torreycove’s 1 quarter 2019 market overview · flagship ventures opportunities fund ii $0.8...

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TorreyCove’s 1st Quarter 2019Market Overview

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Special Situations Fundraising | $ Billion

Market Overview 1Q19

Fundraising ActivityNorth America

BUYOUTS

• 1Q commitments: $80.9 billion across

buyout and mezzanine firms, a 60.2%

increase from 1Q18 ($50.5 billion), and a

25.6% decrease from 4Q18 ($108.8 billion).

(Buyouts)

• As of April 2019, funds targeting $1.0 billion

to $5.0 billion had received 56.0% of

capital, followed by funds targeting $5.0

billion or more with 32.8%. (Buyouts)

• With the surge in 2018 fundraising, the

total funds raised LTM 1Q19 ($275.0 billion)

slightly outpaced LTM 1Q18 ($241.3 billion),

representing an increase of 14.0%.

(Buyouts)

• According to Buyouts, the largest fund

raised so far in 2019 is also the only fund

raised this year over $10.0 billion as Thoma

Bravo Fund XIII has raised $12.6 billion in

2019.

• Considering only industry focused-funds,

the high technology sector raised $18.9

billion through 1Q19, closely followed by

healthcare, with $17.5 billion raised. The

next three are energy and power, consumer

services, and industrials, respectively with

$4.2 billion, $3.5 billion, and $3.3 billion

raised.

Buyout and Mezzanine Fundraising | $ Billion

VENTURE CAPITAL

• 1Q commitments: $24.6 billion, a 36.4%

decrease from 4Q18 ($38.7 billion). Funds

raised from the year prior reached $22.8

billion, an increase of 7.9%. (PWC)

• The number of fund-closings totaled 1,279

during 1Q19, representing a 3.7% decrease

from 4Q18 when 1,328 funds closed

fundraisings. (PWC)

• First-time-funds have raised $0.1 billion

across two funds in the first quarter of 2019.

(Pitchbook)

• The 2019 median fund size increased by

29.8% year-over-year (from $79.6 million to

$103.3 million). This represents the highest

level in since 2008, when median fund size

was $86.3 billion. (Pitchbook)

Venture Capital Fundraising | $ Billion

Source: Pitchbook & National Venture Capital Association

SPECIAL SITUATIONS

• Distressed / Turnaround Debt: $1.7 billion, a

61.9% increase from 4Q18 ($1.0 billion) and

a 351.7% increase from 1Q18 ($0.4 billion).

(Thomson Reuters)

• Mezzanine: $1.4 billion, a 65.3% decrease

from 4Q18 ($4.0 billion) and an 86.8%

decrease from 1Q18 ($10.4 billion).

(Thomson Reuters)

• Fund of Funds / Secondary Funds: $2.9

billion, a 45.0% increase from 4Q18 ($2.0

billion). (Thomson Reuters)

Source: Thomson ReutersSource: Buyouts, as of May 3, 2019

Largest Active U.S. Fundraisers in 2019 Fund Size

BuyoutThoma Bravo Fund XII $12.6 billion

Genstar Capital Partners IX $5.5 billion

Venture CapitalTCV X $3.0 billion

Flagship Ventures Opportunities Fund II $0.8 billion

Mezzanine NB Private Debt Fund III $1.7 billion

Distressed/Turnaround Centerbridge Special Credit Fund III $5.0 billion

Fund of Funds Greenspring Global Partners IX $1.0 billion

2

Source: Thomson Reuters

$69.3

$98.7

$160.7

$190.8

$207.7

$228.1

$210.1

$241.6 $244.5

$80.9$19.9

$24.8

$24.4

$20.7

$33.8

$36.0

$40.0

$34.3

$53.9

$9.6

$0

$20

$40

$60

$80

$100

$120

$140

$160 Turnaround/Distressed Debt

Fund of Funds

Secondary Funds

Mezzanine Stage

Other PE/Special Sits



VENTURE CAPITAL

• Venture capitalists invested $32.0 billion in

1,853 deals in 1Q19, down 27.6% in value

compared to 4Q18, when $44.2 billion went

into 2,425 deals. (Pitchbook)

• The software industry led all sectors during

the quarter, garnering $9.8 billion through

718 deals. Software deals were followed by

commercial services, and pharma and

biotech, with $6.8 billion and $3.9 billion of

capital invested through 115 and 151 deals,

respectively. (NVCA)

BUYOUTS

• According to Thomson Reuters, disclosed deal

value totaled roughly $102.4 billion in 1Q19,

down 34.1% compared to 4Q18, when

disclosed deal value totaled $155.5 billion.

• The largest U.S.-sponsored deal to close in

1Q19 was the $8.8 billion acquisition of

EnLink Midstream Partners, executed by

Global Infrastructure Partners LLC. (Buyouts)

• According to Buyouts, the most active LBO

dealmaker of Q1 2019 was Jefferies LLC, with

13 deals closed during the quarter. Closely

followed by both Citi and Barclays (10 deals

closed), and BofA Merrill Lynch and Houlihan

Lokey (9 deals closed).

• High technology led Q1 2019 with 103 deals

closed during the quarter. Industrials

followed with 85 deals, while consumer

products and services rounded out the top

three, with 67 deals closed in the industry.

(Buyouts)

• LBO purchase price multiples were 10.3x

EBITDA by the end of 1Q19, a 3.0% decrease

when compared to 10.6x EBITDA at the end of

2018. (S&P Global)


Investment ActivityNorth America

Source: S&P M&A Stats – March 2019

U.S. LBO & VC Investment Activity | $ Billion

Source: Buyouts & National Venture Capital AssociationNote: 1Q LBO figures through January 15, 2019

Source: Thomson Reuters

LBO Purchase Price Multiples Special Situations Investment Activity | $ Billion

3

U.S. 1Q Venture Investment by Stage

SPECIAL SITUATIONS

• Distressed / Turnaround Debt: There were 31

distressed/turnaround investments during

1Q19 for a total value of $0.7 billion,

representing a decrease of 20.5% in deal count

and a decrease of 94.1% in value compared to

4Q18 (39 deals for $11.5 billion). (Thomson

Reuters)

• Mezzanine: There were 38 mezzanine

investments during 1Q19 for a total value of

$6.4 million, representing an increase of 15.2%

in deal count and a decrease of 93.7% in value

compared to 4Q18 (33 deals for $0.1 billion).

(Thomson Reuters)

• Fund of Funds / Secondary Funds: There were

32 fund-of-funds and secondary fund

investments during 1Q19 for a total value of

$0.4 billion, representing an increase of 39.1%

in deal count and a decrease off 94.6% in value

compared to 4Q18 (23 deals for $7.2 billion).

(Thomson Reuters)

37.3

87.7

121.3115.2

146.0

112.7117.5

170.1

184.2

54.3

27.231.3

44.9

41.547.8

71.0

83.0

77.0

82.9

132.1

32.6

LBO Deals

Venture

$0

$5

$10

$15

$20

$25

$30

0

100

200

300

400

500

600Sum of Deal ValueNo. of Deals

289.4

0x

2x

4x

6x

8x

10x

12xSenior Debt/ EBITDASub Debt/ EBITDAEquity/ EBITDAOthers

3.7%

15.0%

33.0%

40.8%

7.5%

Seed Early Expansion Late Other

142 deals

251 deals212 deals

303 deals

24.7 billion

298 deals




Investment Activity + ExitsNorth America

• According to Buyouts, there were four

buyout-backed IPOs in the U.S during

1Q19 totaling $0.6 billion in value.

• There were 144 buyout-backed M&A

exits in 1Q19 with a total valuation of

approximately $23.4 billion. Of the 41

deals with disclosed value, 8 crossed the

billion-dollar threshold. (Buyouts)

• Industrials accounted for 24 buyout-

backed M&A exits during 1Q19, which

represents 16.9% of the total exits. High

technology was the second largest by

deal count with 21 deals, while consumer

products and services and materials

industry closely followed with 19 and 12

exits each, respectively. (Buyouts)

Number of U.S.-based IPOs

Source: Thomson Reuters, Pitchbook & National Venture Capital Association

Number of U.S.-based M&A

• 1Q19 saw the slowest quarter in M&A exit

activity in over two years with a decrease

of 29.4% in deal count and 53.1% in deal

value since the fourth quarter of 2018.

(Buyouts)

• According to Pitchbook, U.S. venture-

backed M&A exits totaled 137 during 1Q19

with total disclosed value of $46.7 billion.

This represents an increase in value when

compared with 4Q18 ($40.2 billion),

despite a decrease in deal count (222).

• There were 12 venture-backed IPOs during

1Q19 valued at $25.0 billion, representing

a 33.3% decrease in count and 42.9%

increase in value from 4Q18 where 18 IPOs

were valued at $17.5 billion. (Pitchbook)

Source: Thomson Reuters, Pitchbook & National Venture Capital Association

DRY POWDER

• According to Preqin, SoftBank Investment Advisors

currently has the largest amount of dry powder at

$59.1 billion, followed by Blackstone Group with

$36.6 billion and Carlyle Group with $35.1 billion

as of 1Q19.

• 17 of the top 25 fund managers by dry powder are

based in the U.S. (Preqin)

Source: Thomson Reuters, Preqin

SECONDARY BUYOUTS• 75 secondary buyout transactions were

completed during 1Q19 for an aggregate dealvalue of $5.0 billion.

Largest U.S. Liquidity Events in 4Q 2018Sponsors Company Value

PE-backed IPO

ARCH Venture Partners, Omega

Funds, and Hillhouse Capital

Partners

Gossamer Bio

(NYSE:GOSS)$0.3 billion

VC-backed IPO (Multiple Sponsors)Lyft, Inc.

(NASDAQ: LYFT) $21.7 billion

PE-backed M&A NGP Energy Capital ManagementWildhorse Resource

Development Corp.$3.8 billion

VC-backed M&AAccel, Insight Venture Partners,

Sequoia CapitalQualtrics $8.0 billion

4

Global Dry Powder by Strategy | $ Billion

EXITS

918.7

1,164.41,167.9

1,297.6

1,437.8

1,692.1

1,888.82,203.9

2012 2013 2014 2015 2016 2017 2018 2019YTD

VentureReal EstateOtherMezzanineGrowthDistressed PEBuyout

$54.0$49.7

$40.7

$49.5

$43.7

$50.2

$39.1

$29.5

$5.0

304

331

288

386 384

305

330318

75

Sum of Deal Value ($B) No. of Deals

873 903

1,078 1,021

891 896 930

137

770

669

875

724661 646

638

144

Venture-backed Buyout-backed

44

61

87

126

78

43

58

87

12 24

40

49 50

31

8 18

42

4

Venture-backed Buyout-backed



EXITS

• There were no PE-backed IPOs in 1Q19.

(Thomson Reuters)

• The slow-down in PE-backed IPO activity

across Europe can be attributed to

uncertainty around the ongoing Brexit

negotiations, however PwC notes that at the

start of the second quarter of 2019,

companies looking to IPO have received

positive feedback and good investor demand.

(PWC)


Europe

FUNDRAISING

• 1Q19 commitments: $40.2 billion,

representing a 57.7% increase from 4Q18

($25.5 billion) and a 3.8% increase from

1Q18 ($38.7 billion). (Thomson Reuters)

• According to Thomson Reuters, France

accounted for 49.2% of funds raised in

Europe during 1Q19, followed by the

United Kingdom (42.1%), and Switzerland

(3.0%).

• The increase in funds raised during the

quarter stems from an increase in

fundraising in France, $19.8 billion

compared to $3.7 billion raised in 4Q18,

and the U.K., $16.9 billion compared to

$14.5 billion in 4Q18, offset by a

decrease in Germany, from $5.9 billion in

4Q18 to $0.3 billion this quarter.

Additionally, Austria, Czech Republic ,and

Estonia saw nil fundraising activity,

despite raising $0.3 billion, $0.2 billion,

and $24.0 million, respectively, from the

quarter before. (Thomson Reuters)

• The largest fund to achieve a final closing

was EQT Infrastructure IV ($10.2 billion),

a London based fund focused on the

infrastructure sector, followed by Ardian

Infrastructure Fund V ($6.9 billion) and

Astorg VII ($4.6 billion). (Preqin)

Europe Fundraising Activity | $ Billion

INVESTING

• Disclosed deal value totaled $21.3 billion

across 672 deals in 1Q19, down 9.6% in

deal value ($30.1) and down 29.1% in

deal count (743) from 4Q18. (Thomson

Reuters)

• Germany accounted for 40.0% of deal

value in Europe during 1Q19, followed by

the United Kingdom and France with

35.4% and 12.5%, respectively. (Thomson

Reuters)

• According to Thomson Reuters, the

largest PE deal disclosed in Europe was

Scout24 AG, a German-based digital

market place specializing in real estate

and automotive sectors, which was

acquired by Blackstone Group and

Hellman & Friedman for $5.6 billion.

• Another notable transaction includes

Inmarsat PLC, a U.K.-based satellite

telecommunications company, acquired

by Triton Bidco ($3.4 billion).

• The internet industry garnered $7.0

billion of new investment in 1Q19,

followed by industrials with $3.7 billion.

(Thomson Reuters)

Europe Investment Activity | $ Billion

Europe | PE Backed IPOs as % of Total IPOs

Europe IPO Exits| $ Billion

Source: Preqin

Source: PWC

Source: Thomson Reuters Source: Thomson Reuters

5

5.6

1.9

14.4

28.9

20.0

7.4

5.23.9

0.0

$0

$5

$10

$15

$20

$25

$30

$35

65.9

59.0

68.2 68.2

99.6

48.1

64.2

113.8

21.3

$0

$20

$40

$60

$80

$100

$120

82.7

103.4

139.6

157.6

143.5

176.2

214.3 207.4

69.4

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

$220

$240

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2014 2015 2016 2017 2018 2019

Volume % Value %




Asia

FUNDRAISING

• 1Q19 commitments: $17.6 billion,representing a 56.0% decrease from1Q18 ($40.0 billion) and a 59.7%decrease from 4Q18 ($43.6 billion).

• China accounted for 68.8% of funds

raised in Asia during 1Q19, followed by

India (16.3%) and Japan (6.5%).

• The decrease in funds raised this

quarter was largely due to China, which

decreased from $25.4 billion to $12.1

billion on a quarter-on-quarter basis.

• The largest PE fund to reach a final

closing was TPG Asia VII, L.P. ($4.6

billion in total), a Hong Kong based

buyout fund sponsored by TPG Capital,

followed by Boyu Capital Fund IV, L.P.

($3.6 billion) and EISAF II Onshore Fund,

L.P. ($1.3 billion).

• In 1Q19, Buyout/Growth was the most

popular strategy in Asia, accounting for

38.5% of the total, followed by Real

Estate (33.2%) and Venture Loan/Debt

Financing (19.2%).

Source: AVCJ

EXITS

• In Asia, there were 21 PE-backed IPOs in

1Q19 valued at $1.7 billion, down 59.6%

in value and down 50.0% in count from

4Q18, respectively. The largest IPO was

Maoyan Entertainment (listed in Hong

Kong Stock Exchange) sponsored by

Welight Capital (raised $0.3 billion).

• There were 40 disclosed Asian PE M&A

(ex-IPO) exits in 1Q19 valued at $12.9

billion, down 33.5% in value and down

36.5% in count from 4Q19. Japan was the

largest market in terms of deal value

(45.3% of the total).

Asian Fundraising Activity | $ Billion

INVESTING

• Disclosed deal value totaled $32.0

billion across 598 deals in 1Q19, down

26.4% in value and down 17.2% in

deal count compared to 4Q18,

respectively.

• China accounted for 35.2% of the total

investments in Asia during 1Q19,

followed by India and South Korea

with 28.8% and 10.2%, respectively.

• The largest disclosed PE deal in Asia

was the $1.5 billion of Chehaduo

Group, internet e-commerce provider

in China acquired by Soft Bank Vision

Fund. The other major deals were SBI

Life Insurance Company Ltd., a life

insurance company in India, acquired

by a Carlyle India Advisors Pvf. Ltd.

($0.6 billion).

• The information technology industry

garnered $11.0 billion in 1Q19,

followed by transportation and

distribution industry with $3.6 billion.

Asian Investment Activity | $ Billion

Asian IPO Exits | $ Billion

Asian M&A Exits | $ Billion

©2019 Alternative Investment Capital 6

76.5 81.9

117.6

134.0

176.5

256.2

167.1

17.6

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

$220

$240

$260

$280

2012 2013 2014 2015 2016 2017 2018 2019YTD

71.9 73.5

103.8

150.2147.4

208.8

189.2

32.0

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

$220

$240

$260

$280

2012 2013 2014 2015 2016 2017 2018 2019YTD

49.645.4

68.2

58.3

76.4

88.4

117.4

12.9

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

2012 2013 2014 2015 2016 2017 2018 2019YTD

35.1

18.3

70.6

45.5

31.5

40.9

47.4

1.7

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2012 2013 2014 2015 2016 2017 2018 2019YTD




Emerging Markets: Brazil

FUNDRAISING

• Investor enthusiasm in Brazil remained

relatively constant in 2018, with the region

maintaining its position as the sixth most

attractive emerging market in EMPEA’s 2018 LP

Survey for the fourth consecutive year. The

survey reports 59.0% of LP’s cite currency risk as

the primary deterrent for investment in Brazil.

• According to Preqin, the largest Brazil-focused

fund closed in 2018 was Pátria Private Equity

Fund VI, a buyout fund with $2.7 billion in

commitments. In addition to being the largest

fund raised in Brazil in 2018, it represents the

largest fund ever raised in Latin America.

Together with Pátria Infrastructure Fund IV, the

firm closed approximately $3.9 billion in 2018.

• According to EMPEA, general partners raised a

record $2.1 billion in distressed debt, direct

lending, and special situations funds in 2018—

more than quadruple the amount raised over

the preceding 12 years combined.

EXITS

• As of 1Q19’s close, just two exits have

occurred in Brazil according to Preqin. Of

note, Groupe ORPEA exited Brazil Senior

Living, S.A via trade sale to Pátria for an

undisclosed amount.

• According to Preqin, there were 3 IPOs of

Brazilian companies throughout 2018: Notre

Dame Intermédica Saúde S.A., Arco Educaçaõ

S.A., and Stone Pagamentos S.A, totaling an

exit value of $2.2 billion.

• According to Preqin, the largest disclosed

exit in 2018 was Digital Realty Trust’s sale of

Ascenty Data Centers to Great Hill Partners

for $1.8 billion via trade sale, followed by

Bain Capital’s sale of public shares in

Brazilian preventative medicine provider,

Notre Dame Intermédica Saúde S.A., for $1.5

billion.

INVESTING

• Deal growth in Brazil experienced a 4.0%

increase through October 2018 over the

same period in 2017, ending with 538 total

transactions according to PwC Brazil.

• According to PwC Brazil, the IT industry

continued to be the most preferred sector

through October 2018, closing 113

transactions in total for a 21.0% share of

volume. In terms of geography, the state of

São Paolo accounted for 49.0% of Brazil’s

disclosed deal transactions through October

2018, totaling 264 transactions.

• According to Preqin, the largest disclosed PE

deal in 2018 was EIG Global Energy Partners’

$165.6 million acquisition of Prumo Logística

S.A, a Brazilian infrastructure and logistics

service company. Another notable deal was

Advent International’s PIPE acquisition of

Estácio Participações, an educational

services provider, for $107.9 million.

Brazilian Fundraising Activity | $ Billion Brazilian Deal Activity | # of companies Brazilian Exit Routes | % of exits

Source: Preqin Source: PwC Brazil Sources: Preqin

SPOTLIGHT: VentureThe political atmosphere and financial hardships in Brazil during the past decade have had little effect on its growing venture capital market, with thecountry becoming Latin America’s largest VC market according to PwC. On the back of Brazil’s recession in 2015, the country is currently riding the so-called “Bolsonaro Bump,” which has seen the Brazilian stock exchange (the Bovespa) reach all-time highs as of 1Q19. This macroeconomic optimism is instark contrast to before Jair Bolsonaro’s election, where only 42.0% of Brazilian executives said they would be pursuing M&A deals in the next 12months according to EY. M&A skepticism echoes the hesitancy of fund managers during the economic crisis of 2015, where capital invested in largebuyouts fell from $2.0 billion to just $0.4 billion in 2015. Despite large buyout’s regression in Brazil, fund managers invested $299.0 million in venturecapital in 2016, dwarfing the $5.0 million spent in 2010. Brazil’s venture capital ecosystem continued its maturity into 2018, with $374.0 million investedacross 60 deals through the first three quarters of the year according to EMPEA. Within the venture landscape, the financials sector is perhaps thelargest contributor to recent VC growth as a result of the influx of startups with the aim of causing unrest within the costly banking system in Brazil. Thistrend is exemplified by the $150.0 million round of financing for Nubank, representing the largest round ever for a Brazilian fintech startup.

7

$13.3

$8.3$7.5

$25.5

$5.0

$7.4

0

5

10

15

20

25

30

35

40

45

50

$0

$5

$10

$15

$20

$25

$30

2013 2014 2015 2016 2017 2018

Fundraising Number of Funds

664 717 618 490 517 538

812

879

742

597643

0

100

200

300

400

500

600

700

800

900

1000

2013 2014 2015 2016 2017 2018

First 10 Mos. YTD

53%

82% 78% 80%

52%

80%

27%

12%

6%7%

33%

7%7%6%

7%13%

6%11% 7%

10% 13%5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016 2017 2018

Buyout Growth Capital Merger

PIPE Public to Private




Performance**Performance data may lag current quarter due to the complex process of data collection.

Source: Preqin, Cambridge Associates, Bloomberg; Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes.

MARKET RETURNS

Buyout Returns Venture Capital Returns

Source: Cambridge Associates Pooled IRR: All Private Equity Funds excluding Real Estate, Fund-of-Funds, Infrastructure, and Secondaries as of September 30, 2018

Source: Cambridge Associates as of September 30, 2018 Source: Cambridge Associates as of September 30, 2018 Source: Bloomberg

Private Equity Returns by Asset Class 5 Year 10 Year 15 Year 20 Year

Venture Capital 16.8% 11.8% 11.1% 19.1%

Growth Equity 14.4% 12.6% 13.5% 14.1%

Buyout 14.0% 11.4% 14.4% 12.5%

Subordinated Capital 10.3% 9.8% 9.7% 8.6%

Control-Oriented Distressed 9.3% 10.6% 11.0% 10.8%

Private Equity Energy 3.6% 5.7% 10.1% 10.1%

Total 12.7% 11.0% 12.9% 12.8%

8

Index

1Q 2018

2Q 2018

3Q 2018

4Q 2018

1Q 2019

S&P 500 -1.2% 2.9% 7.2% -14.0% 13.1%

Russell 3000 -1.1% 3.4% 6.6% -14.7% 13.5%

FTSE -8.2% 8.2% -1.7% -10.4% 8.2%

CAC -2.7% 3.0% 3.2% -13.9% 13.1%

DAX -6.4% 1.7% -0.5% -13.8% 9.2%

MSCI ACWI -1.4% -0.1% 3.8% -13.1% 11.6%

-

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Preqin INDEX vs S&P 500 INDEXBuyout

All Private Equity

Venture

Real Estate

Fund of Funds

Distressed Private Equity

S&P 500 Index

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019

S&P 500 Index Russell 3000

FTSE CAC

DAX MSCI ACWI

4.2%

23.2%

18.3%

12.3%

11.0%

7.6%

23.7%

12.3%

11.9%

11.3%

5.2%

18.0%

15.5%

10.8%

11.3%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

3 Months

1 Year

5 Years

10 Years

15 Years

Seed/Early Stage Late/Expansion Stage

Multi-Stage

2.0%

10.9%

11.0%

10.6%

19.1%

2.5%

14.6%

11.7%

9.7%

16.3%

3.0%

15.1%

14.0%

11.3%

15.3%

3.6%

17.2%

14.9%

12.0%

13.2%

0.0% 5.0% 10.0% 15.0% 20.0%

3 Months

1 Year

5 Years

10 Years

15 Years

Small Buyouts Medium Buyouts

Large Buyouts Mega Buyouts




Sector in Focus: Financials

SECTOR OUTLOOK

MARKET ANALYSIS

• FinTech

• Venture capital-backed fintech funding

dropped in 1Q19 by 13.0% but deals

remained strong with quarter-over-

quarter growth of 4.0%. Although

startup activity declined, investment

reached an all-time high of $60.2

billion in 2018, with VC funding

accounting for 67.0%. (CB Insights &

Deloitte)

• In 2018 China had larger fintech

investment than the United States for

the first time, reaching $23.0 billion. At

the end of 2018, M&A volume was

down 10.0% year-over-year and IPO

volume was also slightly down.

(Deloitte)

• FinTech has become part of the

mainstream banking system after the

OCC announced in July 2018 that it

would begin accepting fintech bank

charter applications. According to

KPMG, larger deal sizes and

consolidation is anticipated within the

fintech market. (KPMG and Deloitte)

• Insurance

▪ During 1Q19, 42 M&A deals within the

insurance market were completed,

down 2.3% from 1Q18. (Preqin)

▪ Premiums increased at a much

healthier rate of 6.1% in developing

markets due to China’s growth rate

being cut in half to 10.0%. (Deloitte)

SECTOR OVERVIEW

• The financials sector of the S&P 500

increased 7.9% during 1Q19, 520 bps lower

than the S&P 500 during the same period

(13.1%). The sector failed to outperform nine

of ten other sectors represented in the S&P

500, finishing ahead of only health care. The

below average performance was attributable

to the sector’s sensitivity to the Fed’s interest

rate changes. (NASDAQ)

• 1,212 global M&A deals were completed

during 1Q19, 105 (8.7%) of which were

companies within the financial sector, down

8.0% when compared to the prior-year

period. Additionally, the sector accounted for

9.8% of exits during the period, down 12.7%

when compared to the prior-year period.

(Preqin)

• Globally, IPO volumes were down 41.0%

year-over-year and IPO revenues were down

74.0% during the same period. The financials

sector accounted for 10 out of 199 IPOs

(5.0%) during 1Q19, which ranked seventh

across all sectors globally. However, the

sector finished third in proceeds. (Ernst &

Young)

• The financials sector finished third out of all

sectors in beating its estimated revenue

growth for 1Q19, posting 5.7% growth versus

5.1% estimate. Revenue exposure during the

period was 78.0% in the United States and

22% internationally. Additionally, year-over-

year earnings growth for the sector was 0.8%

versus an estimate of -3.4%, placing it sixth

among all sectors. (FactSet)

9

Source: S&P 500 Dow Jones

Source: PwC & CB Insights

• Tier 1 capital ratio as a proportion of assets

rose to 6.7% during 1Q19, indicating the global

banking system is not only larger and more

profitable but also more resilient than at any

point in the last ten years. (Deloitte)

• Only 22.0% of financial institutions have fully

deployed AI, bots, and machine learning into

their operations. The trailing 36.0% and

planning 26.0% indicate this number will grow

for the remainder of 2019 and into 2020.

(Deloitte)

• Under the current United States

administration, the pace of new regulations on

the financial sector has decreased. An example

of the role of the states growing in

prominence is California’s passage of the

Consumer Privacy Act of 2018, which

establishes new data protection rights for

consumers. (Deloitte)

• The financial sector has the lowest forward

twelve-month P/E ratio estimate of 12.0,

versus a full market estimate of 16.8. (FactSet)

1Q19 Global IPO Activity

Sector Performance| TTM Price Return

VC-Backed FinTech Funding

Source: Ernst and Young

0 10 20 30 40 50

Information Technology

Consumer Discretionary

Healthcare

Industrials

Materials

Real Estate

Consumer Staples

Financials

Energy

Communication Services

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

S&P 500 Financials

5.84.6 4.6

6.2

20.8

6.1

7.36.3

405386 382

470 466 466

427445

2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19

De

al V

alu

e ($

in b

illio

ns)

Value ($B) Number of Deals



Firm Update 1Q19

Industry Events & Media Coverage

CONFERENCES

Media Coverage

January

• 1/15 TorreyCove mentioned by PE Hub: Buyouts in “LACERS Moves Closer to Greenlighting Secondary Sales.”

• 1/21 David Fann quoted by P&I in “PE Gets Slogged by Shutdown.”

• 1/28 David Fann quoted by FundFire in “CalSTRsProposes Major Expansion of PE Co-Investments.”

• 1/30 David Fann quoted by PEI in “Texas Teachers: ‘Good Intention' of Credit Lines Being Lost.”

February

• 2/1 David Fann quoted by PEI in "ESG: What do LPs Want from their GPS?"

• 2/4 TorreyCove mentioned by P&I in “New York State Teachers Picks Global Equity Firm, Makes Follow-on Commitment.”

• 2/8 TorreyCove mentioned by Chief Investment Officer in “Global Equity Performance Disrupts New Jersey’s 29-Month Positive Return Streak.”

• 2/12 TorreyCove mentioned in PE Hub “Denominator effect could curtail NJ pension’s PE commitments this year.”

• 2/14 TorreyCove mentioned by P&I in “Philadelphia Board of Pensions selects Barings for co-investment strategy.”

• 2/25 David Fann quoted by Bloomberg in “Texas and California Pensions Team Up With Buyout Firms for More Deals.”

March

• 3/1 TorreyCove mentioned by PEI “LACERS opens doors to secondaries.”

• 3/19 David Fann quoted by P&I in “Brookfield-Oaktree tie-up creates alternatives giant.”

Speaking Engagements

January

• 1/17 KORIED Plan Sponsor Educational Institute Conference, David Fann, President + CEO, “Battle of the Asset Classes.”

February

• 2/11-2/13 SuperReturn US West, David Fann, President & CEO, “Consumer Activism and Private Equity.”

March

• 3/28 NASP-Southern California 2019 "Day of Education in Private Equity,” Tom Martin, Managing Director, Attendee.

TorreyCove is a specialist advisor focusing exclusively on private equity, private credit, and real assets, and offers a full suite of advisory services

including program design and policy creation, portfolio construction, investment selection, negotiation, and post-transaction risk management.

This TorreyCove Newsletter has been prepared by TorreyCove Capital Partners LLC for informational purposes only. It does not constitute legal, securities, tax or investment advice or an opinion

regarding whether investment is appropriate. Readers should not act upon this information without first seeking advice from professional advisers.

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