PE investment into CEE reached €1.6bn in 2016, reveals new data

BY Fraser Tennant

A vibrant market typified by strong interest from GPs and LPs, Central and Eastern Europe (CEE) companies saw private equity (PE) and venture capital investments totalling €1.6bn in 2016 – the highest since 2009 – according to new data.

In its ‘Central and Eastern Europe Private Equity Statistics 2016’ report, Invest Europe reveals that the CEE region’s total PE fundraising amount rose 62 percent year-on-year to €621m in 2016, as larger fund managers returned to the market, and in line with a Europe-wide increase in fundraising for the asset class.

In addition, European investors from outside the CEE region provided 58 percent of the total capital raised, while funding from investors outside of Europe grew nearly nine-fold, particularly from the US. Long-term private investors contributed 43 percent of the overall fundraising amount, with funds-of-funds the largest source of capital, accounting for 27 percent, followed by pension funds with 16 percent.

In terms of investment capital, 2016 was mostly focused on Poland, followed by the Czech Republic, Lithuania, Romania and Hungary respectively. The most targeted sector was consumer goods and services, which attracted 23 percent of the investment value, while information and communication technology (ICT) followed on 22 percent.

“PE activity in Central and Eastern Europe was strong in all key areas last year,” said Robert Manz, managing partner at Poland’s Enterprise Investors and chairman of Invest Europe’s CEE Task Force. “Investments, divestments and fundraising all demonstrated a vibrant market with robust interest from GPs and LPs.

The report also notes that the total number of companies divested in CEE increased to a record high of 112 in 2016, mainly driven by exits of venture-backed companies. Furthermore, sale to another PE house – the secondary market – became 2016’s most utilised exit route in terms of amount, accounting for €476m of value at historical investment cost and 46 percent of the region’s total divestment value.

Finally, trade sale remained the most common route in terms of the number of companies divested at 37. Poland was the largest market in the region for exits, at 35 percent of divested amount at cost, followed by the Czech Republic, while ICT was the region’s most important sector for divestments, including two out of the four largest exits last year.

Mr Manz concluded: “The region’s fund managers are hard at work maximising buying and selling opportunities, while institutional investors are showing renewed appetite for the region.”

­­­­Report: Central and Eastern Europe Private Equity Statistics 2016

Russian oligarch swoops for Holland & Barrett in £1.8bn deal

BY Fraser Tennant

Helping itself to a big slice of the growing £10bn health and wellness market, investment fund L1 Retail has acquired Holland & Barrett from US private equity firm The Carlyle Group for £1.8bn.

Acquired by Carlyle in 2010 as part of its purchase of Nature's Bounty Co. (now NBTY), Holland & Barrett has experienced growth of over 90 percent in the years since Carlyle first invested in the brand. Founded in 1870, Holland & Barrett has stores in more than 1150 locations worldwide, a significant rapidly expanding online ecommerce capability and a global employee base of more than 4200 associates and staff.

"We are delighted to now be in partnership with the L1 Retail team and its advisory board of internationally-renowned retailers,” said Peter Aldis, chief executive of Holland & Barrett. “We have upgraded much of our core store portfolio to concept stores to deliver additional in-store theatre and increased customer engagement. New products launched through our ethical sourcing programme have also been a key growth driver helping to underpin our substantial investment to gain presence across an increasingly global health and wellness market.”

The fund acquiring Holland & Barrett, L1 Retail, is the retail investment arm of the LetterOne Group, an international investment business headquartered in Luxembourg. Controlled by the Russian billionaire Mikhail Fridman, the acquisition of Holland & Barrett is the first deal undertaken by his L1 Retail vehicle (further diversification has seen Mr Fridman set up L1 Technology and L1 Health).

"Holland & Barrett is a clear market leader in the UK health and wellness retail market, with attractive growth positions in other European and international markets, and growing online presence, with a leading customer loyalty programme and 10 million active cardholders,” said Stephan DuCharme, managing partner at L1 Retail. “We believe that the company is well positioned to benefit from structural growth in the growing health and wellness market and has multiple levers for long term growth and value creation."

Advising Carlyle during the sale to L1 Retail was Goldman Sachs, Houlihan Lokey, UBS, PwC, Latham Watkins LLP and OC&C. The transaction is expected to close by September 2017 subject to customary regulatory approvals. 

Mr Aldis concluded: “Carlyle has been a great partner for Holland & Barrett over the last few years and we look forward to building on this track record as we enter the next chapter with L1 Retail."

News: Holland & Barrett sold for £1.8bn to Russian billionaire

Canadian VC strong while PE sluggish in Q1 2017

BY Fraser Tennant

Canadian venture capital (VC) was strong in Q1 2017 while private equity (PE) was sluggish, according to a report published this week by the Canadian Venture Capital Association (CVCA).

In ‘Q1 2017 VC & PE Canadian Market Overview’ the CVCA reveals that VC saw $905m invested across 98 deals (Q1 2016 saw $956m invested over 128 deals). In comparison, PE continued at a slower pace in Q1, with $2.8bn invested over 105 deals.

Among its key findings, the report confirms that the average VC deal spiked to $9.2m in Q1 – 84 percent higher than the quarterly average deal size of $5m for the period of 2013 to 2016. Furthermore, the top 10 deals in Q1 accounted for 68 percent of all VC dollars invested, with the quarter also marking an acceleration of VC exits totalling $255m – nearly one-third of the number of deals and half the dollar amount of all 2016 VC exits.

“Canadian VC experienced a robust first quarter in 2017 – the second-best quarter since 2013,” said Darrell Pinto, research director at CVCA. “The pace of investment is reflective of healthy deal flow across all industry sectors. Another sign of a heath is the long-awaited turnaround trend in VC-backed exits – 10 exits totalling $179m in Q1 (compared to 31 exits in all of 2016) – and by all indications this will continue in Q2.”

Turning to PE performance, almost half of PE investments came from the two largest deals in Q1: the $723m Manitoba-based Arctic Glacier acquisition by The Carlyle Group from H.I.G. Capital and the $575m sale of British Columbia-based Performance Sports Group’s assets to Antares Capital and Fairfax Financial. The Arctic Glacier acquisition propelled Manitoba to the top-ranked provincial share of PE dollars invested (26 percent). This was followed by Quebec on 24 percent and British Columbia on 21 percent.

“PE remained flat in Q1,” confirms Mr Pinto. “As depressed global oil prices continue to put downward pressure on Canadian PE activity, investors have been finding alternate investment targets in non-traditional sectors like consumer and retail and cleantech. However, a bright spot was the PE exits environment, with 31 exits totalling $1.5m – already half the number of 2016 PE exits. This included the first PE-backed IPO since 2015: the $445m Canada Goose listing on both TSX and NYSE.” 

Progressing in a balanced fashion, Canadian VC and PE investment is showing results.

Report: VC & PE Canadian Market Overview Q1 2017

KKR to buy Calsonic in $4.5bn deal

BY Richard Summerfield

Private equity firm KKR & Co has agreed to acquire auto parts maker Calsonic Kansei Corp from the company’s majority shareholder Nissan, for around $4.5bn. The deal represents KKR’s biggest ever deal in Japan.

According to a statement announcing the deal, KKR will pay 1860 yen per Calsonic share held - a 28.3 percent premium over the company’s closing price on Tuesday, the day before the deal was announced. The firm beat competition from a number of other rival private equity firms, including Bain Capital and MBK Partners.

Calsonic’s main customer is Nissan, Japan’s second largest car maker, which accounts for 85 percent of its business. However, the company also supplies parts to a number of other car manufacturers including Renault, Isuzu, Daimler and General Motors.

Yasuhiro Yamauchi, chief competitive officer of Nissan, said in a statement: "This agreement was reached because we share common interests and goals. Nissan is hoping to further increase the competitiveness of Calsonic Kansei – one of our most important partners – and KKR recognises the company's potential. This is also the best choice for Calsonic Kansei and its shareholders."

The acquisition of Calsonic will come from KKR Asian Fund II. The firm has been active in Japan through its pan-regional private equity funds since 2010. Though the country has been a key market for KKR, the deal for Calsonic is a rare one in Japan. Multibillion dollar deals in Japan have been hard to come by in recent years; many Japanese companies often unwilling to divest their units through drastic restructuring.

Once the deal for Calsonic is complete, it will become the fourth KKR owned firm operating in Japan. The firm has previously acquired human resources services company Intelligence Ltd, Pioneer DJ, the DJ equipment business which Pioneer Corporation divested in early 2015, and Panasonic Healthcare, which was carved-out of the Panasonic Corporation for $1.67bn in 2013.

Hiro Hirano, a member of KKR and CEO of KKR Japan, said: "Calsonic Kansei is a best-in-class auto-parts manufacturer that supplies high-quality products to the world's largest automotive brands. As a partner to Calsonic Kansei's management team, we aim to assist the company in achieving its growth ambitions and make available our international network and industry expertise to continue Calsonic Kansei's success globally."

News: KKR to buy Nissan-backed supplier Calsonic for up to $4.5 billion

Apollo Global Management to acquire Rackspace Hosting in $4.3bn deal

BY Fraser Tennant

In a boost to its investments in the technology sector, private equity firm Apollo Global Management LLC has announced its intention to acquire cloud services provider Rackspace Hosting Inc in a deal with a total value of $4.3bn.

The definitive agreement, which will see Rackspace become a privately held company and its stockholders receive $32.00 per share in cash, also includes the assumption of $43m of net cash.

"We are tremendously excited about the opportunity for our managed funds to acquire Rackspace," said David Sambur, a partner at Apollo. "We have great respect for the company's talented employees and their commitment to deliver expertise and exceptional service for the world's leading cloud platforms.”

Founded in 1998, Rackspace provides businesses with expertise and exceptional customer service for the world's leading cloud platforms, including AWS, Microsoft and OpenStack (the open-source cloud platform that Rackspace co-founded in 2010, along with NASA). In 2015, the company reported revenue of $2bn.

Once completed, Rackspace expects the deal with Apollo to provide it with additional flexibility to deliver the multi-cloud services that its customers are looking for.

"This transaction is the result of diligent analysis and thoughtful strategic deliberations by our board over many months", commented Graham Weston, co-founder and chairman of the board of Rackspace. “Our board, with the assistance of independent advisors, determined that this transaction, upon closing, will deliver immediate, significant and certain cash value to our stockholders.

“We are also excited that this transaction will provide Rackspace with more flexibility to manage the business for long-term growth and enhance our product offerings. We are confident that as a private company, Rackspace will be best positioned to capitalize on our early leadership of the fast-growing managed cloud services industry."

Having unanimously approved the agreement with Apollo, the Rackspace board of directors has recommended that Rackspace stockholders vote in favour of the transaction.

Recognising a significant opportunity, Taylor Rhodes, president and CEO of Rackspace, said: “We are presented with a significant opportunity today as mainstream companies move their computing out of corporate data centres and into multi-cloud models.

“Apollo and its partners take a patient, value-oriented approach to their funds' investments, and value our strategy and unique culture. This is an exciting transaction and we look forward to working closely together."

The Apollo/Rackspace transaction is expected to close in the fourth quarter of 2016 and is subject to applicable antitrust waiting periods, stockholder approval and other customary closing conditions.

News: Rackspace Confirms Its Sale to Apollo Global Management