Lone Star to acquire Home Properties in $7.6bn deal

BY Fraser Tennant

In a transaction valued in the region of $7.6bn, global private equity firm Lone Star Funds has announced its intention to enter into a definitive agreement to acquire Home Properties, Inc., the publicly traded multifamily real estate investment trust. 

Under the terms of the agreement, Lone Star Funds will acquire all of the outstanding common stock of Home Properties for $75.23 per share in an all-cash transaction. The agreement, which includes the assumption of existing debt, will, upon completion, see Home Properties become a privately held company.

“We are pleased to enter into an agreement to acquire Home Properties and look forward to working with their talented team to complete this transaction and integrate the Company's portfolio into Lone Star Funds' existing multifamily portfolio," said a delighted Hugh J. Ward III, co-head of real estate investments at Lone Star Funds.

“This is Lone Star Funds' second large, recent apartment purchase following the 2014 acquisition of a 64 property, 20,439 unit portfolio, and is consistent with our strategy of buying primarily Class B apartments, including workforce housing, located in in-fill markets with strong underlying fundamentals."

The Lone Star Funds/Home Properties definitive agreement does, however, contain a ‘go shop’ provision which allows the latter firm to solicit alternative proposals from third parties for 30 days from 22 June, the date of the announcement.

"The Home Properties team has built a great company, as reflected by our strong platform, unique assets, and differentiated business strategy," said Edward J. Pettinella, President and Chief Executive Officer of Home Properties. "We believe this transaction with Lone Star Funds provides our stockholders with compelling value for their investment, consistent with our long-term strategy."

Concurrent with the Lone Star Funds, Home Properties has also entered into an agreement to contribute a portfolio of up to six portfolios, totalling 3246 units, to UDR, Inc, a $13bn multifamily real estate investment trust, in exchange for cash and newly issued units.

But a potential threat to the dealmaking extravaganza has arisen in the past few days with the revelation that national securities firm Faruqi & Faruqi, LLP is investigating the board of directors of Home Properties over potential breaches of fiduciary duties in connection with the sale to Lone Star Funds.

However, for the present, the Lone Star Funds/Home Properties transaction is still expected to close in the fourth quarter of 2015.

News: Lone Star Funds to buy Home Properties for $7.6 billion, including debt

Africa’s arrival

BY Richard Summerfield

Private equity’s interest in the continent of Africa has never been higher, according to a new report from EY.

The firm’s report , 'Private equity roundup Africa', notes that PE has spread across many of the emerging markets with vigour in recent years. Indeed, many developing regions, including Latin America, Eastern Europe, India and Asia have attracted considerable interest from PE groups. However, PE’s interest in Africa is particularly strong.

Fundraising on the continent trended higher in 2014 than in recent years, as investors sought exposure to Africa’s seemingly unlimited potential. The value of transactions conducted in Africa nearly doubled over the course of last year, as PE firms across the continent put billions of dollars to work following significant fundraising activities. Exits continued to gather momentum in 2014, achieving an eight year high.

The outlook for the industry in Africa looks particularly positive, although the continent is still battling with political instability, economic torpidity and mass poverty. However, the emergence of a burgeoning middle class and the rise of consumer culture will play a transformative role in the economic fortunes of Africa.

Much of Africa’s recent growth has been marked by development in a number of consumer-related sectors - most notably the retail and consumer products space, the financial services sector and the technology, media and telecoms industries. This diversification of industries has had a positive effect on employment. Though we are a way off Africa becoming an economic power, the recorded growth, and potential for further economic development across the continent, are very real.

Investors in Africa will have obstacles to overcome in the years ahead, but the interest of both domestic and international investors across a range of industries will go some way to plugging the investment gap Africa has suffered for decades.

Report: Private equity roundup for Africa 2015

Private equity investments and divestments hit five year high in Europe

BY Fraser Tennant

Private equity investment in European companies during 2014 reached its highest level for five years, according to new figures released this week by the European Private Equity & Venture Capital Association (EVCA).

The figures highlighting the number of companies to have received buyout, growth and venture capital investments last year are showcased in the EVCA’s ‘2014 European Private Equity Activity report’ – widely considered to be the most comprehensive source of private equity fundraising, investment and divestment data for Europe (pertaining to more than 1200 European private equity firms).

The report’s core data shows that in 2014: (i) European private equity investment rose 14 percent to €41.5bn; (ii) over 5500 European companies received private equity investment, 80 percent of which were SMEs; (iii) divestments rose 10 percent to a record €37.8bn, with 2400 companies exiting; and (iv) private equity fundraising reached €44.6bn, the second-highest total in five years.

“Private equity and venture capital play an ever increasing role in Europe’s capital markets," said EVCA chief executive Dörte Höppner. “In 2014, we saw a clear pickup of investment and divestment activity across Europe, supported by robust fundraising. Against the backdrop of extremely high liquidity in financial markets, our numbers are proof of a strong and stable private equity industry which displays no signs of overheating; the industry will continue to play a central role in the European economy.”

The EVCA report also indicates that initial public offerings (IPOs) played a significant role in divestment activity. Exits via public markets more than doubled from 23 to 51 companies, while the amount divested at cost increased by more than 50 percent to €3.3bn. Overall, says the report, the most prominent exit routes by amount were by trade sale and sale to another private equity firm.

“Record divestment activity in 2014 reflects the quality of businesses being created by European private equity," concludes Ms Höppner. “While the rise in IPO activity is welcome and demonstrates investor appetite for new share offerings, we must do more to improve public market access for SMEs. The EVCA has been working with fellow European associations via the IPO Task Force to promote a healthier IPO market that benefits companies and investors alike.”

Further EVCA conclusions include confirmation that European private equity continued to attract significant capital from around the globe in 2014, with institutional investors accounting for 40 percent of the funds raised.

Report: 2014 European Private Equity Activity - Statistics on Fundraising, Investments & Divestments

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