ANNUAL REVIEW

Private Equity & Venture Capital 2014

December 2014  | PRIVATE EQUITY

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2014 was a notable year for the private equity industry, with buyout activity increasing considerably over the last 12 months. Softening debt markets and dry powder reserves will be an issue for many firms in the months ahead. Estimates suggest that the level of dry powder within the PE industry has now topped $1.6 trillion. Should quality assets prove hard to source during 2015, as they did at times during 2014, it will be tough for PE firms to put their existing funds to work.

 

UNITED STATES

Jeremy Dickens

Shearman & Sterling LLP

“On a global basis, we have seen increasing activity across almost all geographies with particular activity in the United States, Europe and the Middle East. Transaction values vary depending on the type of transaction and by region, with smaller transactions, those under $250m being more typical in markets such as the Middle East and Asia. In the US and Europe, the most consistent level of activity has been in the middle market, with transaction values between $250m-$1bn, although there are, of course a handful of larger transactions.”

 

CANADA

Benjie Thomas

KPMG

“After seeing modest growth in 2013, the Canadian private equity market (PE) really picked up in 2014. By the end of the third quarter last year, the total number of buyout-PE deals was almost 40 percent higher than the same period in 2013. Deal values were also considerably higher in 2014, which saw several large-cap transactions, including 3G Capital Inc’s takeover of Tim Hortons Inc for $12.5bn. Traditional sources such as Canadian capital are providing a tremendous amount of capital but we are continuing to see more and more US PE firms enter the market.”

 

BRAZIL

João Busin

Tozzini Freire

“Overall, dealmaking has been growing steadily in Brazil, although, according to data released by the Emerging Markets Private Equity Association, private equity fund managers executed 19 deals in Brazil in the first half of 2014, the fewest recorded in the first six months of a year since 2009. This may be attributed to the fact that Brazil hosted the FIFA World Cup 2014 and to the general feeling of uncertainty surrounding the presidential election of October 2014. Compared to other jurisdictions with more consolidated and sophisticated private equity industries, smaller deals normally account for a larger proportion of deals in Brazil.”

 

UNITED KINGDOM

Tom Whelan

Hogan Lovells International LLP

“Private equity activity in Europe has increased significantly over the last 12-18 months. The availability of debt, coupled with signs of economic recovery and growth have increased the confidence level of sponsors. This is most apparent in the number of sponsors looking to exit investments because of the current prices being paid on exit. Pricing around 10 times EBITDA is not uncommon at the moment, with fierce competition particularly evident in the technology and healthcare sectors, where higher prices have been paid in some cases. Added to this, the improved fundraising climate has encouraged sponsors to deploy the remaining capital in their existing funds and to go out and raise new funds.”

 

GERMANY

Steve Roberts

PwC

“The past 18 months have shaped up to be a seller’s market, with significant dry powder available and favourable financing conditions leading to very competitive auctions for what has been a surprisingly low level of deal flow. There has been a healthy number of large cap assets on the market, from both corporates looking to divest non-core businesses and reorganise and restructure themselves, as well as from private equity exits. Mid-cap deals continue to be scarcer, following the trend from recent years.”

 

SPAIN

Gonzalo Navarro Martínez-Avial

Roca Junyent

“As a general rule, investments by private equity in Spain have stabilised over the last 12 months, following the path set by the Spanish economy. 2013 was perhaps one of the toughest years for private equity since the onset of the economic crisis, with investment volumes considerably down on 2012. Total investment for 2013 amounted to €2.3bn over a total of 543 transactions. However, the final quarter of 2013 and 2014 has provided cause for optimism within the industry. We have seen renewed energy in the private equity market, with investment in private equity funds rallying impressively over the course of 2014.”

 

LUXEMBOURG

Philippe Neefs

KPMG Luxembourg

“Private equity global players continued to use Luxembourg for their deal structuring at the investment portfolio level, but less and less for fundraising through SICAR or other alternatives vehicles, such as SIF or offshore fund structures. These vehicles typically use Luxembourg’s SPV for acquisitions and investments. We wait to see how AIFMD will impact this trend. Today, the majority of growth is on the debt side rather than the asset side – in fact, the debt market is booming. In many respects this market is plugging the gap left by the banks in the wake of the September 2008 financial crisis.”

 

AUSTRALIA

Quentin Olde

FTI Consulting

“Private equity deals made up just 6 percent, by volume, of all Australian deals in 2014. Recorded volumes and values for the year were broadly similar to 2013 levels, though they were low compared to the US and UK markets for which private equity deals accounted for 25 percent of deal activity. This may reflect the historic weighting of the Australian economy to resources, property and infrastructure which do not necessarily lend themselves to PE investment. While smaller deal volumes have been robust, larger LBOs, such as KKR’s and TPG’s recent failed $3.4bn bids for wine producer Treasury Wine Estates, have proven harder to convert.”

 

NEW ZEALAND

Josh Blackmore

Chapman Tripp

“New Zealand’s economic performance has continued to be strong over the last 18 months and this has been reflected in strong deal flows, including in the private equity sector. Measured private equity investment for 2013 was NZ$456.2m and divestment NZ$665.4m, which compared favourably to 2012, which was a very subdued year. Though figures for 2014 are not yet available, we expect them to be similarly strong.”

 

NIGERIA

Gbolahan Elias

G. Elias & Co.

“Private equity dealmaking has been growing and we expect it to continue to grow significantly across virtually all sectors of the economy. There are more general partners today, both foreign and local, than previously. In addition, a number of Nigerian pension funds, which currently have more than $500m of available capital to deploy in the private equity space alone, have begun to test the waters. Transaction values have ranged from as little as $3m for some ‘impact’ investments in the healthcare sector to a recent telecommunications deal worth more than $2bn.”

 

EAST AFRICA

Roddy McKean

Anjarwalla & Khanna

“It is fair to say that there has been an increasing amount of interest from GPs in the East Africa region over the last 18 months. This interest has converted into a very active period for dealmaking. Much of the activity has taken place across a wide range of industry sectors. There has been activity in a number of diverse industries, including FMCG, healthcare, financial services, logistics, IT and real estate. Much of this is based on the ‘consumer story’. The region’s middle class is expanding, has access to more disposable income and is participating in the rampant urbanisation of the population.”


CONTRIBUTORS

Anjarwalla & Khanna

Chapman Tripp

FTI Consulting

G. Elias & Co.

Hogan Lovells International LLP

KPMG

KPMG Luxembourg

PwC

Roca Junyent

Shearman & Sterling LLP

Tozzini Freire


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