DIGEST 121

December 13, 2013

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US M&A Momentum to Continue in 2014 More Direct Dealing by LPs

Billion Dollar Buyout of Volvo Rents

Pass the Salt: PE Poised for Five Billion in Food Industry Exits This Week

M&A Global Trend: Mid-Market is the Core

Quote of the Week: Entrepreneurs’ High-Im-pact4

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US M&A MOMENTUM CONTINUES IN 2014 The US M&A market had strong momentum during the second half of 2013 and is expected to continue the pace well into 2014, according to PwC US. A growing business confidence and the search for growth opportunities are driving deal-making, according to PwC’s year-end M&A out-look, released today. “The improved macroeco-nomic environment and solid fundamentals for deal making in the U.S. that have been in place over the past two years have increased the level of business confidence in the market, fostering continued M&A activity in 2013,” said Martyn Cur-ragh, PwC’s U.S. Deals leader. There has been 9,280 transactions representing USD 944 billion in disclosed deal value. Interna-

tional dealmaking is expected to increase next year. Private equity players accounted for 17 percent of total deal value as of November, representing USD 163 billion worth of disclosed transactions. They are benefitting from debt markets to recapitalize their companies and create liquidity for their inves-tors while building strong long-term businesses, which includes making acquisitions. (Image source: PWC)

MORE DIRECT DEALING BY LPS

The trend towards direct investments by limited partners continues unabated, notes your DealMarket Digest edtor. This week, Financial News reported that Adveq and The London Pensions Fund Authority did a co-investment in parcel delivery venture, Secured Mail, whose customers include Amazon, Dom-ino’s Pizza and British Gas owner Centrica. Also this week, Partners Group, a Swiss limited partner and PE fund manager, announced it had acquired Die Menü-Manufaktur Hofmann, a market-leading catering services company and provider of frozen food products, according to Reuters. The Secured Mail deal is the first one for the London Pensions fund, but it is reportedly shifting its strategy towards

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BILLION DOLLAR BUYOUT OF VOLVO RENTS

direct investments. Partners Group has a bit more experience, claiming more than 100 direct deals since 1996. In a joint press release with Adveq, the LPFA said it was one of the largest Local Govern-ment Pension Schemes funds in the UK. The two co-invested with Next Wave Partners, a UK based growth capital investor. The trend was spotted and studied by several research organizations this year, as well as industry media, including Preqin.

PASS THE SALT: PE POISED FOR FIVE BILLION IN FOOD INDUSTRY EXITS THIS WEEK

This week’s deal of the week is a buyout of Volvo’s equipment rental unit to Platinum Equity, a US pri-vate equity fund manager for USD 1.1 billion. The information we used to spot the deal is from Thomson Reuters. Volvo, which competes head to head with Germany’s Daimler, is reportedly going through a restructur-ing process to improve the bottom line globally. Besides passenger cars, Volvo makes construction equipment, buses and engines as well as trucks, according to the report. The sale is part of its strat-egy to “focus on core business” and to cut debt.

Private equity firms are divesting portfolio companies in the food and beverage sector at a profit, ac-cording to the WSJ. They are selling to strategic buyers and the public (through IPOs). Mentioned in the report is the acquisition of US Foods Inc to Sysco, which will net investors Clayton Dubilier & Rice and KKR more than 1.5 times their original investment in US Foods. Other deals include Kainos Capital’s sale of organic food company Earthbound Farm Inc. to WhiteWave Foods Co., and Post Holdings acqui-sition of food companies from Tricor Pacific Capital and TA Associates. The report says four exits are trade sales. The other exit is the IPO of Aramark Holdings, a catering and food services which is

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M&A GLOBAL TREND: MID-MARKET IS THE CORE

The large-sized buyouts around the world this year might make the headlines, but mid-market deals are the cornerstone of global M&A activity. Deals between USD 10 million to USD250 million “con-sistently” represent about 30% of the overall M&A market over the last five years, according to a new report called The Mid-Market: M&A’s Core, by NASDAQ OMX and Mergermarket. However the trend for mid-market M&A is trending slightly downwards due to the economic prospects in Europe and slower growth in Emerging Markets. Private equity plays a role in these kinds of deals but not as big a role as one might expect. Year-to-date 2013, there have been 452 buyouts by PE players worth USD35 billion or about 12% of deals in the mid-market, while there were 393 exits worth USD 35 billion or about 11% of totals.

Key findings: • M&A by private equity players has gone down in the past two years (See chart above). Global mid-market private equity volume saw a drop in 2012 from 2011’s levels, although 2013’s numbers are currently keeping pace with last year’s volume.

Private equity firms are divesting portfolio companies in the food and beverage sector at a profit, according to the WSJ. They are selling to strategic buyers and the public (through IPOs). Mentioned in the report is the acquisition of US Foods Inc to Sysco, which will net investors Clayton Dubilier & Rice and KKR more than 1.5 times their original investment in US Foods. Other deals include Kainos Capi-tal’s sale of organic food company Earthbound Farm Inc. to WhiteWave Foods Co., and Post Holdings acquisition of food companies from Tricor Pacific Capital and TA Associates.The report says four exits are trade sales. The other exit is the IPO of Aramark Holdings, a catering and food services which is backed by Warburg Pincus, Thomas H. Lee Partners, CCMP Capital Advi-sors and GS Capital Partners.

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QUOTE OF THE WEEK - ENTREPRENEURS’ HIGH-IMPACT“To create and maintain economically stable communities, it takes a diverse blend of high-impact entrepreneurs. The capital markets need them. The economy needs them. And most of all, our com-munities need them...”

Who said it: Bryan Pearce, Americas Director Entrepreneur Of The Year and Venture Capital Advisory Group Leader

In Context: Private equity and venture capital companies are entre-preneurial but their real strength is working with and nurturing great entrepreneurs running businesses, so it is fitting that we highlight some research on entrepreneurs by EY this week. On the occasion of its 27th annual “EY Entrepreneur of the Year Award”, EY analyzed the performance of more than 650 nominated entrepreneurs that are running quick growing companies to find the key success factors, and put out a report about it last month. It describes in detail the qualities, concerns and performance of the candidates for the award. These entrepreneurs are running both public and private companies. They particularly excel in the areas of revenue growth, with median sales growth of more than 30% per year in each of the last two years, and headcount, with the average headcount of more than 30% per year in each of the last two years. Most of the finalists are running privately owned companies, repre-senting 88% of the finalists for the awards.

Where we found it: The vital entrepreneur: High impact at its best

• The Asia-Pacific region saw the most deal activity with 1,317 transactions for 2013 year-to-date

• Cross-border mid-market activity in the same deal range comprises 42% of deal volume and 45% of deal value compared with the overall mid-market deal volume of 3,719 deals worth USD 246bn (Image source: Mergermarket)

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The Dealmarket Digest empowers members of Dealmarket by providing up-to-date and high-quality content. Each week our in-house editor sifts through scores of industry and academic sources to find the most notewor-thy news items, scoping trends and currents events in the global private eq-uity sector. The links to the sources are provided, as well as an editorialized abstract that discusses the significance of the articles selected. It is a free service that embodies the values of the Dealmarket platform delivers:  Pro-fessional, Accessible, Transparent, Simple, Efficient, Effective, and Global. To receive the weekly digest by email register on www.dealmarket.com.Editor: Valerie Thompson, Zurich

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