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1. DIGEST139
May 02, 2014
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M&A Mega Deals Bounce Back to
Hit 7 Year High
Nordic IT Champion Attracts Cinven
Is There a Role for Family Offices in
Cleantech Success Stories?
European Carry Model Dominant Now
GPs Claim Operational Improvement Strategy
Quote of the Week: Uncorrelated Returns
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M&A MEGA DEALS BOUNCE BACK TO HIT
7 YEAR HIGH
Large sized M&A transactions (> USD 10 billion) volume has hit USD 319 billion this year, a 75% jump
on the same period last year when USD 182.1 billion of such deals were done. It is the highest M&A
volume of deals of this size since 2007 when USD 505.6bn was passed through 19 deals, according to
dealogic. In contrast, global M&A volume for deals of less than USD 500 million fell to USD 245 bil-
lion, which is the lowest since the same period in 2009. In EMEA, however, dealmakers are only seeing
some evidence of this trend. The Americas is home to 60% market share, while Europe only has 32%,
which leaves only 18% for the rest of the world. Healthcare and telecommunications are the hot sec-
tors. Elsewhere, Merrill DataSite reports that global M&A could be “due a notable uptick”. Compared
to the same period last year, Q1 has seen overall deal value rise 39%, average transaction size in-
crease 36% and PE exit value soar 211%.
NORDIC IT CHAMPION ATTRACTS CINVEN
This week’s deal of the week is a Nordic buyout that sees Cinven acquire one-third of Visma, a Norwe-
gian software and service company expanding its base of PE owners, according to the company.
The deal, which includes co-investments from institutional investors, is worth about one billion dol-
lars. Visma, is an IT services, software company with a huge cloud-based hosting business that has
completed a remarkable 75 acquisitions in recent years.

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It is the Nordic region’s leading provider of busi-
ness management software and is now owned
by Kohlberg Kravis Roberts, HgCapital and Cin-
ven, and a small stake held by management.
With PE backers, the company is achieving a
compound annual growth rate of 16%. Further-
more, the number of employees increased from
2,512 to 5,648 during this period of high growth.
(Image source: Visma)
IS THERE A ROLE FOR FAMILY OFFICES IN
CLEANTECH SUCCESS STORIES?
As cleantech comes back into favor, it is expected that family offices and high net worth investors will
once again return to the sector but their role will likely remain as a later stage passive investor, follow-
ing trusted VCs, speculates Rob Day, a Partner with Black Coral Capital, in an article in Greentech Me-
dia. Cleantech sector investing is indeed coming back online, growing by 38 percent year to year with
USD 563 million in first quarter investments, according to CB Insights. Elsewhere, Bloomberg New
Energy Finance reports that investment in clean energy segments, including project financing, climbed
10% in the first quarter of 2014 compared to the same period a year earlier, reaching USD 47.7 billion,
according to.
The “traditional” role family office in cleantech success stories is to follow brand name VCs for later
stage rounds because they have the VC has the reputation and track record to inspire trust in family
office decision-makers. There also has to be an affinity to cleantech as well as trust in the segment

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potential, factors that been lacking of late as the number of cleantech success stories is still not that
high. As a result family office driven follow-up capital has dried up. Only a few VCs can go tap this co-
investment segment, argues Day by understanding each FO’s tastes, its capacity for due diligence, and
its willingness explore the types of financing that could benefit cleantech companies on the growth
path, such as early project finance, or debt. (Image source: CB Insights)
EUROPEAN CARRY MODEL DOMINANT
NOW
A GPs reputation and its track record are still the most important criteria in the minds of LPs selecting
a fund manager, but private equity terms and conditions are tipping in favor of LPs, if the latest
research from PEI and Schulte Roth & Zabel is anything to go by. The survey found that 80% of funds
now use the “European style” whole-of-fund carry model over the “American-style” deal-by-deal
model. This European-style model, seen as more investor-friendly, is now dominant. Manager com-
mitments are also important in attracting LPs. Skin in the game, as it is informally referred to, ensures
alignment of interests with their investors and to keep staff incentivized, there is no industry-wide
agreement on the size of contribution that firms should make to their own funds. The largest propor-
tion of survey respondents said that their firm contributes between 1 and 2.5% of the total fund size.
The majority of GPs contribute 2.5% or less of total capital commitments. The survey also revealed
that there is a discrepancy between what GPs think the industry standard should be and the size of
their current contribution. Twice as many GPs commit more than 5% than those who think that they
should, which shows that GPs would prefer to make a smaller commitment than they currently do.
(Image source: Fund Formation and Incentives Report PEI)

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GPS CLAIM OPERATIONAL IMPROVEMENT
STRATEGY
Survey Says Majority of GPs Focus on Operational Improve-
ment Poorly run companies will eventually meet their destiny,
and only then will PE investors learn that the unreliability of
financial engineering and turn to operational improvement ac-
cording to a special report released this week by The Deal and
Pepper Hamilton. The report entitled, *Strengthening Compa-
nies: Operational Improvement Trends”, is based on a survey
of 120 private equity executives. The survey demonstrated the
importance of operational improvement and the thought that
private equity firms put into the process. When asked to think
back to pre-crisis and not how strongly they agreed with the
statement that operational improvement is more important
now than pre-crisis, a strong majority said they believe it is
more important now than it was before the financial crisis. As
the graphic here shows, nearly 80% of the respondents either
somewhat or strongly agreed with that sentiment. Some re-
spondents argued that operational improvement has always
been important. The fallacy was that it wasn’t as critical pre-
recession, so investors relied on financial engineering in lieu of
operational improvement to generate returns.
Other Findings
• 48.4% of those surveyed said they begin focusing on operational improvements before signing a letter
of intent while only 11.6% said they begin after reaching a definitive agreement and 11.6% said they
do so after closing.
• Asked how they plan for operational improvements after closing, 47.5% said they use a 100-day pro
gram, while just 16.8% said they use a three- to five-year plan.
• Nearly 80% of respondents said they believe operational improvements are more important now than
it was before the financial crisis.
• Respondents agreed that former CEOs and senior executives are most effective at identifying prob
lematic operational issues at every stage: during due diligence, after a definitive agreement and after
one year. (Image source: The Deal)
QUOTE OF THE WEEK - UNCORRELATED
RETURNS
“GDP growth is uncorrelated to return on equity…”
Who said it: Jonathan Nelson Providence Equity Partners
in Context: At the recent Milken Institute global conference, four PE executives spoke positively about

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investing in US companies, despite economic uncertainty and a slow-
ing GDP growth rate. It is the asset they consider when buying, not
external factors or even economic trends, that determine whether a
leading PE firm will make the purchase, agreed panelists. While there
are some countries where the fund managers won’t invest, it usually
matters little where the company or the asset is located and it was in
that context that Jonathan Nelson, made the above statement.
The notion promulgated from the podium is that PE invests in com-
panies, not countries. That may be true for the four that spoke at the
conference, but a recent Bain Insights article suggests that some GPs
have been relying on momentum to generate returns and that they
will have to “shift gears” to succeed, particularly in emerging markets,
because they are not getting the returns they were expecting. After
surveying another year of disappointing results from their emerging
market investments in 2013, many private equity investors in Brazil,
Russia, India and China are rethinking their emerging market strate-
gies. Returns of emerging market PE funds have been trending lower for nearly a decade. Even the
best performers’ results have dropped steadily from their vintage peak, said the report. Bain offered
some key ways to turnaround their returns with greater focus on operations, smarter deal terms, and
better due diligence. (Image source: Milken Institute)
Where we found it: The Tell

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Editor: Valerie Thompson, Zurich
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