Private Equity Market Overview 2014 Review and 2015 Outlook

Transcription

1 Private Equity Market Overview 214 Review and 215 Outlook Abbott Capital Management, LLC 129 Avenue of the Americas New York NY

2 Private Equity Market Summary Buyouts and Special Situations Venture Capital and Growth Equity Looking Ahead through 215 Continuing seller s market Strong public markets and attractively priced debt drove exits to the highest level since 27 Strategic acquirers were willing to buy, even at high prices Robust IPO and M&A market for exits Highest number of IPOs since 2, with signature exits like Alibaba M&A activity nearly tripled, including Facebook s acquisition of Whatsapp for $19.5bn Exits and distributions likely to continue as long as public markets remain strong GPs will likely seek to monetize older investments Later stage and larger acquirers appear to remain a source of exits for earlier stage and smaller investments 215 may see a number of unicorn IPOs Investments remained steady Leverage multiples increased, helping to push purchase prices to pre Crisis levels GPs exercised caution putting dry powder to work, given high valuations Middle market investments increased nearly 6%, driven by high prices and competition in upper markets Significant increase in investments High level of distributions/exits bolstered appetite for new investment Trend toward larger deal sizes like Uber s two $1.2bn financing rounds Investments in life sciences and software companies were up by 29% and 77%, respectively Investor enthusiasm remains high U.S. investments expected to continue at similar pace and prices, with strong interest in middle market and consolidation targets Europe may present cheaper opportunities, but sluggish economies and less lending likely to dampen investment Cash rich technology companies may be seeking disruptive businesses, driving VC investment levels; caution is warranted regarding valuations Oil prices, interest rates, and debt markets bear watching Existing energy portfolio companies may be negatively affected in short term Lower energy prices may boost economic activity through attractive acquisition/refinancing opportunities Interest rate rise and more stringent lending could have a range of effects on businesses and PE participants Market Overview 1

3 Private Equity Market Year-Over-Year Exits Investments $14 $12 $1 Global Private Equity Backed IPOs (1) Buyouts Volume ($B) Venture Volume ($B) Total Number of IPOs 5 4 $25 Global Private Equity Investments (1) Buyouts Volume ($B) Venture Volume ($B) Total Number of Investments 15, 12, $8 3 $15 9, $6 2 $1 6, $4 1 $5 3, 24 $35 $3 Global Private Equity Backed M&A Exits (1) Disclosed Value ($B) Total Number of Deals 2, $5 Private Equity AUM by Vintage Year as of June 3, 214 (2) Dry Powder ($B) Unrealized Portfolio Value ($B) $25 1,5 $4 $15 1, $3 $1 $5 5 $1 24 Vintage Year Strong public market valuations and available credit spurred robust exit activity; but a back log of pre crisis investments remains While investing has increased, high levels of dry powder remain Market Overview 2

4 U.S. Buyouts & Special Situations Exits 214 was another great year for sellers with 764 exits completed, the highest tally of the decade Robust public markets PE firms eagerness to sell aging portfolios amassed during buyout boom of Strategic acquirers focused on growth and were willing to buy companies at high prices Other PE firms sought to put dry powder to work $3 $25 $15 $1 $5 U.S. Buyout backed IPOs & M&A Exits (1) IPO Proceeds ($B) M&A Proceeds ($B) Number of Deals 1, Deals worth > $1bn were over 6% of all capital exited in 214 Second highest percentage of the decade IPO and M&A proceeds increased from 213 to 214 $72.6bn raised by IPOs in 214, an increase of 79%; average value per deal increased by 62% $161.5bn in M&A exits in 214, an increase of 63%; average value per deal increased by 12% B2B companies were an acquisition focus Energy exits decreased, due to fluctuating U.S. oil and gas production among other factors 1% 8% 6% 4% 2% U.S. Buyout backed Capital Exited by Size (3) $2.5B+ $1B $2.5B $5M $1B $1M $5M $25M $1M Dividend recapitalizations remained popular, generating liquidity $55.1bn through the first three quarters, matching the prior year % 24 Under $25M Market Overview 3

5 U.S. Buyouts & Special Situations Investing Investing remained constant in 214, $56.3bn invested in 214, compared to $56.2bn in levels were not inflated by mega buyouts, but instead boosted by high valuations across smaller investments Purchase price multiples matched 27 peak levels Due to competition and high prices in upper markets, activity in the middle market increased in 214, with deals from $1mm $1bn rising 58% from x 1.x 8.x 6.x 4.x 2.x.x U.S. LBO Purchase Price Multiple and Equity Contribution (4) Purchase Price Multiple Equity Contribution 9.7x 9.7x 8.4x 8.4x 9.1x 8.5x 8.8x 8.7x 8.8x 7.1x 7.3x 7.7x % 4% 3% 2% 1% % Debt was heavily utilized for 214 deals as cheap credit allowed investors to justify bigger bids The median debt percentage for 214 reached its highest level in the last ten years Senior debt has become a larger portion of average capital structure 7% 6% 5% 4% Median Debt Percentages (3) 6.9% 62.3% 62.9% 6.% 6.% 57.1% 52.6% 53.8% 65.1% 65.3% Oil and gas investments were up in 214, but below peak levels Managers now focused on retrenchment of existing investments to mitigate commodity price risks Add ons continued to increase to 6% of buyout deals in 214, driven by PE firms seeking smaller deals with lower prices 3% $14 $12 $1 $8 $6 $4 $2 Private Equity Investment in U.S. Oil and Gas Companies (5) Volume ($B) Number of Deals *As of December 23, 214 from Dealogic Ltd. Market Overview 4

6 U.S. Venture Capital & Growth Equity Exits $6 $5 $4 $3 $1 U.S. Venture Backed Disclosed M&A Exits & IPOs (6) Total IPO Offer Amount ($B) Total Disclosed M&A Value ($B) Total Number Facebook s $16bn IPO Facebook s $19.5bn acquisition of Whatsapp Median Exit Valuation vs. Median Capital Raised for U.S. VC Backed Co's (7) 4.5x 3.x 1.5x 2.4x Median Exit Val / Cap Raised Median Capital Raised ($M) 2.7x 4.2x 2.6x 1.9x 2.4x 4.x Median Exit Val ($M) 3.8x 4.1x 4.3x $16 $14 $12 $1 $8 $6 $4 Number Nearly 12% increase in venture backed exits compared to 213 Public markets continued to offer favorable conditions for IPOs Median exit multiples were the highest in the last ten years $15.3bn raised through 115 IPOs in 214 versus $11.1bn through 81 IPOs in 213, 38% dollar increase 65% of the number of IPOs in 214 were from the Life Sciences sector, compared to 3% from IT In contrast, 53% of IPO proceeds in dollars came from IT with 39% coming from Life Science Life Sciences companies may IPO earlier than IT, to generate proceeds to fund research/clinical trials M&A activity in 214 was nearly triple the total deal value of 213, and was the strongest year since 27 Facebook s acquisition of WhatsApp was nearly half of the $46.bn total value of M&A Excluding WhatsApp, M&A still increased 57% from 213 IT was the focus of M&A activity in 214 in both number of acquisitions and deal value.x 214 saw 29 venture backed unicorns that have not yet been sold or gone public 215 may see a number of these companies IPO Market Overview 5

7 U.S. Venture Capital & Growth Equity Investing Venture capital investments increased by 61% to $48.3bn in 214 6% of all venture capital invested went to $25mm+ deals, the highest percentage since the dot com boom Uber s two $1bn+ deals show the trend toward larger deal sizes Companies are waiting longer to go public and founders seem to prefer to raise money in the private market, rather than face volatility in public markets Capital Invested ($B) $6 $5 $4 $3 $1 Amount Invested U.S. Venture Capital Investments (9) 5, 4, 3, 2, 1, As companies remain private longer, with higher valuations, future financing and exit options may be limited Despite these concerns, VC backed IPOs have performed well 1% 8% U.S. Venture Capital Investments by Deal Size($) (7) $25M+ $1M $25M For startups open to M&A exits, the upswing in stock prices of acquirers has been advantageous WhatsApp acquisition mostly paid for with Facebook stock 6% 4% 2% $5M $1M $1M $5M $5K $1M 214 saw the most capital deployed to start ups since 2 Software and biotechnology sectors enjoyed the most capital invested in 214 Expansion capital dollars increased 12% in 214 to $19.8bn, supported by the addition of non traditional investors funding later stage rounds % Seed Early Stage Expansion Later Stage 214 U.S. Venture Capital Investments By Value (9) Under $5K Software Biotechnology Media and Entertainment Other IT Services Medical Devices/Equip Industrial/Energy Consumer Products/Svcs Financial Services Retailing/Distribution Market Overview 6

8 U.S. Venture Capital: Dynamics of Investment Sectors In 214, the software industry continued as the single largest investment sector, followed by biotechnology Software has held the number one spot in terms of dollars invested for 21 straight quarters Life Sciences sector (Biotechnology and Medical Devices combined) rose to the highest level since 28 Many venture firms have focused on shorter term sectors such as software instead of longer term sectors, like biotechnology Life Sciences has greater capital intensity and reliance on the FDA Successfully achieving groundbreaking technology/cures takes time Software 214 (8) Life Sciences 214 (8) Total Amount Invested $19.8 bn (77% increase) Total Amount Invested $8.6bn (29% increase) 1,799 (1% increase) 789 (3% decrease) Largest US Investment Industry Uber Software Largest US Investment Industry Moderma Therapeutics Biotechnology Stage Expansion Stage Early Stage Amount ($) Description $2.4bn (2 transactions) Provides application to connect riders with drivers Amount ($) Description $446.1mm Develops and delivers therapeutic proteins Capital Invested ($B) $3 $25 $15 $1 $5 Capital Invested ($) 2,5 2, 1,5 1, 5 Capital Invested ($B) $15 $1 $5 Capital Invested ($) 2, 1,5 1, Market Overview 7

9 Global Private Equity Exits Europe Notable increase in buyouts and venture capital exits, via sales to strategics, other PE firms, some IPOs, and re caps The currently depressed FX rate may make European businesses even more attractive to strategic acquirers Asia Large increase in exits due to maturing investments in the region and easier access to IPO market in China Alibaba, the largest exit in 214, is the world s biggest online commerce company, capturing 8% of China s online shopping market Economic reform in India may lift public markets and support increased exits Alibaba* (Internet) China $25.bn WhatsApp (Telecoms) U.S. $19.6bn 214 Notable Exits by Exit Value (2) Venture Buyouts and Special Situations Nest Labs (Energy Thermostat) U.S. $3.2bn Oculus VR (Technology) U.S. $2.bn JD.com (Internet) China $1.8bn *Partial exit Alliance Boots GmbH (Pharma) Switzerland $15.bn Biomet (Medical Instruments) U.S. $13.4bn Grupo Corporativo Ono (Telecoms) Spain 7.2bn Athlon Energy (Oil & Gas) U.S. $7.1bn Nuveen (Financial Services) U.S. $6.3bn 214 Number of Exits (IPOs and M&A) for Buyouts and Special Situations & Venture Capital by Region (1)* $5 $4 $3 $1 North America 1,6 $16 $12 $8 $4 ROW 7 Europe 7 Asia 3 Buyouts and Special Situations Exits by Region (1) (IPOs and M&A) ROW ($B) Europe ($B) Asia ($B) North America ($B) Venture Capital Exits by Region (1) (IPOs and M&A) ROW ($B) Europe ($B) Asia ($B) North America ($B) *Numbers are rounded Market Overview 8

10 Global Private Equity Investing Europe Slight increase in both buyouts and venture deals despite ongoing headwinds, limited GDP growth, and high pricing Continuing macro economic concerns: Greece s status in the Eurozone; war in Ukraine; broad unemployment in certain countries Potential opportunities: industry restructuring; sell offs from large corporations; building pan Europe or global distribution for local businesses 214 Number of Deals for Buyouts and Special Situations & Venture Capital by Region (1)* North America 8,6 Europe 2,5 Asia 1,4 Asia Significant increase in buyouts and venture capital deals, driven by: China: relaxed policies leading to new investments, e.g. large investment in state oil company India: shifts in political landscape and economic reform Commodity price impact: tumultuous markets, but potential upside Different growth profiles: slowing in China, gearing up in India Opportunities for control deals may increase, spurred by founder succession issues and a focus on core competencies 214 Five Largest Deals by Deal Value (2) Venture Buyouts and Special Situations Uber (Telecoms Logistics) Tim Hortons (Restaurants) U.S. $2.4bn U.S. $11.5bn Xiaomi Technology (Telecoms) China $1.1bn Flipkart (Internet) India $1.bn Cloudera (Software) U.S. $9mm Didi Dache (Telecoms) China $7mm Safeway (Retail) U.S. $9.4bn PetSmart (Retail) U.S. $8.7bn Gates Global (Manufacturing) U.S. $5.4bn Acosta Sales and Marketing (Marketing) U.S. $4.7bn $14 $12 $1 $8 $6 $4 $12 $1 $8 $6 $4 ROW ($B) Europe ($B) ROW 33 *Numbers are rounded Buyouts and Special Situations Investments by Region (1) Asia ($B) North America ($B) Venture Capital Investments by Region (1) ROW ($B) Europe ($B) Asia ($B) North America ($B) Market Overview 9

11 Secondary Market 214 volume reached new annual high; 53% increase from 213 Growing investor demand as shown by new high in secondary fundraising Strong secondary market pricing conditions Healthy capital markets and strong distribution activity Average secondary pricing for all strategies increased in 2H 214 to 91% of NAV, compared to 87% in has seen a dramatic increase in the number of providers of leverage for secondary purchases Leverage may help secondary buyers reach the current high prices desired by sellers, especially on large portfolios Secondary market pricing likely to remain high if public markets continue to perform strongly and dedicated dry powder remains at record levels $45 $4 $35 $3 $25 $15 $1 $5 11% 1% 9% 8% 7% 6% 5% Historical Secondary Markets Volume (11) $42. Actual Volume ($B) $27.5 $25. $25. $ Secondary Price (11) (% of NAV) 19% 14% 1% 95% 13% 91% 89% 86% 84% 93% 91% 87% 82% 8% 73% 83% 82% 68% 79% 8% 7% 74% 73% 7% 63% 63% 59% Buyout Venture All Strategies H 214 2H214 Market Overview 1

12 End Notes The information and charts presented in this document were generally sourced from the following materials. End note numbers correspond to the numbers listed next to individual charts. (1) Thomson Reuters/Thomson ONE database (Investments and Exits) (2) Preqin: The 215 Preqin Global Private Equity & Venture Capital Report (3) Pitchbook 215 Annual US PE Breakdown Report (4) LCD s Leveraged Buyout Review,4Q14, S&P s Financial Services LLC (5) January 215 Private Equity Analyst (6) Thomson Reuters/National Venture Capital Association (Exits) January 2, 213; April 2, 214; June 1, 214, October 1, 214; January 7, 215 (7) Pitchbook 215 Annual U.S. Venture Industry Report (8) Thomson Reuters/National Venture Capital Association (Investments) January16, 215 (9) PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report, Data: Thomson Reuters 4Q 214 (1) Wall Street Journal: Defining Alibaba (11) Cogent Partners Secondary Market Trends & Outlook, January 215 Market Overview 11

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