Tuesday, March 27, 2012



Buyout and related private equity (PE) market activity in Canada took significant strides forward in 2011, with a record number of deals, and dollar flows reaching their highest levels in three years. These were among the findings of a statistical report released by CVCA-Canada’s Venture Capital & Private Equity Association and research partner Thomson Reuters.

According to the report, disclosed buyout-PE disbursements in Canada totaled $11.5 billion last year, up 69% from 2010, and the highest level since 2008. In addition, announced and closed transactions, totaling 235 in 2011, grew 38% year over year. In fact, domestic deal volume was the highest on record, surpassing even the 229 transactions of 2007.

“Private equity investment made sizeable gains in 2011 and, in so doing, helped further economic recovery in Canada,” said Gregory Smith, President of the CVCA and Managing Partner of Brookfield Financial Corp. “Not only did we see the return of large-cap deals backing major firms in growth mode, we saw record levels of mid-market investment that engaged large numbers of small and medium-sized businesses.”

Mr. Smith added: “As the overall economy continues to shift gears in the months ahead, the evidence from 2011 suggests that private equity deal-making is playing a vital role in spurring Canadian business investment, expansion and employment creation.”

Key to the higher values last year were the largest transactions completed since 2008, including the $2.1 billion acquisition of Husky International Ltd. of Bolton, Ontario, by OMERS Private Equity and Berkshire Partners from Onex Corp. The Husky buyout was Canada’s top deal in 2011, and one of the largest on a North America-wide basis.

The report found Canadian deal-making trends were sustained in Q4 2011, with 54 transactions capturing $2.2 billion. The largest deal in this period saw Sterling Partners completing a $590 million take-private acquisition of Ottawa’s MOSAID Technologies Inc. On balance in 2011, transactions sized greater than $500 million took 52% of total dollars invested, followed by transactions of between $100 million to $500 million, which garnered 32%.

“One of the surest signs of renewed Canadian private equity investment has been its across-the-board growth,” said Mr. Smith. “Deal-making gained both breadth and depth in 2011, with dollar flows increasing in virtually all segments of the market,” he noted. “This trend was also reflected in the domestic firms that succeeded in attracting private equity, as these were widely diversified by industry sector and region.”

While Canadian buyout-PE funds were somewhat less active in global markets in 2011, investment abroad accelerated in the year’s final months. Indeed, Q4 2011 activity, totaling $11.0 billion, was in dollar terms the highest since early 2010. Leading activity was the US$6.1 billion acquisition of Kinetic Concepts Inc. of Houston, Texas by Apax Partners, CPP Investment Board and PSP Investment Board, and the US$1.6 billion acquisition of 99 Cents Only Dollar Stores of Commerce, California by Ares Management and CPP Investment Board.

On balance, Canadian funds led or participated in 42 international transactions, totaling $19.9 billion, last year. This compares with the 49 transactions, totaling $30.3 billion, to which domestic investors contributed in 2010.

“Canadian large-cap and mid-cap funds continued the search for value opportunities around the world in 2011, and appeared increasingly to be finding them as the year unfolded,” observed Mr. Smith. “In the process, they confirmed their role as global deal-leaders, and as essential drivers and shapers of market trends in the United States, Europe, and other venues,” he added.

The report found that buyout-PE fund realizations of Canadian portfolio assets remained at post-slowdown levels in 2011. Totaling 56 at the end of December, liquidity events were 25% below the record high established in 2010; however, activity exceeded that reported for all prior years.

Strategic sales continued to account for the lion’s share of exits, or 68% of the total last year. Indeed, three Canadian exit-related acquisitions were among the 10 largest in North America in 2011, including Teachers’ Private Capital’s $1.32 billion sale of its stake in Maple Leaf Sports and Entertainment Ltd. to Bell Canada Enterprises Inc. and Rogers Communications Inc., announced in Q4 2011.

“The continuing high volume and values of liquidity events will have important spillover effects for Canadian private equity investment in 2012,” said Mr. Smith. “Exit trends should also foster fund-raising activity over the long run, as distributions to limited partners reaffirm the strong returns performance of this asset class,” he added.

In the challenging fund-raising environment of 2011, new capital committed to Canadian buyout, mezzanine and other PE funds tended to keep pace with activity over the past two years. At year’s end, total funds raised reached $3.6 billion, edging out by 10% the $3.3 billion brought into the market in 2010.

2012 IPO Market

The Global IPO Market YTD (IPOs > $100 mm Deal Size)

Issuance Activity

There have been 28 IPOs priced,
a -64.6% change from last year. (get chart)

Proceeds Raised

Total proceeds raised in USD were $5.8 bil,
a -82.4% change from last year. (get chart)

Regional Breakdown

Asia Pacific represented 58.5% of global proceeds raised.
(get chart)

Country Breakdown
United States has raised the most proceeds.
(get chart)
Industry Breakdown
There have been 8 Technology IPOs,
the most in any sector. (get chart)
The US IPO Market YTD (IPOs > $50 mm Mkt Cap)
US IPO Market
Issuance Activity
There have been 25 IPOs priced,
a -7.4% change from last year. (get chart)
Proceeds Raised
Total proceeds raised were $2.6 bil,
a -78.2% change from last year. (get chart)
Filing Activity
There have been 31 IPOs filed,
a -29.5% change from last year. (get chart)
Industry Breakdown
There have been 8 Technology IPOs,
the most in any sector. (get chart)
IPO Returns
The average IPO has returned 20.8 % from its offer price.
(get chart)
IPO Performance (more)

The FTSE Renaissance IPO Composite Index, a float-weighted index of IPO performance, has returned 19.5% so far this year, compared to 11.0% for the S&P 500 (get data).

Renaissance Capital, Greenwich, CT (www.renaissancecapital.com).



The National Venture Capital Association (NVCA) praised the United States Congress for its decisive passage of the Jumpstart Our Business Startups (JOBS) Act today. The bill, which has now passed both the House of Representatives and the Senate, contains provisions that create a temporary regulatory and communications on-ramp for emerging growth companies that are pursuing an initial public offering (IPO). This on-ramp is viewed by the start-up ecosystem as much needed relief from the cumulative effect of costly regulations that were dissuading companies from entering the public markets. The JOBS Act now goes to President Obama who has indicated his intention to sign the bill into law.

“Emerging growth companies represent America’s best opportunity for long term economic growth and it is critical that they have access to capital at all phases of their lifecycle,” said Paul Maeder, general partner at Highland Capital Partners and chair of the NVCA. “The JOBS Act will help revitalize an IPO market that has suffered in recent years under the weight of market volatility and one-size-fits-all regulation. The passage of this legislation sends a strong and welcome signal to our most promising companies that the U.S. capital markets system is open for business.”

The NVCA has long supported regulatory relief for smaller companies seeking to go public, with advocacy efforts dating back over a decade. In the last ten years, research shows that venture-backed IPO volume has been just a fraction of what it was in the 1990’s. Given the IHS Global Insight statistic that 92 percent of job creation at venture-backed companies occurs after an IPO, the implications of a lackluster capital markets system went beyond the venture capital industry and became an issue of U.S. competitiveness and economic viability. As the economy continued to struggle, supporters of this legislation grew, according to NVCA President Mark Heesen:

“There are many individuals who were instrumental in enacting this bill into law,” said Heesen. “The bipartisan, bicameral leadership of Senators Schumer (D-NY) and Toomey (R-PA), with support from Senators Crapo (R-ID) and Warner (D-VA), and Representatives Fincher (R-TN) and Carney (D-DE) were critical to crafting, introducing, and championing the legislation through a comprehensive review process. There were thousands of entrepreneurs and venture capitalists who signed letters and personally reached out to their congressional representatives in support of the bill. But the IPO Task Force, led by Scale Venture Partners managing director and former NVCA chairman Kate Mitchell, played perhaps the most critical role.”

Assembled in the summer of 2011, the IPO Task Force was comprised of private professionals operating in the capital markets ecosystem, including IPO buyers, and committed to identifying the challenges faced by emerging growth companies and developing recommendations on how to address these issues. The IPO On-Ramp report was released in October 2011 and helped inform key parts of the JOBS Act. Once signed by the President, the law will be effective immediately and thousands of companies will have access to the on-ramp when they are ready to go public.

“With the passage of the JOBS Act and specifically with the IPO On-Ramp provisions, U.S. companies such as ours that are committed to job creation and innovation now have a smoother path to access capital to grow their businesses and have a positive impact on the economy,” said Ben Wolin, chief executive officer and co-founder of Everyday Health, Inc, a new media company headquartered in New York City inspiring consumers to live healthier lives and helping doctors make more-informed decision for their patients. “Everyday Health helps people make healthy changes in their life, and thanks to the JOBS Act, emerging growth companies can be in a healthier position where they can contribute more economically than in the last decade. We look forward to the value created for consumers, clients, employees and investors.”


Wednesday, March 21, 2012

GAO report: Recent Developments Highlight Challenges of Hedge Fund and Private Equity Investing


Why GAO Did This Study

Millions of Americans rely on defined benefit pension plans for their financial well-being in retirement. Plan representatives are increasingly investing in a wide range of assets, including hedge funds and private equity funds. In recent years, GAO has noted that plans may face significant challenges and risks when investing in these alternative assets. These challenges and ongoing market volatility have raised concerns about how these investments have performed since 2008.

As requested, to better understand plan sponsors’ experiences with these investments, GAO examined (1) the recent experiences of pension plans with investments in hedge funds and private equity, including lessons learned; (2) how plans have responded to these lessons; and (3) steps federal agencies and other entities have taken to help plan sponsors make and manage these alternative investments.

To answer these questions, GAO analyzed available data; interviewed relevant federal agencies and industry experts; conducted follow-up interviews with 22 public and private pension plan sponsors selected among the top 200 plans and contacted in the course of GAO’s prior related work; and surveyed 20 plan consultants, academic experts and other industry experts.

This report reemphasizes a 2008 recommendation that the Secretary of Labor provide guidance to help plans investing in hedge funds and private equity.

What GAO Found

While plan representatives GAO contacted generally stated that their hedge fund and private equity investments met expectations in recent years, a number of plans experienced losses and other challenges, such as limited liquidity and transparency. National data indicated that hedge fund and private equity investments were significantly affected by the 2008-2009 financial crisis, and plans and experts GAO contacted indicated that pension plan investments were not insulated from losses.

Most of the 22 plan representatives GAO interviewed said that their hedge fund investments met expectations overall, despite, in some cases, significant losses during the financial crisis. A few plan representatives, however, expected hedge fund investments to be much more resilient in turbulent markets, and found the losses disappointing. Given the long-term nature of private equity investments, almost all of the representatives were generally satisfied with these investments over the last 5 years. Some plan representatives described significant difficulties in hedge fund and private equity investing related to limited liquidity and transparency, and the negative impact of the actions of other investors in the fund—sometimes referred to as co-investors. For example, representatives from one plan reported they were unable to cash out of their hedge fund investments due to discretionary withdrawal restrictions imposed by the fund manager, requiring them to sell some of their stock holdings at a severe loss in order to pay plan benefits.

Most plans reviewed have taken actions to address challenges related to their hedge fund and private equity investments, including allocation reductions, modifications of investment terms, and improvements to the fund selection and monitoring process.

National data reveal that plans have continued to invest in hedge funds and private equity—for example, one survey revealed that the percentage of large plans investing in hedge funds grew from 47 percent in 2007 to 60 percent in 2010—and most plans GAO contacted have also maintained or increased their allocations to these investments. However, most plans have adjusted investment strategies as a result of recent years’ experiences. For example, three plans have reduced their allocations to hedge funds or private equity. Other plan representatives also took steps to improve investment terms, including more favorable fee structures and enhanced liquidity. However, some plan representatives and experts indicated that smaller plans would likely not be able to take some of these steps.

The Department of Labor has provided some guidance to plans regarding investing in derivatives, but has not taken any steps specifically related to hedge fund and private equity investments. In recent years, however, other entities have addressed this issue. For example, in 2009, the President’s Working Group on Financial Markets issued best practices for hedge fund investors. Further, both GAO and a Department of Labor advisory body have recommended that the department publish guidance for plans that invest in such alternative assets. To date, it has not done so, in part because of a concern that the lack of uniformity among such investments could make development of useful guidance difficult. In 2011, the Department of Labor advisory body specifically revisited the issue of pension plans’ investments in hedge funds and private equity, and a report is expected in early 2012.


Monday, March 12, 2012

Angel Investment Data – 2011 HALO Report

The Angel Resource Institute (ARI), Silicon Valley Bank (SVB) and CB Insights today announced findings from the first Halo Report, a collaborative effort to raise awareness of early stage investment activities by angel investment groups. The research series highlights angel investment activity and trends in North America and provides much sought after data that has not been previously available to entrepreneurs or early stage investors.

Halo Report Highlights:

* Angel groups are active throughout the U.S. in 2011
o California leads in deals and dollars among individual states
o 79% of angel group investments were in companies outside of California
o 70% of total funding was invested outside of California
o Median angel group rounds size grew to $700,000, an increase of 40% over 2010
o 58% of angel group investments were in healthcare and internet companies
+ 60% of healthcare investments were in medical device and equipment companies
+ The most active angel groups were Tech Coast Angels, Band of Angels, Golden Seeds, Central Texas Angel Network and Launchpad Venture Group

Angel investors, those who invest their own funds and expertise directly into startup companies, appear to be taking on an increasingly important role in driving entrepreneurship throughout the United States. Their investments are in startups and young companies, which have been cited by the Kauffman Foundation as the key source of net new jobs in the country. Nationwide, these angel group investments have opened up new opportunities for centers of innovation and entrepreneurship. The Halo Report found that many deals are syndicated among investors. As a result, companies needing larger investments have access to the additional capital they need to grow their businesses.

“The Halo Report is the first of its kind to systematically track investment and company formation at the earliest stage, providing a window into the future of innovation,” according to Allan May, Chairman of ARI. “Startup companies fuel economic growth and job creation and are the drivers of future U.S. competitiveness. This research is an important step in the promotion of startup investing, providing accurate data to help entrepreneurs, policy makers, and the public at large understand who angel investors are, how they operate, what their results are, and how angel investment impacts the economy.”

According to Greg Becker, President and CEO of Silicon Valley Bank, “Entrepreneurs and the investors who take a chance on them are fundamental to the innovation economy. By shedding more light on angel investment activity we’re helping young companies identify sources of capital and mentorship, ultimately leading to the development of innovative products and the next generation of exciting new companies.”

CB Insights CEO and Co-founder, Anand Sanwal, said, “In partnership with ARI and SVB, we are happy to be part of an effort that highlights and brings a data-driven perspective to what is a very important, but historically opaque, part of our innovation economy. We’re looking forward to seeing how investors and corporations use this data to understand emerging early-stage trends and to identify investment and M&A opportunities.” CB Insights specializes in providing data on high growth private companies and their investors and acquirers.

The Halo Report includes aggregate analysis of investment activity by angels and angel groups and highlights trends in round sizes, location and industry preferences. The data is collected via survey and aggregation of public data using CB Insights innovative data analyses. The 2011 Halo Report data is based on 573 deals totaling $873.3 million dollars invested. The transaction details are available in the CB Insights subscription database for users to review and analyze themselves. Academics may also access some of the data through ARI.


Thursday, March 8, 2012

U.S. Private Equity and Venture Capital Funds Posted a Loss in Q3 2011


Ending a String of Nine Consecutive Quarters of Positive Returns

Both Asset Classes Outperformed the Public Markets During the Quarter, with Venture Capital Besting Private Equity for the Second Consecutive Quarter, According to Cambridge Associates

Returns on investments in U.S. private equity and venture capital funds were negative for the three-month period ending September 30, 2011, marking the end of a series of nine consecutive quarters of positive performance for both alternative asset classes. The downward turn was due in part to the escalating debt crisis in Europe, which helped cause an even sharper drop in the public markets during the period, according to Cambridge Associates LLC.

Venture capital outperformed private equity for the second quarter in a row, falling 0.7% versus a drop of 4.3% for private equity in the quarter, according to Cambridge Associates LLC U.S. Venture Capital Index® and Cambridge Associates LLC U.S. Private Equity Index®. By comparison, the NASDAQ Composite fell 12.9% and the S&P 500 dropped 13.9% during the same period.

The private equity benchmark bested all of the public market indices tracking large and small public companies in every time horizon listed above; the venture capital benchmark did almost as well, outperforming the public markets in all but the ten-year period ending on September 30, 2011. The venture capital index’s ten-year return improved again in the third quarter, and now has risen almost 7% from its nadir of -4.6%, hit during the third quarter of 2010.

The spread between the ten-year returns for private equity and venture capital has continued to narrow, closing to 8.9% from 10.1% in the previous quarter. The spread was 12.7% in the third quarter of 2010.

“While M&A activity was stable and healthy during the third quarter, IPOs fell significantly. The low issuance of IPOs combined with a great deal of market volatility led to crimped valuations and dragged down the venture capital index’s returns. However, IPOs and the markets rebounded in last year’s final quarter, which should improve the VC index’s fourth-quarter returns,” said Theresa Sorrentino Hajer, Managing Director and Venture Capital Research Consultant at Cambridge Associates.

Capital Distributions Down for Both Alternative Asset Classes in the Quarter

Private equity fund managers distributed $18 billion to their limited partners (LPs) during the third quarter, a drop of 22.4% in distributions from the previous quarter. The decrease was the largest in percentage terms since the first quarter of 2009. The same fund managers called $17.9 billion from the LPs during the period, a 22.8% increase over the prior quarter. Despite the drop in distributions, this was the fourth consecutive quarter in which distributions outpaced contributions for private equity LPs.

Managers of venture capital funds returned less capital than they called during the third quarter: $3.6 billion versus $3.8 billion, respectively. The drop in distributions represented a 19% decrease from the second quarter and was the first time in four quarters that fund managers returned less capital than they called.

Software Posted Top Returns among Largest Sectors in Both Benchmarks

Among the eight sectors comprising at least 5% of the private equity index’s value, only two posted positive returns for the quarter. Software led the way with a 2.0% return while consumer, representing slightly more than one-fifth of the index, returned just under half that amount, 0.9%. Four sectors in the private equity benchmark – consumer, energy, healthcare, and financial services – comprised nearly 60% of the index’s value and, collectively, returned -2.8% for the quarter on a dollar-weighted basis.

“The positive contributions of the consumer and software sectors were unfortunately overwhelmed by the negative returns of the other six major sectors represented in the private equity index this quarter. Of note, the consumer sector is the largest contributor to the index and the vintage years driving its performance are 2004, 2006, and 2007, the latter two being squarely in the crosshairs of the last private equity market peak. That the sector kept its head above water this quarter is heartening. And managers continue to see a lot of opportunity in the space, as consumer-focused companies also attracted the most capital in the quarter, about 22%,” said Andrea Auerbach, Managing Director and Head of Private Investment Research at Cambridge Associates.

Software was also the top performing large sector in the venture capital index, returning 4.7% while comprising 15.3% of the value of the index. Information technology (IT), the largest sector in the index at 34.8% of the benchmark’s value, was the only other significantly-sized sector in the benchmark with a positive return for the period; it earned 2.8%. IT, healthcare, and software accounted for more than 75% of the market value of the venture capital index.

All but Two Vintage Years Since 1995 Saw Negative Returns for the Quarter in PE Index

Every vintage year in the private equity index showed a negative return for the quarter except 1997 and 2010, and neither of those vintages represented even 1% of the index. The 2008 funds were the best performing among the six meaningfully-sized vintage years, returning -0.7%. The worst-performing funds were from vintage year 2005, which fell 6.4%. The drop was due in part to the impact of falling energy prices on their energy-sector portfolio companies.

In the venture capital index, the best performing vintage year among the nine top-sized vintages for the quarter was 2007, which returned 3.8%. Only two other of the large vintages, 2008 and 2005, had positive returns: 1.4% and 1.0%, respectively.

Consumer and Energy Companies Attracted the Most Private Equity Capital, while IT and Healthcare Garnered the Most Investments from Venture Capital Fund Managers

Private equity fund managers funneled over two-thirds of their investment dollars into five sectors during the third quarter: consumer, energy, healthcare, manufacturing, and software. Consumer and energy were the biggest winners, together attracting almost 40% of the capital invested.

In the venture capital index, the sectors attracting the most investment dollars were IT and healthcare; together, companies in these sectors captured 61% of the total capital invested during the quarter.

A copy of Cambridge Associates’ commentary on the third-quarter performance of its U.S. private equity and venture capital benchmarks is available at www.cambridgeassociates.com/about_us/news/press_releases/index.html.


Returns on Private Equity and Venture Capital Investments Outside the U.S. Turned Negative in Q3 2011

Still Handily Outperformed Comparable Public Equities for the Period

In U.S. dollar terms, the Cambridge Associates LLC Global ex U.S. Developed Markets Private Equity and Venture Capital Index dropped 8.4% for the quarter. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index performed only marginally better, sliding 8.2%. Both, however, easily beat the returns of their comparable public market benchmarks, the MSCI EAFE and MSCI Emerging Markets, which fell 19.0% and 22.5%, respectively, for the period.The growing debt crisis in Europe and a strong U.S. dollar heavily impacted global returns on alternative investments during last year’s third quarter.

Private equity and venture capital funds that invest primarily in developed markets outside the U.S. as well as those that target emerging markets each posted a loss for the period. The last time funds of these asset classes in both developed and emerging markets recorded a negative quarter was for the three months ending June 30, 2010, according to Cambridge Associates LLC.

Both Cambridge Associates indices also performed well versus their public equity counterparts over other time horizons ending on September 30, 2011. The developed markets index outstripped the MSCI EAFE in every time period listed in the table below, and in all but one case (the three-year mark), by a margin of more than 10%. The emerging markets index was not quite as consistently dominant, but it still bested its public markets counterpart, the MSCI Emerging Markets, in all but two listed periods, the 10- and 20-year marks.

Cambridge Associates’ developed markets index tracks over 600 private equity and venture capital funds that invest primarily in Australia, Canada, Israel, Japan, New Zealand, and Western Europe. Cambridge Associates’ emerging markets index includes more than 350 private equity and venture capital funds investing mostly in companies in emerging Asia, emerging Europe, Latin America, and the Middle East ex Israel. Returns of both indices are based on limited partners’ fund-level performance and are net of fees, expenses, and carried interest.

Details and commentary