2015 EMEA private equity deal count down but capital investment up

BY Fraser Tennant

Q1 2015 saw a 34 percent increase in the capital invested in the Europe, Middle East and Africa (EMEA) private equity market, according to S&P Capital IQ’s new EMEA Private Equity Market Snapshot.

The report's headline is that EMEA as a global private equity investment destination, although down in Q1 2015 in terms of deal count compared to Q1 2014, was up in aggregate transaction values - €41bn deployed to EMEA located target companies this year across 1020 new deals, compared to €30.6bn last year across 1205 deals.

“EMEA attracted 494 new deals putting €2.1bn to work. This represented a 10 percent increase in capital invested but a 15 percent reduction in deal count from 579 new deals last year", notes the report.

 “The data suggests that the venture capital world is increasingly concentrating on a tighter set of potential companies but deploying more capital across individual deals in order to maximise the growth potential of the selected few.”

The report also found that, on the exit side, Q1 2015 recorded 330 divestments for global private equity firms realising €42.9bn, an increase of 17 percent on Q1 2014’s €36.8bn across 396 exits.

And when considering the wider global political discourse, the report examines investments made by global private equity firms into EMEA-headquartered target companies as opposed to tax haven headquartered firms, highlighting that most of the activity originated by the latter in the past 10 years benefited Northern and Western Europe.

“Investments in the financial sector, specifically real estate operating companies, have seen the biggest quarter-on-quarter increase in terms of aggregate capital deployed with €15bn invested in Q1 2015 compared to €5.6bn in Q1 2014”, says the report.

“A significant proportion of the €15bn was explained by the largest deal of Q1 2015 which saw Qatar Holding and Brookfield Property Partners acquire the remaining 71.4 percent of Songbird Estates PLC, the parent company of Canary Wharf Group, for €8.7bn.”

The report also considers the current status of the oil & gas sector, noting that despite the overall health of EMEA private equity activity seen so far in 2015, it remains to be seen whether recent investment in the North Sea will be enough to kick start significant dealmaking activity.

Report: EMEA Private Equity: Market Snapshot

PitchBook unveils 2Q US ‘Private Equity Breakdown Report’

BY Fraser Tennant

A wealth of insight into recent trends in the private equity space is showcased in the 2Q US ‘Private Equity Breakdown Report – newly published by data & technology provider for the global private equity and venture capital markets, PitchBook.

The report, an annual publication produced in partnership with virtual dataroom solution Merrill DataSite, offers data-driven analysis on deal flow, investment trends, exit activity and an overview of the year's fundraising activity.

The 2Q 2015 report includes: (i) deal volume and capital invested by year and quarter; (ii) investments by deal size, industry and region; (iii) buyout multiples and debt percentages; (iv) exits and fundraising overviews; and (v) league tables.

PitchBook’s headline figures show that during the first quarter of 2015, private equity investors completed 634 deals in the US worth $100.7bn – representing a 30 percent decrease in deal count and a 26 percent decrease in capital invested when compared to last year’s corresponding quarter.

In terms of fundraising, the report states that the number of closed funds dropped to 38 in 1Q 2015 - the lowest number since 3Q 2010 and a 55 percent decrease from 3Q 2014. As far as exits are concerned, the pace is reported as having slowed in 1Q 2015 with only 218 exits completed by private equity sellers.

“Private equity and M&A deal-making remains highly competitive across the board, driven by a huge amount of available cash and debt funding,” said Adley Bowden, PitchBook’s senior director of analysis. “This environment has led to a bit of a pullback in private equity deals, an increased focus on the middle-market and more non-traditional private equity transactions. As long as the current environment persists we expect private equity activity to stay in a similar range to the last several quarters as firms hunt for value and focus on the growth of their portfolio companies.”

The PitchBook report also features a Q&A with Jamie Spaman, managing director at Murray Devine, in which he discusses the current valuations environment and increased activity surrounding carve-out transactions.

Report: 2Q 2015 US Private Equity Breakdown Report

Social and economic changes “disrupt” global real estate fund sector and spark clamour for new investment

BY Fraser Tennant

The global real estate fund sector is currently experiencing a period of “disruption” with major social and economic changes sparking a clamour for new investment, according to a new EY report.

EY’s ‘Global market outlook 2015: trends in real estate private equity’ found that M&A deals in particular are continuing to surge, a scenario that is being driven by three main factors: (i) a desire for incremental growth; (ii) the strategic merit of transactions; and (iii) the availability of debt and equity on favourable terms.

As a consequence of this increasing demand for new investments, prices have skyrocketed, leading to the possibility of M&A dealmaking activity in 2015 exceeding the peak levels of 2007.

In the US, the real estate market is currently awash with cross-border capital due to the country’s faster than most economic recovery; however, the immense popularity of this particular asset class has raised the spectre of a bubble similar to the one that enveloped Japanese investment in the US back in the 1980s.

Despite this, analysts such as Mark Grinis, EY’s global real estate fund services leader, are relatively relaxed about the perceived threats.

“If we look at history, market collapses have always been preceded by deteriorating economic fundamentals and stress factors like overdevelopment and rising vacancy rates," said Mr Grinis. “So far, there is little evidence of these precursors. What's more, industry players have moved carefully along the risk spectrum, which is why we have not seen an excessive amount of development or movement in markets that lack significant economic drivers.”

Elsewhere in the report, significant changes to the way private equity funds are administered are highlighted, with outsourced administration platforms shown to be particularly popular. And in terms of regulation, the report flags up the increasing scrutiny being directed toward the global real estate fund sector by the likes of the European Securities and Markets Authority (ESMA) and the Organisation for Economic Co-operation and Development (OECD).

The EY report is based on a series of interviews with more than 20 of EY’s global fund partners in the US, UK, Europe and Asia.

Report: Global market outlook 2015 - Trends in real estate private equity

Freescale and NXP to form $40bn firm

BY Richard Summerfield       

NXP Semiconductors N.V. and Freescale Semiconductor Ltd this week announced a $16.7bn merger, including the assumption of debt, which will create a firm with a total enterprise value of $40bn.

Under the terms of the deal, NXP will pay $6.25 in cash and 0.3521 shares of NXP stock for each share of Freescale stock. In a statement announcing the transaction, NXP confirmed that the deal will be funded with $1bn in cash and a $1bn debt offering, in addition to around 115 million new NXP shares.

“Today’s announcement is a transformative step in our objective to become the industry leader in high performance mixed signal solutions. The combination of NXP and Freescale creates an industry powerhouse focused on the high growth opportunities in the Smarter World. We fully expect to continue to significantly out-grow the overall market, drive world-class profitability and generate even more cash, which taken together will maximize value for both Freescale and NXP shareholders,” said Richard Clemmer, NXP’s chief executive officer in a statement announcing the deal.

The deal will create an industry heavyweight with about $10bn in annual sales. The largest producer of analogue chips, microcontrollers and other types of semiconductors, Texas Instruments, had sales of around $13.05bn in 2014.

Although the deal has been unanimously approved by the boards of directors of both companies, it is still subject to regulatory approvals in various jurisdictions and customary closing conditions. The deal, expected to close in the second half of 2015, must also be approved by shareholders. Once the merger has been completed, Freescale’s shareholders will own around 32 percent of the new firm. NXP’s stockholders will hold the remaining 68 percent.

The transaction will see a conglomerate of private equity investors, including Permira, Blackstone, Carlyle and TPG Capital, complete a partial exit of Freescale, acquired by the consortium in 2006 for $17.6bn. The group currently owns 64 percent share of Freescale. Once the deal has been finalised, the private equity firms will still hold around 19.1 percent of the merged company.

News: NXP to buy Freescale Semiconductor to create $40 billion co

“Challenging” Latin American investment environment highlights private equity value

BY Fraser Tennant

Latin American economies experienced a “challenging” 2014 with decreasing foreign demand, falling commodities prices and a reversal of asset flows back to developed markets contributing to an economic slowdown that significantly impacted the region’s private equity activity.

Data presented and analysed in ‘Private equity roundup for Latin America’ - the latest in EY’s series of private equity reports examining fundraising, investment activity and exits across a range of developing economies – shows that although total deal value increased marginally to US$4.3bn in 2014, the number of PE transactions actually fell by 18 percent to 76 (101 deals totalling US$4.5bn took place in 2012).

Despite these figures, the report does not suggest that investors are looking to withdraw from the region. On the contrary, many investors appear to be increasing their commitments with fundraising increasing by 73 percent over 2013 to US$9.0bn with nearly 60 firms in the region said to be actively fundraising.

“It is a maxim of private equity that many of the best deals are made during the worst of times," observe the authors of the ‘Private equity roundup for Latin America’ report. “While the current downturn in certain sectors of Latin America’s economy hardly qualifies as the 'worst of times,' clear dislocations continue to make the operating environment increasingly challenging. Despite this, the industry has yet to see an exodus of capital. Indeed, fundraising figures and LP surveys confirm that investors continue to fund new vehicles and are maintaining or increasing their commitments.”

Although overall growth in Latin America has slowed, there are significant differences between individual countries – Mexico and Brazil in particular, the region’s two largest economies. The IMF expects Mexico’s economy to grow by 3.5 percent in 2015 and Brazil’s by 1.4 percent.

In terms of regulatory impacts, Latin America still has a long way to go, such as dealing with security issues and corruption, but structural reform programs are underway.

For Latin America the current environment is a challenging. However, the EY report does highlight the “compelling” value of private equity, offering as it does the “operational expertise and financial discipline to help savvy entrepreneurs weather macro headwinds".

Overall, investment is encouraged and positive outcomes are expected in Latin America.

Report: Private equity roundup Latin America