new funds. • PE capital is finding its way into the impact space. Global Impact Buyout dry powder – three-year compounded growth rates Investing Network’s Eighth Annual Impact Investor Survey found that, relative to three years ago, 84% of respondents said they Source: Preqin. were making more impact investments and had a greater commitment to measuring and managing the impact of their 40% investments. Seventy-two percent reported that there was greater 35% 30% buy-in from internal stakeholders around developing an impact 25% investment arm. 20% 15% • US pensions are getting serious about direct investments. New 10% players, including sovereign wealth funds, pension funds and family 5% offices are now vying for the same deals as traditional PE firms. 0% Both CalPERS and CalSTRS have recently announced steps to build -5% -10% out their capabilities, albeit using different models. CalPERS is -15% creating a separate entity – “CalPERS Direct,” governed by a separate board and consisting of two separate funds – one focused on late-stage investments in technology, life sciences and health care, and the other on long-term investments in established companies. CalSTRS is taking a more collaborative approach, and has formed a committee to develop a formal plan of action. 4 Private Equity Capital Briefing 1.ii. Private equity: acquisitions Executive summary • Investment activity grew markedly in 1H18 versus the same period last year, jumping 61% to US$250b across more than 800 deals. • It was the busiest first half of the year in more than a decade. • Activity in the Americas grew the most, increasing by 71% versus a year ago, followed by EMEA and Asia-Pacific, where acquisition activity increased by 59% and 42% respectively. Current state PE acquisition values and volumes by half year (US$b) PE deal activity sees its busiest first half in more than a decade. Source: Dealogic. • PE firms turned their attention in 1H18 to deploying record levels $300 1,400 of dry powder, announcing 805 acquisitions valued at US$250b, up 61% by value from the same period a year ago, and up 2% by $250 1,200 1,000 volume. It was the busiest first half for PE since 2007. $200 800 • Upswings were evident across all major regions: In the Americas, $150 PE firms announced deals valued at US$128b, up 71% from last 600 $100 year; in EMEA, firms announced deals valued at US$76b, up 59% 400 from last year; in Asia-Pacific, firms announced deals valued at $50 200 US$47b, up 42% from last year. $0 0 • Fund managers are increasingly pursuing opportunities in large multibillion-dollar deals. A recent survey conducted by Mergermarket found that more than 76% of the respondents anticipated that there will be 5-10 more PE megadeals in 2018 Deal value (US$b) Number of deals than last year. Average PE deal size by half year (US$m) PE deal activity by value (US$b), 1H17 vs.. 1H18 Source: Dealogic. Source: Dealogic. $300 $150 $200 $100 $100 $50 $0 $0 Americas EMEA Asia-Pacific 1H 2013 1H 2014 1H 2015 1H 2016 1H 2017 1H 2018 H1 2017 H1 2018 Environment and horizon Top deals so far this year PE continues to lure large institutional investors, which increased Source: Dealogic. capital allocation in a bid to increase returns. Value Target Industry Sponsor • The California Public Employees’ Retirement System (CalPERS) (US$b) reported an investment gain of 8.6% during the fiscal year ended Thomson Reuters Technology Canada Pension Plan Investment $17.5 June 2018, higher than its long-term annual target but trailing last Financial & Risk (F&R) Board; GIC Special Investments Business Pte Ltd.; Blackstone Group LP year’s performance. Private equity was a key contributor to the Ant Small & Micro Technology Canada Pension Plan Investment $12.5 fund’s overall performance, generating a 16.1% return, versus a Financial Services Board; GIC Special Investments preliminary net return of 11.5% for public equities, which comprise Group Pte Ltd, Carlyle Group LP; more than half the portfolio. Real assets, primarily real estate, Warburg Pincus LLC; General generated a return of 8% and fixed income increased by 0.4%. Atlantic LLC; Primavera Capital Management Ltd.; Silver Lake • Add-on deals by PE investors are increasing. Amid the current high- Group LLC valuation environment, PE firms are increasingly adapting the “buy- Akzo Nobel NV Materials GIC Special Investments Pte Ltd.; $12.5 and-build” model as a key value creation strategy. Pitchbook’s data (specialty chemicals Carlyle Group LP suggests add-ons represent nearly 65% of all buyouts until 1H18. business) • The American Investment Council (AIC) recently named Drew TDC A/S Telecom Macquarie Infrastructure & Real $10.7 Maloney as its President and CEO. Maloney joins the AIC from the Assets Pty Ltd. US Department Treasury, where he served as Assistant Secretary Envision Healthcare Health care KKR & Co. LP $9.6 BMC Software Inc. Technology GIC Special Investments Pte Ltd; $8.3 for Legislative Affairs. Golden Gate Capital Corp; Bain Capital LLC; Insight Venture Management LLC; KKR & Co. LP Gramercy Property Real Estate Blackstone Group LP $7.7 Trust Recordati SpA Health care CVC Advisers Ltd. $7.4 Techem GmbH Consumer Partners Group Holding AG; $5.4 services Macquarie Infrastructure & Real Assets Pty Ltd. LaSalle Hotel Real Estate Blackstone Group LP $4.9 Properties 5 Private Equity Capital Briefing 1.iii. PE acquisition activity by region PE acquisition activity by key regions and countries (YTD 2017 vs. YTD 2018) YTD 2017: $9.2b YTD 2018: $11.0b YTD 2017: $1.2b UKI Change: 21% YTD 2018: $11.2b Canada Change: 870% YTD 2017: $b YTD 2018: $b Europe Change: % Western YTD 2017: $13.1b YTD 2017: $73.1b YTD 2018: $24.2b YTD 2018: $116.3b US China Change: 85% Change: 59% YTD 2017: $1.2b YTD 2018: $1.4b Change: 18% SE SE Asia YTD 2017: $2.8b YTD 2018: $5.7b India Change: 104% YTD 2017: $3.2b YTD 2018: $11.4b Change: 252% Australia PE deal activity by country and region (by quarter, 2015 through Q2 2018, US$b) Target nationality % Q2 % Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2017 vs.